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 by $3bn-$4bn, or as much as a third, over the next 10 years, 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, which has sought to counter Beijing’s growing influence in Latin America. China already has free trade agreements with Peru, Chile and Costa Rica. The US is Ecuador’s largest trading partner when including oil, the country’s biggest export.

The free trade agreement, which still needs to be ratified by Ecuador’s national assembly, 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 in which China’s trade minister Wang Wentao appeared from Beijing via video link.

“This is an opportunity to widen co-operation,” Wang said.

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

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 the banks that is expected to provide $1.4bn in relief until 2025.

The trade relationship has also deepened. 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.

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.”