CHILE Trade deal opens major opportunities
GETTING CLOSER THE UNITED STATES REGARDS CHILE AS AN IDEAL PARTNER BECAUSE OF ITS SOUND MACROECONOMIC POLICIES AND LONGSTANDING COMMITMENT TO FREE TRADE AND DEMOCRACY. THE SIGNING OF A LANDMARK FREE TRADE AGREEMENT WILL BRING BENEFITS TO BOTH NATIONS

INVESTMENT is actively encouraged by the government

EXTENDING in a long, narrow ribbon down South America’s west coast to the southernmost tip of the continent, Chile is a land of contrasts, encompassing desert, a great central agricultural region, snow-capped peaks, and glaciers.

However, it is more than its geography that distinguishes Chile from other Latin American nations. While its neighbors have struggled with recession and political and institutional crises, Chile’s export-oriented economy has produced the most consistent growth in the region. In the ten years up to 1997, the country’s gross domestic product grew by an average of 7.9 percent.

The economy continued to expand at an average of 2.6 percent up to 2002. Despite the global downturn, a growth rate of up to 3.5 percent has been forecast for 2003.

Against a background of political and economic stability, successive Chilean administrations have stuck to sound economic policies. The state’s role in the economy has been reduced, foreign investment has been encouraged, and inflation has plunged to a historic low. Chileans enjoy a per capita income that is among the highest in Latin America.

Chile’s success stems from a commitment to free market principles that goes back more than two decades. According to U.S. Trade Representative Robert Zoellick, Chile has become “the freest, most competitive market in Latin America.”

The Chilean economy is heavily dependent on international trade, with exports accounting for more than a quarter of GDP. The volume of Chilean exports has risen by 50 percent since 1997, although falling commodity prices have held back a comparable rise in value.

Since the 1990’s Chile has been building a network of free trade deals, signing comprehensive agreements with Canada, Mexico, and Central America. Major deals with the European Union and South Korea were completed last year.

However, the most significant development came in June of this year with the signing of a landmark U.S.-Chile free trade agreement, making Chile the second Latin American country, after Mexico, to become a preferred trade partner of the United States.

Designed to strip away barriers and facilitate trade and investment between the two nations, the deal will give a significant boost to Chile’s economy. According to the Chilean-American Chamber of Commerce, Chile's GDP could rise between 1 and 3 percentage points as a result of the deal.

Chile’s President, Ricardo Lagos, who has renewed the country’s drive toward integration into the global economy since coming to power in 2000, has described the signing of the treaty as an historic moment.
He says it will allow Chile to increase its exports to the United States by 40 percent. Currently worth $3.6 billion a year, they are expected to rise to $5 billion over the next three or four years.

On the U.S. side, the deal gives preferential access to one of the world’s fastest-growing economies. It removes tariffs on more than 85 percent of bilateral trade in consumer and industrial products, and the remaining tariffs are to be eliminated within four years.

The pact creates incentives for U.S. companies to enter the Chilean market virtually without restrictions. It gives new access to the fast-growing Chilean services market, and establishes a secure, predictable legal framework for U.S. investors in Chile, along with groundbreaking anti-corruption measures in government contracting.

Chile’s record of consistent growth and stability is an attractive prospect for American companies. The Chilean government actively encourages investment with incentives, and promotes the country as a regional investment platform for multinational corporations. Foreign and local investors are given equal treatment.

Chile is an associate member of the southern common market, Mercosur, and a full member of the Asia Pacific Economic Cooperation (APEC) organization. In 2004, Chile will have the opportunity to showcase its economy to the world, as APEC delegates gather in its capital, Santiago, for their 2004 summit.

President Lagos says that Chile is receptive to innovative and creative ideas, and eager to attract the investment flows that can multiply its financial and human resources.

“Chile’s geographical position and trade agreements make it an attractive base for companies that are deploying regional strategies with global implications,” he says.

Chile especially wants to attract U.S. firms that will help to facilitate the country’s economic diversification and reduce dependency on copper and agricultural products.

Traditionally, mining—particularly copper mining—has dominated the economy. Chile is still the world’s biggest producer of copper, and production has been rising, due to expansions at several large mines.
Forty years ago, mining accounted for 90 percent of the country’s exports, while industry accounted for just 6-7 percent. However, the economy has been diversifying, and today both sectors account for around 40 percent of exports.

President Lagos wants to see Chile take a leading position among nations using information technology to drive development. He says the government is enthusiastically undertaking the task of inserting the country into the New Economy.

“In 2010, Chile will celebrate the bicentennial of its independence. By then we aim to be a leading country in the new digital world.”