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Chile Summary


With a small population of 15 million people, Chile has used trade as its tool for economic growth for two decades. Due to market reforms begun by General Pinochet Chile is an extremely open economy by regional standards, with exports accounting for 35 percent of GDP.[1] The bilateral trade deals that Chile agreed to in 2002 with the US, South Korea, and EU should continue to fuel GDP growth and increase foreign direct investment, and perhaps will help build a reputation in the region for open trade and investment.

Chile-US Free Trade Agreement

The Chile-US Free Trade Agreement, the first such pact between the US and a South American nation, was signed in December 2002 after nearly a decade of negotiations. The United States is Chile's main trading partner, with the two-way flow of goods valued at more than $ 6 billion in 2001. Chilean exports to the United States totaled $ 3.2 billion in 2002, and U.S. imports totaled $ 2.8 billion [2], according to the Foreign Ministry. Chile's main exports to the United States include copper, salmon filets, wood products and lumber, industrial alcohol, dessert grapes and wine.

This free trade agreement will immediately eliminate tariffs on 85 per cent of goods, including textiles, and gradually eliminate protections on other goods over a 12 year period. By the fourth year of the agreement, tariffs will have been eliminated for 95 percent of all Chilean goods sent to the U.S. market.[3] While Chile achieved no concessions on farm subsidies or on the US's anti-dumping laws, the Bush administration made concessions on capital controls, allowing Chile to retain the reserve requirement on short-term capital inflows. Important conclusions were reached such as increasing copyright and trademark protection for digital works, furthering the openness of government procurement and improving transparency of regulations. Also, both sides made final concessions in opening their agricultural markets more rapidly to import-sensitive products, such as beef for Chile and vegetables for the US.[4]

Many hope the agreement will have much more far reaching effects. Specifically, the US hopes that its agreement with Chile will be an important step forward for the Free Trade Area of the Americas agreement.[5]

Other Agreements

The European Union and Chile recently signed a comprehensive association agreement giving Chile's goods free access to the European market of 400 million people. The ambitious agreement comprehensively covered all aspects of bilateral trade relations.[6]

Chile and South Korea signed a free trade agreement made in October 2002, completing two years of negotiations on what is South Korea's first trade accord with a foreign country. As part of the FTA, South Korea will eliminate tariffs on Chilean manufactured goods, with a few exceptions. In return, Chile must end tariffs on 66 percent of South Korea's exports to the country.[7] Chile is currently negotiating an agreement with Singapore, as a continuation of its efforts to reach out to the countries in the Asian Pacific Economic Cooperative (APEC).[8]

Regional Strife

While Chile is relatively insulated economically from regional instability due to prudent monetary and fiscal policy, it is not immune to regional political woes. Considered the only stable country in Latin America, Chile's relationships with Argentina, Bolivia, and Brazil have been turbulent following political and economic tremors in each of those countries.[9] For example, a prolonged economic crisis has caused Argentina to cut back on natural gas exports that could cause power rationing in gas-importing Chile. This shortage has become a diplomatic dispute because Chile is concerned that the dramatic cut-back could jeopardize its own economy.[10] Similarly, Bolivians revived an old land dispute with Chile over gaining access to the ocean following a coup in Bolivia that overthrew a president who supported exporting natural gas through a Chilean port.[11]

Diplomatic problems with Brazil center on Mercosur and the issue of trade liberalization in Latin America. For years, Chile has resisted becoming a full member of Mercosur (the Southern Cone Common Market comprised of Argentina, Brazil, Uruguay and Paraguay), preferring instead to remain an associate member. Chile has shied away from full membership in Mercosur because its tariffs are much lower than those of the four member countries and of the member countries, only Chile has maintained a reasonable fiscal deficit. Brazil, on the other hand, is wary of full trade liberalization and views Mercosur as a way for the Southern Cone to have enough political clout to make demands going into FTAA negotiations. Chile's FTA with the US and its distance from Mercosur have strained its relationship with Brazil.[12]


