REVISITING CHILEAN REVISITING CHILEAN INTEGRATION TO WORLD INTEGRATION TO WORLD
ECONOMYECONOMY
APEC Symposium: Catalytic Role of the APEC Process: Behind the Border, Beyond the Bogor
Goals Chiba, Japan, 14-15 March 2006
OSVALDO ROSALESDIRECTOR
DIVISION OF INTERNATIONAL TRADE AND INTEGRATION, ECLAC (CEPAL)
TABLE OF CONTENTSTABLE OF CONTENTS
Policy continuity; trade reform as integral part of development strategy
Three-pillar strategy of international integration
Remaining challenges and policy responses
MAIN FEATURES OF MAIN FEATURES OF CHILE’S TRADE REFORMCHILE’S TRADE REFORM
Began in 1973, much earlier than the rest of Latin America. Now, more mature and greater consensus;
Chile’s economic policy has been executed relatively independent from trade agreements, unlike other countries where economic reforms were conceived as preparation for trade reform.
Trade reform in Chile has been characterized by its comprehensiveness (width, depth), persistence and speed; and
Trade reform has formed part of a greater institutional transformation process, which involved diverse dimensions of Chilean society.
CHILE’S TRADE POLICY PHASESCHILE’S TRADE POLICY PHASES
13,9
%
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26,3
%
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AÑOS
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AN
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ce 1
986=
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Arancel Máximo Arancel Promedio TCR
Phase I
Phase II
Phase III
Phase IV
FOUR PHASES OF CHILE’S TRADE OPENINGFOUR PHASES OF CHILE’S TRADE OPENING
Phase I (1973-1979): Trade reform; Reduce anti-export bias • Tariff reductions and its unification, NTB reduction, • Opening of investment regime, exchange rate unification,• Introduction of drawbacks and reimbursement Value-added tax• Reduce risks for exporters (Pro-Chile and its network)• Sectoral subsidies: very focused, especially on forestry and automotive sectors.
Phase II (1982-1984): Crisis management, preserving the trade opening process almost intact:
• Tariff increases up to the consolidated 35% level in GATT;• Creation of a mechanism to correct “distortions” in foreign trade; and• Limited exceptions allowed for in the uniformed tariff system (price bands)
Phase III (1985-1989): Trade Opening once again• Trade Opening once again; Re-initiate export-based growth strategy Macroeconomic recovery and stabilization; Privatization and debt conversion programs; Export incentives:
i) deferred payments of import duties on capital goods importation; and ii) simplified “reintegro” system (drawbacks); and
Creation of special export regime (almacenes particulares).
Major Results: 1974-1989• Increase in trade volume export diversification by product and by destination
Phase IV: since 1990 to the present
CHILE’S TRADE DYNAMISMCHILE’S TRADE DYNAMISM
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Andean Community Mercosur Argentina Brazil Chile Colombia
Chile
TOTAL EXPORTS (1990=100)
Source: CEPAL, International Trade Division o the basis of official data.
TRADE DIVERSIFICATION BY TRADE DIVERSIFICATION BY DESTINATIONDESTINATION
Source: CEPAL, International Trade Division o the basis of official data.
Herfindahl-Hirshmann Index
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
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ico
Vene
zuel
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uras
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ca
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dor
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guay
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ia
Perú
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ntin
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uay
Bras
il
Chile
1986-1989 1999-2002
TRADE DIVERSIFICATION BY PRODUCTTRADE DIVERSIFICATION BY PRODUCT
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Arg
en
tin
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Bo
livia
Bra
sil
Ch
ile
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sta
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Para
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ay
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gu
ay
Ven
ezu
ela
1986-1988 2001-2003
HHI =1 (total concentration)
Source: CEPAL, International Trade Division o the basis of official data.
Herfindahl-Hirshmann Index
PHASE IV BEGAN IN 1990PHASE IV BEGAN IN 1990
Deepen unilateral opening: 1991 and 2004 Addressed not only tariffs but also diverse
dimensions of trade policy Improvement of prior reforms (financial
system, telecommunications) and regulatory framework
Broadening private sector participation (infrastructure and ports, etc.)
Concerted Opening: trade agreements.
