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.