Agriculture is a big concern for Chileans because although farm products represent just 6 percent of the gross domestic product of Chile, agriculture, forestry and fishing provide 19 percent of all jobs.[13] During the negotiations for the Chile-US Free Trade Agreement, Chilean agricultural producers lobbied for more advantageous conditions in the bilateral agreement; they considered import quotas on beef and milk unreasonable. Chile is also critical of rich countries' farm subsidies, an issue that is a continuing problem in the FTAA and WTO talks. Chile has voiced its frustration with the US, the EU, and Japan for their reluctance to dismantle their subsidy programs which has put the WTO round in jeopardy. In WTO negotiations, Chile has worked with its fellow Cairns Group members to table proposals that challenge the developed nations to make the concession necessary to keep the Doha round from failing.[14] Chile also demonstrated its commitment to agriculture reform by becoming part of the G-20, a group of developing countries that unified behind the goal of reforming farm subsidies in the US, the EU, and Japan.[15]

Intellectual property

Chile's current patent, trademark, and industrial design law, implemented in 1991, is generally strong but fails to be completely TRIPS compliant [16]. Similarly, the country's copyright law is consistent with international standards in most areas, but is lacking in areas such as computer software. Chile is Latin America's worst offender in the "pirating," or unauthorized publication, of books, running off some 4 million copies a year that cost publishing houses an estimated $25 million. The high cost of books in Chile, due partly to the 18 percent value added tax (VAT), has also contributed to the growth of book piracy.[17]


Mercosur recently reached an agreement on labor, which will be implemented as soon as it is ratified by the members' respective governments. Under the labor agreement, people from one member country would be allowed to work in the others and obtain citizenship in those nations more easily.[18]

Sanitary and Phytosanitary Measures

Chile has relatively strict phytosanitary measures that prevent many agricultural products from entering the Chilean market. For example, US exports of poultry are blocked by salmonella inspection requirements and Chile has blocked imports of avocados from Mexico.[19] Chilean avocado growers have asked the government to approve additional restrictions on Mexican avocado imports to protect Chile's crop from diseases.  Also, a recent agreement between Colombia and Chile made progress with sanitary issues that have permitted the export of Colombian flowers and the import of Chilean fruit to the country.[20]


Chile's proactive stance towards trade liberalization bilaterally, regionally, and multilaterally is exemplary in comparison with the trade policies of its neighboring countries. However, as an island of stability in a troubled region, Chile's economic and political success is vulnerable. It will have to address its regional diplomatic disputes in order to capitalize fully on its sound trade policy. Recent free trade agreements with the US, EU, and South Korea should boost Chile's exports, helping it continue its economic progress.

Last updated May 2004

[1] World Bank Development Data for Chile
[3] USTR website
[4] Alden, Edward and Mark Mulligan, "Chile clinches US trade deal," Financial Times, December 12, 2002
[5] Alden, Edward and Mark Mulligan, "Chile clinches US trade deal," Financial Times, December 12, 2002
[6] "EU's Relations with Chile," EU External Relations Backgrounder
[7] Kirk, Don, "South Korea, in Deal With Chile, Signs Its First Free-Trade Pact," The New York Times, February 17, 2003
[8] Lee Kim Chew, "Chile seeks Singapore's help for access to Asia," The Straits Times, April 30, 2004
[9] Rohter, Larry, "Chile, the Rich Kid on the Block (It Starts to Feel Lonely,)" The New York Times, April 28, 2004
[10] Mulligan, Mark, "Chile's links with Argentina under stress," Financial Times, April 30, 2004
[11] Mulligan, Mark, "Chile's links with Argentina under stress," Financial Times, April 30, 2004
[12] "You're my best friends; Chile's foreign policy," The Economist, March 13, 2004
[13] Vaughan, Martin, 'Inside US Trade', IICA/FAO Joint Technical Secretariat, Interamerican Institute for Cooperation on Agriculture, April 13, 2001
[14] Agriculture Negotiations Still Stalling. BRIDGES Weekly Trade News, Vol. 7 No. 3, January 29, 2003.
[15] Gustavo Capdevila, "G22 Warms Up for Post-Cancun WTO Talks," Inter-Press News Agency, October 2, 2003.
[17] Lucía Iglesias Kuntz, "Pirates and the paper chase," UNESCO Courier, March 2003,
[18] Mercosur labor agreement. Larry Rohter, 'South American Trading Bloc Frees Movement of Its People,' The New York Times, November 24, 2002.
[19] US chicken exports banned because of sanitary issues. 2001 Country Reports on Economic Policy and Trade Practices, US Department of State, February 2002.
[20] Chile-Colombia Trade agreement. Roy Rogers, 'Economic Adjustment in Chile,' Chilean Ministry of Agriculture (in Farm Foundation).