Chile: The Free Trade Nation of the Americas

The World Trade Organization's meeting in Hong Kong have brought a small agreement to developing nations seeking to export their products to the developed world. Developing nations want First World Nations to remove subsidies to their farmers so Third World nations can export their crops. In exchange the United States and European Union want an opening of the service industry to foreign investment. Chile did just that when it signed free trade agreements with the United States and European Union.

In the Late 1970's and early 1980s the Augusto Pinochet military dictatorship decided to open its border fully to free market policies in an effort to diversify Chilean exports that could create the business climate for exports, particularly agricultural products.

When democracy returned in 1990, similar economic policies continued, but with a major policy change, to sign free trade agreements with major economic powers.

The ruling centre-left coalition signed free trade agreements with Canada first, later with the European Union, United States and this year with China, Japan and South Korea.

For the past 15 years since the signing of the first trade agreement Chile's economic policy has centred on its exports as the only avenue for economic growth, development and safe and secure markets for its exports.

That pragmatic view is supported by most political sectors because diversified exports, opened markets have brought economic growth to the country that has been invested heavily in infrastructure, heath and education.

Chile's pragmatic free market policies has clashed with neighbouring countries, who see Chile's policy as one that has distanced from the region, preventing a united negotiating position with the developed world.

But according to analyst Raúl Sohr the reason Chile signed free trade agreements is because developed nations saw Chile posing no danger, because its small economy and exports complement first world economies because agricultural products like fruits and vegetables arrive when is winter in the Northern Hemisphere.

“Chile which is very strong in exports and has put its emphasis especially in raw materials exports has is quite complementary to all those economies,” Sohr said.

He adds that “for example fruits even with the United States, in periods in which Chile is sending its fruits to the United States which corresponds to the time, for example grapes, Chile sells up to a certain date and then lowers its exports not to compete with American producers.”

“Chile has found different niches, in different countries and with all those it has found a complement, it has signed free trade agreements.”

Luis Schmidt the President of the Agricultural Society of Chile, the association that represents all major agricultural growers and exporters, agrees with Raúl Sohr's views.

But Schmidt says despite the signing of free trade agreements and developing niche markets growers continue to face tariffs, subsidies and hidden taxes in the U.S. and Europe.

“U.S. growers have financial benefits that funds them sums of monies for acre so they stop producing in an effort to find national policies that benefit growers.”

Schmidt points out that, “it is well known that in Europe, and the reason why this system is very tough for exporters, the European Union gives growers basic food security policy which is another way of subsidizing their local producers.”

Chile opened its markets, lowered tariffs, and set a road different from neighbouring countries. When Chile decided to join MERCOSUR, South America's free trade zone it did only as a political member not as a full member because both Brazil and Argentina have tariffs ranging from 12 to 20 percent on agricultural products.

Chile's tariffs sit at 6 percent or simply, it has done away with them in many agricultural products.

But Chile's model is not acceptable to MERCOSUR partners. Brazil, Argentina believe Chile's independent road has damaged the capacity of the trade block to seek a common path when negotiating with developed nations.

Chile replies that it is impossible to have a common front when tariffs between MERCOSUR partners differ widely, telling its regional partners that they must lower tariffs to have fair trade within the region before negotiations with the U.S. or Europe can happen.

In fact, during the last meeting of the Free Trade Agreement of the Americas, the FTAA meetings in Argentina, Chile's Socialist president Ricardo Lagos made a common front with U.S. President George W. Bush and Canada's Primer Minister Paul Martin, in an effort to ensure the FTAA did not bog down.

Chile's view ran countered to Argentina and Venezuela that strongly argued to put an end to the FTAA.

The reason is that when Chile signed the Free Trade agreements Chile with the U.S. and European Union it set a precedent to be followed by other countries in the region as a basis for Free Trade agreements.

Chile is fully aligned with both the U.S. and European Union when it comes to free trade and in opposition to countries in the region that oppose free trade.

Chile gave the U.S. and European Union in exchange for signing the Free Trade access to the service industry and financial sector but in conjunction with political and technological cooperation, which is particularly important to Europe and of course to Chile, because it goes beyond trade and into the area of international cooperation.

Nelson Soza a journalist who has studied the issue, says the framework agreements Chile signed with the U.S. and the European Union set the structure for MERCOSUR and Andean region countries to follow when they negotiate free trade agreements.


Soza said that “to a certain degree the European Union and the U.S. did not see Chile as a major market, so when they signed free trade agreements they wanted to set a precedent with three pillars, the commercial agreement, and the other two are political and technological cooperation.”

“It is these pillars that are set as precedent for the rest of Latin America, particularly with an eye to MERCOSUR and the countries of Andean Community,” Soza said.

Chile's position is unique in the region, because it sees free trade as the only way for its economy to expand and grow. Chile's exports continue to grow, although mostly are agricultural products, minerals and wood pulp and wood products.

The manufacturing industry has to date yet to capitalize in the agreements Chile has signed, because they lack the technology and know-how to produce products that can compete fairly with developed world manufactured products.

Chile's pragmatic road is unique in the region, heavily criticized but to date it has been successful mostly because Chile is a small economy that complements fairly with the developed world and Asian nations.

Unlike Argentina and Brazil, Chile does not pose a danger, because it does not compete directly with farmers and manufactures in the U.S. Europe and Asia.

So Chile remains alone as region's only true free trading nation, because it believes is the only road to economic growth and development.