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CHILE
Suspect free-trade agreement
LADB
7/2/2003
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For the Lagos government it means an expanded market, while for Chilean farmers it spells disaster.

Chile and the United States signed a free-trade agreement (FTA) in Miami June 6, the first bilateral FTA between the United States and a South American country. Chilean Foreign Minister Soledad Alvear and US Trade Representative Robert Zoellick signed the agreement, which the Chilean government says will increase the country’s exports. Some Chilean farmers, however, fear dire consequences.

The signing ended two years of difficult negotiations that began in December 2000. Although the document was ready to be signed last December, the process was stalled in part by Chile’s refusal to support the war against Iraq at the UN Security Council (LP, April 9, 2003).

Lagos called the FTA, which will now be presented to the US Congress, "a historic moment brought about by our return to democracy." Under US President George W. Bush’s recently acquired "fast track" or Trade Promotion Authority, the House or Representatives and Senate will have 90 days to examine the proposal, after which they must vote on it without the option to make changes.

Chile’s Senate and Chamber of Deputies will also examine the FTA. Chamber President Isabel Allende has requested that a special committee be formed to examine the complexities of the agreement, including representatives from the mining, fishing, agricultural and other economic sectors.

Once in effect, the FTA would immediately eliminate tariffs on 87 percent of the goods currently traded between the two countries. The percentage of freely traded goods would rise to 95 percent within two years, with taxes on the remaining 5 percent to be phased out over the next 12 years (LP, Jan. 15, 2003).

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

Lagos said, however, that it was important for the growth to 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," he said. In 2000, 20.6 percent of Chile’s 15 million inhabitants were poor, with extreme poverty affecting 5.7 percent, according to the Ministry of Planning and Cooperation.

For the United States, the political objectives overshadow the strictly economic. The Bush administration sees the FTA as an important step toward the creation of the Free Trade Area of the Americas (FTAA) (LP, Dec. 2, 2002).

Labor and environmental groups strongly object to the agreement. "It’s very weak on workers’ rights, it’s problematic on investment, it’s bad on temporary entry [of workers]; we’re concerned about the [insufficient] capital controls," said Thea Lee, the American Federation of Labor-Congress of Industrial Organization’s assistant director for international economics.

Some Chileans have even stronger concerns about the FTA, predicting that small-scale manufacturers and farmers will be unable to compete with US goods or with government-subsidized agricultural products from the United States.

Last year, Bush signed farm legislation raising US agricultural support by $180 billion. In 2001, US agribusiness sold wheat abroad at a price 44 percent below what it cost to produce it, says the Minnesota-based Institute for Agriculture and Trade Policy (IATP).

The more than 200,000 farmers in southern Chile who raise traditional agricultural products such as wheat, dairy products, beef and sugar beets see the FTA as an impending economic and social disaster. They are campaigning vigorously against congressional ratification.

"It’s a case of the biggest and strongest eating the smallest," said farmer Nicolás García. "We just cannot compete with US subsidies."

To counter distortions in the global market, Chile has used a "price band" since 1983 to stabilize the price of its wheat and sugar imports. US pressure means the price band will be phased out in 2008.

"Our government cheated us. It promised not to remove the price band in this free-trade agreement," said Manuel Riesco, president of the Southern Chile Agricultural Consortium (CAS).

Chile’s neighbors are also wary of the impact of the FTA. Peruvian analysts worry that it will mean less foreign investment. "Foreign companies would prefer to establish themselves in Chile, where they imagine they would have a secure market," said Antonio Castillo of Peru’s Export Association.

Authorities in Argentina fear that exports to Chile, one of its principal trading partners, will suffer a sharp reduction if forced to compete with tax-free US products. In the first quarter of this year, 12 percent of Argentina’s exports, worth $1.1 billion, went to Chile. Although Chile’s sales to Argentina were less ($75 million), they were 34 percent higher than in the same period last year.

Analysts in Brazil noted the timing of the treaty signing, just prior to Brazilian President Luiz Inácio Lula da Silva’s visit to Washington on June 20. Da Silva and Argentine President Néstor Kirchner are strongly promoting the Southern Cone Common Market (MERCOSUR), comprising Argentina, Brazil, Paraguay, and Uruguay, with Chile and Bolivia as associate members, ahead of negotiating the FTAA. Agriculture subsidies are a major factor in the cautious approach to the FTAA adopted by da Silva and Kirchner.

 

 


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