THE CHILE-U.S. FTA: WHAT A THE CHILE-U.S. FTA: WHAT A DIFFERENCE A YEAR MAKES DIFFERENCE A YEAR MAKES Alex Foxley Embassy of Chile February 25 th , 2005
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THE CHILE-U.S. FTA: WHAT A THE CHILE-U.S. FTA: WHAT A
DIFFERENCE A YEAR MAKESDIFFERENCE A YEAR MAKES
Alex FoxleyEmbassy of Chile
February 25th, 2005
The Chile-U.S. FTA: The Chile-U.S. FTA: What a Difference a Year MakesWhat a Difference a Year Makes
1. Strong Performance in Year One
2. The Chile-US FTA: A Critical Piece for Economic Development
3. Challenges to Maximize FTA Benefits
STRONG PERFORMANCE IN YEAR ONESTRONG PERFORMANCE IN YEAR ONE
CHILE’S EXPORTS TO AND IMPORTS FROM THE USCHILE’S EXPORTS TO AND IMPORTS FROM THE US
-25
-15
-5
5
15
25
35
1998 1999 2000 2001 2002 2003 2004
Exports
Imports
Source: Aduanas de Chile
(Rates of Growth)
US TRADE WITH CHILEUS TRADE WITH CHILE
15821985
2477 2638
37934110
43334026
3322 3166
1596 1649 16552012
23752559 2686 2607
3219
4820
3003
2362
28712560
3109
38433421
3703
0
1,000
2,000
3,000
4,000
5,000
6,000
USA Exports USA Imports
Source: Central Bank of Chile
STAR PERFORMERS STAR PERFORMERS (rate of growth)(rate of growth)
US Exports Parts for heavy machinery 24%
Heavy machinery 13%
Oil 420%
Cars and trucks 36%
Plastics 70%
Chile Exports Fruits 17%
Wood products 55%
Copper 82%
Salmon 0.7%
Wine 9%
Non-Trade IssuesNon-Trade Issues
No evidence of a race to the bottom
Labor and environmental legislation unchanged, but for efforts to improve creatively:
How to broaden unemployment insurance
Private/public partnerships – Tierra del Fuego
FTA cooperation agreements in placeStrengthen institutional capacity for enforcement and dispute resolutions
Corporate Environmental Stewardship
The Chile-US FTA: A Critical Piece for The Chile-US FTA: A Critical Piece for Economic DevelopmentEconomic Development
Chile’s Trade Agreements Chile’s Trade Agreements
Free Trade Agreements:
Canada 1997
Mexico 1999
Costa Rica 2002
El Salvador 2002
European Union 2002
South Korea 2003
USA 2003
EFTA 2004
Economic Complementarity Agreements:
Mexico 1991
Venezuela 1993
Colombia 1994
Ecuador 1995
Mercosur 1996
Peru
1998
Regional Distribution of Foreign Trade 2004Regional Distribution of Foreign Trade 2004 (%)(%)Regional Distribution of Foreign Trade 2004Regional Distribution of Foreign Trade 2004 (%)(%)
Imports (M)
37
15
1617
5
Trade (X+M)
27
18
29
2
24
Exports (X)
27
1
17
18
35
Source : Central Bank of Chile
North America
Europe
Latin America
Asia
Others
Chile : Merchandise ExportsChile : Merchandise Exports
4.2 5.27.0 8.1 8.4 8.9 10.0 9.2
11.6
16.015.417.9
16.317.219.218.318.2
21.0
32.0
0
5
10
15
20
25
30
35
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Years
Source : Central Bank of Chile
Billion dollars
Snapshot of the Chilean EconomySnapshot of the Chilean Economy
GDP (2004e): US$ 88 billion
GDP Growth (2004) 5.9%
Projected Growth (2005) 5.5% - 6.0%
Income per capita (PPP, 2005): US$ 10,981 (IMF)
Unemployment rate (Dec. 2004): 7.8%
Exports of Goods (2004): US$ 32 billion
