Benefits of the China-Chile FTA

In 2006, Chile signed its free trade agreement with China. The FTA was Chile’s first with an Asian economy. Since then, Chilean exports to China have doubled, making China Chile’s largest trading partner. Despite this not all sectors have taken advantage of the FTA’s opportunities. As such, the Asia-Pacific portal provides this brief guide to FTA and the business opportunities it represents.

What are the benefits for Chile?

The FTA allows Chileans firms privileged access to China, an emerging economy of almost 1.3 billion consumers. Its economy has been growing at double-digit rates for over 10 years. It is an FTA with the largest and fastest growing economy in the Asia-Pacific, which also happens to be the largest importer of Chilean exports.

China has also become the largest contributor to Chile’s favorable trade balance. In fact, 27.6% of Chile's positive trade balance during the first half of 2008 is due to trade with China.

The liberalization of trade in goods is another benefit, whereas 37% of Chilean exports to China, or 2805 out of a total of 7550 export items, became duty-free as soon as the FTA came into effect. In addition, other 1947 products were declared duty-free as of October 2007. Another 973 will be added in October 2011 and 1611 products as of October 2016. In the end, only 214 products will remain taxed.

Products and areas favored

Among the best-known Chilean exports to receive immediate duty-free status were copper and other minerals, vegetables and certain types of food. The most sensitive products for China, such as salmon, grapes and apples, will attain duty-free status in 10 years. Other products were fish oils, chicken, pigs, vegetables, plums, fresh peaches and nectarines, canned peaches, cherries, cheese, frozen shrimp and tomato paste.

Moreover, although almost every region in Chile currently exports to China, the north leads the pack, due to the mining sector. Other notable export spikes were experienced by the VIII, IX and XII region.

The low participation of small businesses in the FTA is a cause for concern, however. Carlos Furche, DIRECON’s director, wants to change this paradigm. "We must support SME networking in order to help them address the challenges of this market.” DIRECON has organized various activities and tours to China, in addition to its ProChile trade offices in Shanghai and Beijing.

The Supplementary Agreement on Trade in Services was signed in 2008, as was a memorandum regarding business visas. Nondiscrimination clauses were introduced, increasing transparency on both sides. The commitments go beyond what is established by the WTO, whereas China’s counteroffer included 10 sectors (16 sub-sectors which were not on the WTO list). Chile offered 15 sectors. The areas potentially benefited include: professional services, computer services, and services those related to mining, construction, distribution and environmental services.