IN THE DETAILS

Ecuador 2012 | DIPLOMACY | FOCUS: EU RELATIONS

A broader agreement on trade access is in the cards between Ecuador and the EU.

Ecuador has long shared close economic ties with the EU, which is the country's second-largest trading partner and the number one source of investment in Latin America. In recent years, however, the Ecuador-EU relationship has become increasingly important, with the Ecuadorean government now looking to sign a comprehensive trade agreement with the bloc before the end of 2013.

Relations between the EU and Ecuador have grown stronger over the past decade, following the opening, in 2003, of the EC Delegation in Quito, and the signing, in 2007, of a memorandum of understanding that outlined the joint political, economic, and social priorities for the two parties until 2013. At the heart of EU-Ecuador relations has been the issue of market access. Ecuador currently enjoys preferential access to the EU market on a unilateral, non-reciprocal basis through the EU's market access program for developing countries, the Generalized System of Preferences (GSP), and the EU's good governance and sustainability program, the GSP+.

Almost 60% of Ecuador's exports to the EU benefit from preferential access, and the government estimates that the market access provided by the GSP+ is worth $2.2 billion and has resulted in export growth worth 2.5% of non-oil GDP. Recently, however, the EU announced that countries classified by the World Bank as upper middle income or higher, which Ecuador has been since 2011, will no longer be eligible for the GSP starting in 2014.

In 2006, the Andean Community (Ecuador, Bolivia, Colombia, and Peru) entered into negotiations with the EU over a region-to-region free trade agreement (FTA) to secure long-term continued access to the European market for Andean exports. However, at the time, Ecuador—the world's largest banana exporter—was still embroiled in a long-running and heated dispute over the EU's banana import regime. In July 2009, in coordination with Bolivia, Ecuador pulled out of the negotiations process, expressing concerns over the format. Colombia and Peru continued along the negotiating track, and in 2011 the countries reached an agreement with the EU. Soon after Ecuador's withdrawal from FTA negotiations, the EU agreed to make a concession and reduce its tariffs on Ecuadorean bananas. In March 2012, the government announced that it would seek to join the agreement with Colombia and Peru before its preferential access to the European market expired at the end of 2013.

There are still issues that need to be agreed on between the parties for inclusion in the Ecuador-EU agreement. Ecuador hopes to sign a “Trade Agreement for Development," which would focus primarily on market access issues and shared development priorities. The EU, however, is insistent that Ecuador must sign the full FTA agreed with Colombia and Peru, which includes other trade issues, such as intellectual property, public procurement, investment, and trade services.

The EU remains a core market for many of Ecuador's main export industries, especially tuna, shrimp, and bananas, and many exporters in these industries focus solely on serving their customers in the EU. Its other main exports to the EU include flowers, passion fruit concentrate, heart of palm and palm oil, broccoli, pineapples, elaborate wood, textiles, snuff, papayas, metallurgical products, handicrafts, and mangoes. In recent years, exports to the EU in these industries have been growing at a rate of 6% annually. Ecuador has also been diversifying, with 30% of its non-traditional exports also going to the EU. However, Ecuador's trade relationship with the EU is still primarily based on its top six export products. Any attempt to diversify its export base and take advantage of the size of the EU market will likely require concessions on both sides, though the benefits for all parties would appear considerable.