China deepens ties in Latin America with Ecuador free trade agreement

Ecuador and China have signed a free trade agreement, deepening ties between the Andean nation and the world’s second-biggest economy and frustrating US opposition to Beijing’s growing influence in the region.

The deal would boost Ecuador’s non-oil exports over the next 10 years by $3bn-$4bn, or as much as a third, according to the trade ministry. China is Ecuador’s largest non-oil trade partner and has become an increasingly important source of financing for the Latin American nation, where it has backed infrastructure and energy.

The free trade agreement could dismay the US, Ecuador’s largest trading partner when including oil, its biggest export. Washington has sought to counter Beijing’s growing influence in Latin America, where China has free trade agreements with Peru, Chile and Costa Rica.

The deal allows preferential access for 99 per cent of exports to China, the government said, in particular agricultural and agro-industrial products including shrimp, bananas, cut flowers, cocoa and coffee. It excludes 800 products to protect local manufacturing.

The deal “puts Ecuador on Asia’s map”, said Ecuadorean production, trade, investment and fishing minister Julio José Prado during a signing ceremony on Wednesday.

“This is an opportunity to widen co-operation,” said China’s trade minister Wang Wentao, who appeared from Beijing via video link.

But the deal, which still needs to be ratified by Ecuador’s national assembly, is likely to face resistance. President Guillermo Lasso faces possible impeachment by the opposition-led congress on embezzlement charges, which he denies. With a trial expected next week, the president may no longer be in office when the agreement reaches the legislature.

Lasso is a pro-American conservative who had sought closer trade and investment ties with the US but his ambassador to Washington, Ivonne Baki, had complained in 2021 that the Biden administration was not paying Ecuador enough attention and did not understand the urgency of helping its allies in Latin America.

“We don’t want to go there, [Lasso] doesn’t want to,” Baki told Axios in an interview outlining that Quito might be “obliged” to shift towards China.

In December, Republican senator Marco Rubio wrote to Scott Nathan, chief executive of the US International Development Finance Corporation, urging enhanced American investment in Ecuador to counter Chinese influence.

China has become Ecuador’s most important financial partner over the past decade, beginning under leftist former president Rafael Correa, who was in office from 2007 to 2017 and was openly critical of the US. 

Since 2010, loans from two Chinese state-backed policy banks — many of them tied to long-term crude oil delivery contracts — have totalled about $18bn, according to the China-Latin America Finance Database. Some economists say the debt burden gives Beijing more political leverage.

Last September, Ecuador reached a debt restructuring deal with banks that is expected to provide $1.4bn in relief until 2025.

Bilateral trade was estimated at $12bn last year, with exports to China valued at $5.7bn, up 58 per cent from 2021, according to the Quito Chamber of Commerce. Imports from China, mostly industrial materials, were valued at $6.4bn.

China’s commerce ministry said Ecuador was “an important partner” in its Belt and Road Initiative, adding that the trade pact sent “a positive signal to the international community to support multilateralism and free trade”, as Beijing seeks to push back against economic decoupling and portray itself as a proponent of globalisation.

Lasso has also pursued a free trade deal with the US to little avail.

“The Lasso administration consistently looks to play the US and China off of each other, and there is a strong desire in Washington to support his government, but trade is an area where there are real limits to how far it can go,” said Risa Grais-Targow, who covers Ecuador for the Eurasia Group.

“Ecuador is a small economy where the US can potentially counter China, and probably unique in that it’s a US ally with significant exposure to China.”