Assignment:
Below is the project which do not have in text citations. Please include in-text citations for the report illustrated below.
Introduction
free trade agreements or Treaties between two or more countries are created to establish a free trade area where commerce in goods and services can be conducted across their common borders, without tariffs or hindrances but (in contrast to a common market) capital or labor may not move freely. Member countries usually impose a uniform tariff (called common external tariff) on trade with non-member countries.
Terms of the agreement.
The terms of agreement, what goods have low tariffs or not, what goods or services are not included in the agreement, why are those qoods excluded.
The free trade agreement signed by Ecuador and the USA had the following policies
1 to have extensive reduction of tariffs on substantially all trade this was other wise interpreted as providing freedom to trade between the two countries as the agreement focused on giving freedom to non citizens to enjoy a level of freedom like citizens.
2 was allowing for the free movement of goods. Of course this was a trade initiative to allow for export and import between the member states.
3 The agreement also reduced restrictions on investment and establishments allowing for the free movement of capital and free movement of services in and out of the member countries.
4 A Common market with significantly reduced restrictions on the freedom of movement of all factors of production, including free movement of labour and of enterprise; and coordination in economic policy.
5 was Currency union-sharing the same currency Composite
The goods that were mostly allowed were mineral fuels, machinery, plastics and animal feeds that were exported to the USA while the USA exported agricultural products, domestic exports(soy products), wheat, feeds and fodders and processed food. Some goods which were common to both countries were excluded because of the decline in demand, each country accepted products they could not access.
FDI policies
Ecuador is open to FDI in most sectors. The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or controlled companies. The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony. Although Ecuador recently took some steps intended to attract FDI, its overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change. FDI inflow remains very low when compared to other countries in the region.
In general, the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador. Disputes with U.S. companies can become politicized, especially in sensitive areas such as the energy sector. Ecuador has been involved in several high profile investment disputes with U.S. companies. Chevron, Conoco Phillips, Occidental Petroleum Corporation, and Murphy Oil Corporation were awarded damages in international arbitration rulings against Ecuador in the last two years.
Some of policies that are open to FDI are
1 Limits on Foreign Control and Right to Private Ownership and Establishment this is a policy that regulate the normal trade of the foreign country within Ecuador.
2 100 %foreign equity ownership is allowed without the need for authorization or prior screening in sectors open to domestic private investment.
3 For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a five percent capital exit tax. All license and franchise agreements must be registered with the Ecuadorian Intellectual Property Institute (IEPI).
In addition to registering with the Superintendence of Companies, Securities, and Insurance, foreign investors must register investments with Ecuador's Central Bank for statistical purposes.
The sectors of investment to foreign companies( USA) were
1 Automotive: the Ministry of Foreign Trade announced September 30, 2016, the elimination of quotas for automobile imports beginning January 1, 2017. This action removed an important restriction on U.S. automobile exports to Ecuador.
2 Petroleum: per the 2008 Constitution, all subsurface resources belong to the state. The petroleum sector is controlled by two state owned enterprises (SOEs). Most fuel prices are controlled and subsidized by the central government.
3 Mining: the Ecuadorian government has taken steps to reduce taxes in the mining sector in order to attract FDI. Presidential Decree 475, published in October 2014, altered the windfall tax calculation. The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, included provisions to improve tax stability and lower the income tax rate in the mining sector.
4 Electricity: the Organic Law for the Public Service of Electric Energy, which took effect in January 2015, permits some private sector participation and foreign investment in Ecuador's electricity sector. Per the 2008 Constitution, the electricity sector is a public service and strategic sector.
5 Telecommunications: in February 2015, Ecuador's National Assembly passed a telecommunications law that requires telecommunications companies to pay a percentage of revenue to the government. This requirement applies to providers of cellular and fixed line telephone service, internet service, and subscription television with more than 30 percent of market share. The payments range from 0.5 to 9 percent of revenue.
