Page 56 - Ecuador's Banana Sector under Climate Change

ecuador’s banana sector under climate change: an economic and biophysical assessment to promote a sustainable and climate-compatible strategy
and lower the use of plastic bottles. Large producers, as well as exporters, are required to pay 2 percent of income tax for each box for banana fruit under the Law on Environmental Development and Optimization of the State Revenue. The tax is levied over and above the official price and not over and above production costs. In addition the tax package includes a tariff levied on the land used for banana crops.13
4.6 Trade policy: diversifying export markets
Since most bananas produced in Ecuador are exported, there is a need to maintain existing markets and expand new ones, which is key to the viability of the sector. An active trade policy, therefore, is a critical element in Ecuador’s banana strategy. One of the mechanisms to facilitate market access is the negotiation and conclusion of trade agreements. In 2014, Ecuador formally reinitiated negotiations for a trade agreement with the EU. These negotiations started just after EU cancelled the Generalized System of Preferences (GSP) for Ecuador as the latter, since 2010, had risen to an upper-middle-income status.14 The EU decision represented a significant loss to Ecuador’s trade with the EU, since nine of Ecuador’s main exports to Europe (excluding bananas, which are precluded from GSP) are subject to preferential tariffs under the GSP Plus. Since 2014, the EU has imposed tariffs on Ecuadorian products, averaging 24 percent compared to
0 percent under GSP Plus (LACENA). This reversal of preferential status may have added greater impetus for Ecuador to reach a new trade agreement with the EU.
Ecuador’s negotiation with the EU is to ascertain a trade agreement that can improve the market access for its key exports and, at the same time, account for the country’s objectives towards development and the protection of its food sovereignty. The EU, in turn, is seeking to secure manufacturing and service sector contracts and concessions from Ecuador for European firms through government procurement bids, in exchange for tariff concessions to Ecuador. During the first round of negotiations, held in Brussels in January 2014, Ecuador presented its list of products (petrochemicals, bananas, coffee, cocoa, shrimp, flowers and tuna) for which it seeks lower tariffs from the EU. It also presented its import exemption list (milk, chicken, sausage, meat and processed foods) from trade liberalization on the grounds of food sovereignty. This suggests that negotiations are likely to be a drawn-out process.
Ecuador is also seeking trade agreements with other countries to improve its export diversification strategy. These include agreements with Latin American countries (e.g. Chile), Turkey, the Middle East and Eastern Europe.
5. Discussion and general conclusions
5.1 Economic sustainability
The banana sector is of vital economic importance to Ecuador, owing to the size of the sector and from which the large share of the population (10 percent)
13 In 2012, the green tax generated USD 360 million, of which USD 200 million was allocated to improve the quality of fuel, while the balance was earmarked for the health sector (LACENA).
14 The country’s GDP is above 1 percent of global GDP, according to the World Bank’s classification.
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