CHILE’S TRADE OPENING AS INTEGRAL CHILE’S TRADE OPENING AS INTEGRAL PART OF DEVELOPMENT STRATEGYPART OF DEVELOPMENT STRATEGY
1. Opted in favor of trade opening• Growth acceleration and poverty reduction• Broad national consensus on X-oriented strategy• Technological catch-up advances faster in open
economies
2. Link between competitiveness and social cohesion• Lower level of poverty• Public policies to support SMEs and vulnerable groups
o CORFO, INDAP (management, technology)o PROCHILE (export promotion)o SENCE (training)
3. Open regionalism• Multilateral• Unilateral• FTAs – PTAs
COHERENT AND SOUND PUBLIC COHERENT AND SOUND PUBLIC POLICIESPOLICIES
Functional links between macroeconomic stability and trade opening
• Correct sequencing of economic reforms• Central role of exchange rate policy• Anti-cyclical macro-management
o Fiscal policy: “structural surplus” ruleo Stabilization funds (copper, petroleum) o Monetary policy: inflation targeting with “bands”o Exchange rate policy: flexible exchange rates
(dampen external shocks)o Sustainable current account deficit: low level of
external debt, sufficient reserves, prepayment of public debt in times of economic prosperity, net creditor at the IMF
CHILE: NECESSARY COMPLEMENTS TO CHILE: NECESSARY COMPLEMENTS TO TRADE OPENINGTRADE OPENING
1. State modernization
• Institutional upgrading• Government as catalyst for ICT adoption
o Taxes through internet (75% - 80%)o Electronic invoiceso Digital signatures o Single digital windows
2. “Completing markets”
• Education and training• Long-term and venture capital• Technology innovation
CHILE: NECESSARY COMPLEMENTS TO CHILE: NECESSARY COMPLEMENTS TO TRADE OPENINGTRADE OPENING
3. Infrastructure to support foreign trade
• Quality and connectivity in telecommunications• Concessions on highways, ports and airports• Network of trade representatives in 65 locations
around the world
4. Vigorous social policies
• Social expenditures grow faster than GDP• Unemployment insurance• Focalization of social programs • Reforms in education and health care• Special Programs for extreme poor (Chile Solidario)
ECONOMIC GOVERNACE AND ECONOMIC GOVERNACE AND INSTITUTIONAL STRENGTHENINGINSTITUTIONAL STRENGTHENING
• Strong supervision and prudential regulation of the financial system
• Autonomy of the Central Bank• Transparency• Low level of corruption• Autonomous regulatory agencies. Vigorous
competition policy• “Market-friendly” regulatory mechanisms• Expedient and transparent judicial system (pending
task)o Economic courtso Specialized arbitration
PART 2PART 2
CHILE’S THREE-PILLAR CHILE’S THREE-PILLAR STRATEGY STRATEGY
PROS AND CONS OF EACH PILLAR: PROS AND CONS OF EACH PILLAR:
UUNILATERAL OPENING, WTO AND NILATERAL OPENING, WTO AND FTASFTAS
UNILATERAL LIBERALIZATIONUNILATERAL LIBERALIZATION
Major advantages• Reduces anti-export bias• Favors trade creation• Stimulates competitiveness• Creates export lobbies that
counter protectionist lobbies• Stimulates adoption of new
technologies in key sectors: IT-related sectors; Business-related and financial services
Major Disadvantages• Does not secure preferential
access to third markets • Nor guarantees legal certainty
in trade and investment with trade partners
• Does not stimulate X diversification (tariff escalation abroad)
• Less maneuver space for international business alliances
• Policies are still seen as “reversible” by third countries (weak “lock-in” effects)
WTO: THE BEST SCENARIOWTO: THE BEST SCENARIO
• Only mechanism to tackle the systemic issues • Three pillars of agriculture (access, export
subsidies, domestic support)• Antidumping and other disciplines• Special and differential treatment (SDT)• Capacity Building
• Multilateral rules favor small economies• Multilateral agreements favor trade creation and
reduce costs in administrating agreements• Only multilateral forum that has been successful in
challenging or even modifying trade policies of the major trading economies
• Greater recognition of its dispute settlement mechanism
WTO’S WEAKNESSES WTO’S WEAKNESSES Its weaknesses • Lengthy negotiations (6 to 10
years)• Protracted periods to address
issues that are of interests to Developing Countries including tariff reductions in the sensitive sectors (10 years and more)
• Until now, limited coverage of and depth in issues that are key to developing countries (agriculture, AD, textiles)
• Persistence of differences in: tariff escalation, domestic support and tariff peaks
• As based on consensus, decisions are taken on a lowest common denominator dictated by the most protectionist countries
Weak commitment of developing countries
• “Geneva is where the action takes place”
• With few exceptions, developing countries do not have a strong influence in the process;
• Benefits are not owned: appropriation problems
• Strong heterogeneity in capacity building and trade negotiations capability;
• Different levels of domestic consensus about opening-up and strategies of international market participation
MULTILATERAL WEAKNESSES MULTILATERAL WEAKNESSES STIMULATE FTAsSTIMULATE FTAs
Lengthy WTO negotiations hurt small and open economies that:
• Need immediate market access to big markets
• With legal certainty, and• Are willing to go beyond the
WTO in terms of speed and depth;
• Cannot stay outside FTAs while competitors take full advantage of those FTAs (“Domino” effect)
Objectives of FTAs Secure access to large and
stable markets; serving as a catalyst of technological change and quality enhancement in products and services
FREE TRADE AGREEMENTS (FTAs)FREE TRADE AGREEMENTS (FTAs)
2. Benefits Consolidate and expand access