Imports of Goods (2004): US $ 23 billion
Fiscal Surplus (2004): 2.2%
Source: Central Bank of Chile (www.bcentral.cl), 1994 - 2005
GDP Growth in Chile (%)GDP Growth in Chile (%)
5.7
7.46.6
3.24.5
3.42.2
10.2
-0.8
3.3
5.9 6.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005(e)
Chile: Consumer Price IndexChile: Consumer Price Index
17.4
21.5
12.7
21.4
27.3
18.7
12.7 12.2
8.9 8.26.6 6.0
4.72.3
4.52.6 2.8
1.12.4
-4
1
6
11
16
21
26
31
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Years
Source : National Institute of Statistics
(Annual percentage change)
Source: Central Bank of Chile (www.bcentral.cl), 1994 - 2004
Fiscal Balance (% of GDP)Fiscal Balance (% of GDP)
2.2
-0.8
-0.3
0.1
-1.4
0.4
2.0
2.3
2.6
1.7
-0.8
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Chile : Poverty and IndigenceChile : Poverty and Indigence
Source : Ministry of Planning
45.1
38.6
32.6
27.523.2 21.7 20.6
18.817.412.9
8.8 7.6 5.8 5.6 5.7 4.7
0
10
20
30
40
50
1987 1990 1992 1994 1996 1998 2000 2003Years
Poverty
Indigence
(Percentage of total population)
Growth Competitiveness Index- 2004Growth Competitiveness Index- 2004
0 1 2 3 4 5 6 7
PakistanArgentina
BrazilMexico
ChinaSouth Korea
FranceChile
CanadaJapan
USAFinland
Source: World Economic Forum
(1)
(2)
(9)
(15)
(22)
(27)
(48)
(46)
(91)
(57)
(29)
(74)
Index of Economic Freedom - 2005Index of Economic Freedom - 2005
0 1 2 3 4
ArgentinaChinaBrazil
MexicoFranceJapan
GermanyCanada
USAChile
Hong Kong
Source: The Heritage Foundation
(1)
(11)
(12)
(16)
(18)
(39)
(44)
(63)
(112)
(114)
(90)
Lack of Corruption Perception Index 2004Lack of Corruption Perception Index 2004
0 2 4 6 8 10
IndonesiaArgentina
RussiaBrazil
South KoreaJapan
FranceChileUSA
UKSingapore
Finland
Source: Goettingen University and Transparency International
(1)
(5)
(17)
(20)
(22)
(24)
(47)
(59)
(133)
(90)
(11)
(108)
CHALLENGES TO MAXIMIZE FTA BENEFITSCHALLENGES TO MAXIMIZE FTA BENEFITS
QUOTA USAGE BY ITEMQUOTA USAGE BY ITEM
Fully used
Avocados
Artichokes
Copper
Partly used
Diary
Some textiles and some tires
Hotel/Restaurant chinaware
Not used
Tobacco
Beef
Some textiles and some tires
VISA USAGEVISA USAGE
H1B1 VISA FOR PROFESSIONALS
ONLY 44 OUT OF 1400.
LACK OF KNOWLEDGE FROM POTENTIAL APPLICANTS?
LACK OF INFORMATION OF INTERESTED APPLICANTS?
LACK OF EMPLOYER INTEREST?
MEDIUM TERM CHALLENGESMEDIUM TERM CHALLENGES
Export Diversification – innovation, stupid! Reduce the economy’s vulnerability to commodity markets More value added exports Increase expenditure on research & development (currently
at 0.6 % of GDP)
Education Standards –from rote to thinking Despite educational reform and increased spending,
educational standards remain low. Bottleneck for economic development and to reduce social inequalities.
Income Distribution – better jobs, better wages Although poverty rate has been reduced significantly,
income distribution remains unequal. Not only ethical and political problem, but also a barrier to
long-term growth.
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