Chile-India PSA: First annual review of progress

The treaty has helped Chile’s efforts at integrating itself into the Asia-Pacific. The accord with India comes in the footsteps of accords with Korea (2004), China (2006) and Japan (2007).

In terms of tariff liberalization the PSA represents a preferential tariff rate for 178 Indian and 296 Chilean exports. This will cover approximately 98% of Chilean exports and 91% of Indian imports when the PSA takes effect.

Investment in Chile

Needless to say, Indian investment has no down side. Its growing participation in international trade and an annual GDP of $1.23 billion makes it the second strongest economy in Asia. It is also the fourth largest in the world (in terms of purchasing power parity, or PPP). Since July 2007, India has also been negotiating an FTA with the European Union. All these factors combine to make it a real asset as an economic partner.

From 1974 to 2008, India investments in Chile were regulated via DL 600. Indian capital amounted to $27.1 million, or 0.04% of total foreign direct investment for the period. Of this $27.1 million, about 95% were invested in 2005 and 2006. India mainly opted for Chile’s services sector. Despite the fact that in the past year and a half Indian investments have not been tracked via DL 600, the PSA is clearly expected to deepen the trade relationship between the two countries. The PSA will also pave the way for attracting capital.

The evolution of the commercial relationship

The second half of 2007 and first half of 2008 were used as the reference points. The report compares this period to the same previous periods in 2007-2006. The analysis shows that Indian imports totaled $315 million, which was a growth rate of 82%. Exports to India reached nearly $2 billion, or 20 times higher than 1999. 

Copper: a vital issue

Copper represents 90% of Chile’s total exports, thus it deserves a category of its own in any Chile-India trade analysis. 94% of goods exported to India are copper-related products, which have experienced a monumental price increase during the past four years. Accordingly, the price increases caused total Chilean export revenues to increase, too. It must be added that between 1999 and 2005, Chilean shipments to India were under $500 million per year, when, in 2006, they experienced a significant hike to more than $1.6 billion.

During the past year copper shipments to India declined by 5%, which seems to be due to lower global demand for Indian copper products. Non-copper exports, however, showed an increase of more than 86%.

PSA’s progress: slowly, but surely

Since implementation, the PSA has resulted in an almost 5% increase in trade. Though first-year results may be modest, DIRECON contends that PSAs require a longer period of analysis in order to obtain more conclusive results. PSAs also involve an interim period for consolidating trade relations, not to mention the learning curve as regards PSA opportunities.

What does Chile export to India?

As can be extrapolated from the figures on copper, the most important economic sector in Chile's exports to India is mining. It represented 96% of 2008 exports. The forest-fishery-agricultural and manufacturing sectors remain rather limited at 0.6% and 3.7%, respectively. Food exports of the sector are almost completely concentrated in fruit, which showed a growth of nearly 26% during the reporting period. The manufacturing sector tripled the amount of the previous period, rising from $21.8 million to $73.8 million.  Manufacturing focused primarily on iron and steel exports, and increased 20 times the amount exported during the year preceding PSA. It is, thus, one of the most promising sectors along with pulp and paper, which grew by 200%.

Chile also imports

Chilean purchases from India are mostly intermediate goods (53%), which increased 43.3% from 2007. Meanwhile, consumer goods account for a sizable percentage of 36.5% of total Indian imports to Chile, in addition to growing at a rate which exceeded 40%. The main imported product was sulfuric acid, at 17.8%. Passenger vehicles equalled $25 million or an 8% share of total Chilean purchases from India during the first year of the PSA.  Below these came various types of glove imports (3.5%) and trucks (3.5%).

Waiting to reap the harvest

Although PSA exports experienced a 2% slowdown during its first year, this fact can be explained mainly by reduced purchases of copper. The opposite occurred in non-copper exports showed a growth exceeding 86%.  Another benefit of the PSA is the facilitating of the introduction of new products and an increase in the number of Chilean companies exporting to India. It is expected that the deepening of the commercial relationship between the two countries through this PSA will pave the way to attracting investment capital. This, in turn, has been further enhanced by the intention of Chile and India to expand this agreement into a full-blown FTA, which would include political aspects and increased cooperation.