to main markets Provide greater legal certainty
for exporters and investors Wider coverage of rules and
disciplines beyond the WTO in several chapters (e.g., Customs, Investment, and IPR)
In the absence of progress in multilateral forums, FTAs may regulate trade and investment rules with large trading partners
Some benefits in investment and transparency and institutions in charge of trade and investment policies
3. Problems
• May deviate trade (especially intra-regional)
• May politicize trade more than in multilateral negotiations
• May slow down the progress in multilateral, regional negotiations or unilateral tariff reductions
• May lead to neglect of macroeconomic management and/or advances in economic reforms, when they are viewed as “automatic” products of FTAs signed with big trade partners
SOME CONCLUSIONS ON FTAsSOME CONCLUSIONS ON FTAs
• FTAs do not substitute development strategies• Can support high-quality participation of the country in
the international economy• If complemented by other necessary components:
o Macroeconomic stabilityo Infrastructureo Institutional stability and Modernization of the
Stateo Social cohesion
• Create political spaces that would permit addressing the challenges of competitiveness
o Increased productivityo Enhanced formation of “Clusters” and Value-chainso Technological innovation
POLITICAL ECONOMY IMPLICATIONS POLITICAL ECONOMY IMPLICATIONS of FTAsof FTAs
Following a right sequence of information dissemination and consensus building, FTAs can be conducive to:• Better governance of economic and political system• Upgraded quality of public administration• Enhanced institutionality between the gov’t and business
organizations• Greater opportunities to get labor-related organizations
involved in policy debate on development and to generate a dialogue between unions and business organizations
• Important to develop transparent and participative processes with business communities and labor organizations, political parties, and civil society during the process of negotiations
• Convenient to connect parliamentary approval of the agreement with guidance for administrating FTAs
• Not to forget the fiscal impact of FTAs!!
PART 3PART 3REMAINING CHALLENGES AND REMAINING CHALLENGES AND
POLICY RESPONSESPOLICY RESPONSES
STAGES IN CHILE’S TRADE POLICYSTAGES IN CHILE’S TRADE POLICY
• Unilateral trade liberalization (1974-89)• Open Regionalism, focus on Latin America (1990-99)• FTAs with mega-markets (US, EU) (2000-03)• Strategic orientation towards Asia (2004-05)
o APEC 2004 in Chileo Singapore, New Zealand, Brunei (P-4)o China, India (already signed) and Japan (in negotiation)
• Innovation leap into the knowledge society (2005-…)o Trade strategy forms part of the global strategy to promote the
presence in international networks of innovation and technological change
o Reinforcement of the links between trade policy, productivity enhancement and technological upgrading, as well as human capital formation
o Think “big” with a global vision: international alliances, entrepreneur associativity, niches in the global economy, international value chains
WEAKNESSES OF THE EXPORT MODEL WEAKNESSES OF THE EXPORT MODEL PERSISTPERSIST
• Still high concentration of commodities to the detriment of manufactures
• Weak linkages between X and the rest of the economy• Low participation of SMEs in X as direct or indirect
exporters• Limited effort to promote X and make use of the
opportunities offered by the FTAs• Low level of “quality” certification: below the levels of
economies with less income per capita and lower trade opening coefficient
• Limited incorporation of knowledge in X• Lack of R + D
OBJECTIVE: IMPROVE THE QUALITY OF OBJECTIVE: IMPROVE THE QUALITY OF PARTICIPATION IN INTERNATIONAL PARTICIPATION IN INTERNATIONAL
MARKETSMARKETS
• Deepen the export model stimulating further its dynamism, diversification and sustainability
• Reinforce the linkages with the global economy maximizing rents associated with natural resources and position itself in the dynamic sectors of the global markets
• Intensify efforts on innovation, technological diffusion and the formation of human capital
OBJECTIVE: IMPROVE THE QUALITY OF OBJECTIVE: IMPROVE THE QUALITY OF PARTICIPATION IN INTERNATIONAL PARTICIPATION IN INTERNATIONAL
MARKETSMARKETS
• Upgrade the quality of markets and economic institutions• Reconcile competitiveness with social cohesion
o Dynamic participation in international markets through enhanced competitiveness
o Competitiveness that rests on technical progress and productivity gains
o Progressive reduction of productivity gaps among distinct domestic sectors
o Salary increases and inequity reduction based on improved productivity and on labor markets that facilitate an adequate distribution of these increases
MAJOR COMPONENTS OF THIS MAJOR COMPONENTS OF THIS STRATEGYSTRATEGY
• Administer FTAs making good use of the opportunities offered (US, EU)
• A strategic “bet” towards Asia: China, Korea, Japan, Singapore, New Zealand, India
• Deepen ties with Brazil and others:o Taking advantage of our presence in Asiao Subregional physical and energy integrationo Investment platform and web of trade agreements
• Reinforce business alliances with Mexico and Canada to exploit further the US and Central American markets
• Once again, indispensable to incorporate the technology variable
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REVISITING CHILEAN REVISITING CHILEAN INTEGRATION TO WORLD INTEGRATION TO WORLD
ECONOMYECONOMY
THANK YOU
OSVALDO ROSALESDIRECTOR
DIVISION OF INTERNATIONAL TRADE AND INTEGRATION, ECLAC (CEPAL)
