Posted August 1, 2013 by Doug Morgan in Business & Economy

Ecuador to Compensate Exporters After U.S. Trade Pact Expires

Rose exporters in Ecuador
Rose exporters in Ecuador

Ecuador’s National Assembly approved a measure this week to compensate exporters impacted by the expiration of the U.S./Andean Trade Preferences and Drug Eradication Act, or ATPDEA.

The law is designed to give tax-credit certificates to companies affected by the elimination of the preferences. The certificates can be used to pay taxes or some debts with state-owned banks. The measure will allow the Ecuadorian government to compensate exporters with about $23 million a year.

While officials say that the impact of losing the preferences will be $23 million a year, Ecuadorian exporters put the number closer to $26 million. Government estimates show that Ecuadorian exports with the ATPDEA preferences generate about 327,000 direct jobs in Ecuador.

“The tax credit is a temporary solution. The important thing for the long term is to get preferential access to the U.S. market through a trade agreement with this country.” 

United States lawmakers had until the end of July to extend the trade preferences but chose to let the benefits expire. Some critics assert that U.S. politicians allowed the ATPDEA pact to expire in retaliation for Ecuador’s brief consideration of whistleblower Edward Snowden’s request for political asylum over the National Security Agency eavesdropping scandal that has engulfed the Obama administration.

In the days following Snowden’s asylum request, U.S. lawmakers warned that renewal of the trade pact would be prevented if the NSA leaker’s request was granted. Ecuador subsequently responded that it would not seek to renew several key trade agreements with the United States, including the ATPDEA, over what it termed as “blackmail” by U.S. officials.

The ATPDEA benefits expired Wednesday, and the application of tariffs for Ecuadorian products started on Thursday.

ATPDEA provided duty-free access to some U.S. imports from Ecuador. It originally was created to help four Andean countries in their efforts to fight drug production and trafficking, but currently Ecuador is the only remaining beneficiary of the preferences.

The United States is Ecuador’s top trade partner. Last year, the country’s exports to the U.S. totaled about $10.62 billion, which represents 45% of the country’s total exports.Ecuador Exports Affected by Edward Snowden

Last year Ecuador exported about $242 million worth of products to the U.S. under the Andean trade preferences — 23% of the country’s non-oil exports — including canned tuna, flowers and broccoli. Those three products accounted for about 90% of the Ecuadorian exports under ATPDEA.

According to the Ecuadorian Exporters Federation, known as Fedexpor, about 250 products and more than 200 companies will be affected by the loss of the preferences. The products will now pay average tariffs of between 4.5% and 14%, depending on the products.

Economists say the impact on Ecuador of losing the trade preferences will be seen in weaker investments in the export sector, lower sales to the U.S, as well as the social impact of fewer jobs.

The head of Fedexpor, Felipe Ribadeneira, said that the expiration of the U.S. trade preferences could lead to a loss of competitiveness with Ecuador’s neighbors such as Colombia and Peru, who have trade deals with the U.S. that give their exports duty free access to the American economy.

“The tax credit is a temporary solution. The important thing for the long term is to get preferential access to the U.S. market through a trade agreement with this country,” says Mr. Ribadeneira.

Government sources say that work is progressing quickly on new trade agreements with the U.S.; those agreements are expected within the next two months.

Meanwhile, for Ecuador’s National Association of Producers and Exporters of Flowers, the primary problem could be the loss of participation in Ecuador’s main trade market, which takes 40% of the country’s annual flower production.

The law passed with 103 votes in favor and only one against.

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Doug Morgan

Doug Morgan
Doug has written extensively for such well-known publications as Field & Stream, Saltwater Sportsman, Marlin, and Sport Fishing, as well as The Washington Post and Las Vegas Review-Journal.