6 Media: the 2013 Communications Law introduced a requirement that advertising disseminated in Ecuador must have 80 percent domestic content. It also requires that television and radio frequencies are distributed 33 percent to private media, 33
Export from USA to Ecuador
|
Items exported to Ecuador
|
Capital in $
|
|
Mineral fuels
|
1.9 billion
|
|
machinery
|
459 million
|
|
electrical machinery
|
275 million
|
|
plastic
|
217 million
|
|
Food waste animal feed
|
146 million
|
The mineral fuel industry recorded the highest trade it was open for trade to the USA at 3.4 billion. While the USA too recorded a higher import of processed fuel into Ecuador. From the 2 tables the fuel industry enjoyed a lot of freedom and exchange do to its dominance in the market. This had a reasonable impact on increasing the GDP of Ecuador.
Export from Ecuador to the USA
|
Ecuador export to the USA
|
Capital
|
|
Mineral fuel
|
3.4 Billion
|
|
Fish and crustaceans
|
685 million
|
|
Precious stones (gold
|
634 million
|
|
Edible fruit / nuts (banana)
|
262 million
|
|
Trees and plants
|
243 million
|
Ecuador records a huge increase of goods into the USA with approximately $10.2 billion in total (two way) goods trade during 2016. Goods exports totaled $4.2 billion; goods imports totaled $6.1 billion. The U.S. goods trade deficit with Ecuador was $1.9 billion in 2016.
USA goods exports to Ecuador in 2016 were $4.1 billion, down 28.3% ($1.6 billion) from 2015 but up 52.3% from 2006. The top export categories by 2016 being mineral fuels ($1.9 billion), machinery ($459 million), electrical machinery ($275 million), plastics ($217 million), and food waste, animal feed ($146 million) and the exports of agricultural products to Ecuador totaled $296 million in 2016. Leading domestic export categories include: soybean meal ($123 million), wheat ($52 million), cotton ($20 million), feeds & fodders nesoi ($19 million), and prepared food ($14 million).
On the other hand imports from Ecuador totaled $6.1 billion in 2016, down 18.8% ($1.4 billion) from 2015, and down up 14.6% from 2006. The top import categories in 2016 being mineral fuels ($3.4 billion), fish and seafood (crustaceans) ($685 million), precious metal and stone (gold) ($634 million), edible fruit & nuts (bananas) ($262 million), and live trees and plants ($243 million).USA imports of agricultural products from Ecuador totaled $1.2 billion in 2016. Leading categories included bananas and plantains ($457 million), nursery products ($243 million), cocoa beans ($167 million), processed fruit & vegetables ($128 million), and other fresh fruit ($57 million).USA goods trade deficit with Ecuador was $1.9 billion in 2016, a 14.1% increase ($236 million) over 2015 cited from the( US trade representatives)
Affiliate labour and employment
|
County
|
Skilled employed %
|
Semi skilled Employed
|
Non skilled employed
|
|
USA affiliated companies in Ecuador
|
60%USA and 40%Ecuador
|
30 %USA and 60% Ecuador
|
80%Ecuador
|
|
Ecuador affiliated companies in the USA
|
54% USA and 40 % Ecuador
|
59% USA and 34% Ecuador
|
80 %USA
|
|
|
|
|
|
There are different factors that influenced the employment of people into different affiliate companies most of the factors being location technology and the niche of the business some companies employed people within the are they were located. While others preferred importing labour from their own countries
FDI
|
|
2014
|
2015
|
%increases
|
|
USA FDI to Ecuador
|
321.71 million
|
429 million
|
25.5 %
|
|
Ecuador FDI to USA
|
270 million
|
300 million
|
18 %
|
|
|
|
|
|
USA's foreign direct investment in Ecuador stocks was $429 million in 2015 (latest data available), a 25.5% decrease from 2014. U.S. direct investment in Ecuador is led by mining, wholesale trade, and manufacturing while the Sales of services in Ecuador by majority US owned affiliates were $1.2 billion in 2014 (latest data available), while sales of services in the United States by majority Ecuador-owned firms were $2 million. This means that increased employment rates by the USA affiliated companies was very high.
The impact of the trade agreement was very high in the following areas
1 most people were employed
2 the living standards of people improved
3 the GDP also increased by 18 %
In conclusion
Trade agreements have positive impacs on the society they influence the market hence directly having an impact on the economy. I would highly recommend the president of the Republic to Ecuador to accept a trade agreement to allow the country access to what they don't have and to sell what they have to the outside.
Reference
https://ustr.gov/countries-regions/americas/ecuador