Fourth anniversary of the Chile-Korea FTA: Backroom issues

The Chile-Korea FTA has caused a lot of talk, especially given the 30% boost in trade this year. However, the entire spectrum of issues is quite large. So, with meeting minutes in hand, we set out to analyze the findings of the Free Trade Commission. The bilateral monitoring commission, which recently held its fifth session in Santiago, assessed the FTA’s past four years. The commission also established guidelines for 2009.

A good 4th anniversary for Chile?

The Chilean delegation was headed by Andres Rebolledo, who is DIRECON’s Bilateral Director (General Directorate for International Economic Affairs). The delegation was clear on this question: Chile has gained from its participation in the FTA. The reasons are several, but the bottom line is that bilateral trade has increased by nearly 30% during the past 12 months. However, in analyzing the FTA monitoring commission’s report, it seems several issues may have passed unnoticed.
For example, the variety of Chilean exports has decreased, whereas the Koreans diversified their portfolio. They regularly ship fuel (54%) and a high percentage of cell phones, cars, plastics and chemicals to Chile. On the Chilean side, fishmeal, grapes and wine had strong showings behind copper (70%) during 2008.

The Korean assessment

Korean officials expressed concern about the disadvantage they feel some of their exports now face due to Chile’s new FTAs with Japan and China. After receiving the list of said exports, Chilean officials agreed to review same. Chile conditioned its response, stating it would make a concomitant review of said exports during its Doha Development Agenda (DDA) category review. Thus, the DDA category (in this case, duty-free agricultural products) and the new items will be reviewed “as a package”, per the meeting minutes.

The Korean delegation was led by Choi Kyonglim. Choi is Director General of the FTA, which is a Ministry of Foreign Affairs and Trade (MOFAT) post. He emphasized that trade increased from $5.9 billion to $7.8 billion during the fourth year of the agreement. Imports from Chile increased by 6%, or from $4.1 to $4.3 billion, for a net increase of 6%.

The Korean delegation also mentioned that table grapes led Chile’s non-copper exports. Grapes were followed by wine. The delegation added that Korean fuel exports to Chile had increased by almost 300%. With regard to the automotive sector, the balance was positive: in 2002, Chile placed 19th in imports ($141 million), in 2007 it moved up to 18th ($707 million). This meant that, as of February 2008, 32% of all automotive imports to Chile were Korean.

The agricultural factor

The commission also discussed the agricultural sector, stressing that the FTA has become a vital tool in improving new product access. In this respect, the commission felt that the FTA had especially facilitated new agricultural entries. Adjustment will be upgraded gradually until 100% of the agricultural sector is covered by 2020. Pursuant to this issue, Chile proposed the two nations begin negotiations on "DDA Category" (agricultural) products, in order to include them in the FTA, too. But the Korean response was immediate, stating that "these negotiations cannot start immediately". However, they did pledge to communicate the proposal to the relevant officials in Korea.

In spite of all this, many actors still consider the net impact of the FTA on Chilean agricultural exports to be positive. Such is the case of the congressman from Curico, which is truly an agricultural zone. Representative Sergio Correa is also president of the Chile-Korea Interparliamentary Committee. He stated, "The FTA has been an important step, because we have managed to introduce some fruits that could not be shipped previously due tariffs being so high. This is, in fact, exactly what occurred with cherries and kiwis. The only exception had been apples, whereas they are also producers.” The congressman stresses that wine is another product that has hugely benefited from the FTA. “Wine is selling very well in Korea. It even beats French wines in the price-quality area. This is very favorable for Chile," he concluded.

Regarding the international crisis

The commission also stated that it will be interesting to see how South Korea resolves problems resulting from the uncertain international economic context. What is the most likely scenario? Korea will continue its increase in purchases of raw materials from Chile, but Chile must make an effort to expand its export portfolio and focus the highest-end Korean purchasing power on some of its other products available for export.

Celebrating the FTA’s 5th anniversary

Finally, the committee noted the interest expressed by both parties to have a special celebration to commemorate the 5th anniversary of the FTA. It will eventually include a seminar and exhibition, to be attended by officials from both the government and private sectors. It is scheduled for March 2009. It was agreed to hold the 6th meeting of the commission, scheduled for October 2009, in Seoul.