Chile Signs Historic Free-Trade Agreement with U.S

NotiSur - South American Political and Economic Affairs, June 13, 2003 | Go to article overview

Chile Signs Historic Free-Trade Agreement with U.S


Chile and the US signed a free-trade agreement (FTA) in Miami on June 6, the first bilateral FTA between the US and a South American country. The agreement was signed by Chile's Foreign Minister Soledad Alvear and US Trade Representative (USTR) Robert Zoellick. The Chilean government says the agreement will increase Chile's growth rate through increased exports, but some Chilean farmers fear dire consequences.

"Today is a milestone, but our work is not finished," Zoellick said. "We have to work to gain approval of Congress," he said, calling the accord "the first of what I hope will be a series of agreements."

The signing culminated two years of difficult negotiations that began in December 2000. The document was ready to be signed in December 2002 (see NotiSur, 2002-12-20), but was delayed in part because of US President George W. Bush's anger with Chile for refusing to support the US war against Iraq in the UN Security Council (see NotiSur, 2003-03- 14). The Chilean press wrote that the Bush administration further demonstrated its displeasure by not inviting Chilean President Ricardo Lagos to the US for the signing ceremony.

US Secretary of State Colin Powell met with Lagos on June 9 in Santiago, where Powell was attending the Organization of American States (OAS) meeting. Powell's meeting with Lagos was meant to show that US-Chile relations had surpassed the Iraq issue. "During our 30-minute meeting, we spent three minutes talking about Iraq and 27 minutes talking about the future," said Lagos.

In his message to the Chilean people regarding the FTA, Lagos said that it was "a historic moment brought about by our return to democracy." He said that, in today's world, countries compete "not only with healthy economic policies, but also with how we organize our societies, the sense of responsibility with which we address contemporary challenges and the visions for the future."

The FTA will now be presented to the US Congress. Under President Bush's recently acquired "fast track" or Trade Promotion Authority (TPA), the House or Representatives and Senate will have 90 days to examine the proposal, then they must vote for or against it without the option to make changes (see NotiSur, 2002-11-08).

The FTA will also be examined by Chile's Senate and Chamber of Deputies. Chamber president Isabel Allende has requested that a special committee be formed to examine the complexities of the agreement. Allende wants the committee to include representatives from the mining, fishing, agricultural, and other economic sectors.

Agreement will eliminate all tariffs in 12 years

Once in effect, the FTA would immediately eliminate tariffs on 87% of the goods currently traded between the two countries. The percentage of freely traded goods would rise to 95% within two year's time, with taxes on the remaining 5% to be phased out during the next 12 years.

Bilateral trade is now about US$6 billion a year but could grow by one-third during the next five years as a result of the accord, according to Alvear. Chile expects its exports to the US to increase by 40% and its yearly earnings from such exports to increase from US$3.6 billion to US$5 billion.

Chile and US have different expectations from treaty

Chile, with 15 million people, expects the agreement to have a strong impact on its economy by allowing its products and services access to the US market of 281 million people. The FTA also promises to boost direct foreign investment, create jobs, and contribute to overall GDP growth perhaps by as much as 1%.

Lagos said, however, that it was also important that the growth reach all Chileans. "Chile cannot go through the world dressed as a major associate of the principal powers if we have people in extreme poverty," said Lagos. "We must advance our growth through the free trade agreements, but it is essential that it be as a more socially just country. …

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