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Preferential trade arrangements: what is at stake?

Between 1997 and 2004, bilateral merchandise trade between Chile and the EFTA States grew at an average annual rate of 2.4% (Chilean exports to EFTA: 2.7%). Since the entry into force of the EFTA-Chile Free Trade Agreement in December 2004, annual growth has averaged 13.2% (Chilean exports to EFTA: 10.3%). Is this development in line with Chile's experience of preferential trade arrangements with other partner countries? What, in your view, are the main contributing factors to the success of these agreements?

That is indeed the case. Once a treaty enters into force, the pattern is one of significant growth in bilateral trade. In my opinion, there are two reasons for such success. The first factor is the elimination of or substantial reduction in customs tariffs. This creates immediate comparative advantages for exports entering the other party's market. The second element is awareness. Due to media coverage, the negotiation process catches the attention of people who would otherwise not have been aware of it. In other words, a country becomes "visible- to a broader audience. Likewise, the export industry.--consulted throughout the negotiation process--would update the commercial information available on the country or economy in question.

Chile is on active participant in several interregional economic projects, such as the Trans-Pacific Partnership and the Pacific Alliance. Are these emerging regional blocs likely to establish new yardsticks and replace pre-existing bilateral FTAs?

Overall, the answer is yes, but the degree will vary from one topic to another. On market access, for instance, if the new regional agreements deepen the liberalisation process or advance existing bilateral rules, then they shall prevail. The same logic applies to trade disciplines. If the result is deeper, more sophisticated and precise, then the plurilateral regional treaty shall prevail. Nevertheless, due to the number and diversity of participants, inter-regional agreements are naturally more complex. Thus, it is likely that the substitution effect (one treaty over the others) might be delayed, because the new agreement would have a slower tariff reduction/elimination schedule. For example, when the North American Free Trade Agreement (NAFTA) was negotiated, a previous bilateral agreement between the United States and Canada continued to be partially enforced.

Like EFTA, Chile has developed an extensive worldwide network of FTAs, while remaining committed to the WTO's multilateral trade agenda. What, from a Chilean perspective, are the advantages and limitations of bilateral/ regional trade liberalisation when compared with the multilateral approach?

Bilateral processes always go beyond the WTO. The clearest example is market access negotiations. where bilateral agreements tend to achieve the total elimination of customs tariffs. On the trade disciplines side, the situation is more complex. Indeed, under existing WTO rules, bilateral treaties cannot go too far. At most they can provide additional precision and clarity. Nevertheless, on trade topics currently' outside the realm of the WTO, bilateral arrangements can create their own set of rules without much restraint. For instance on investments, competition policy and standards, the space for innovation is open. That being said, there are areas that cannot be advanced bilaterally', simply because the implications are multilateral. Such is the case with the elimination of export subsidies in agriculture, or the substantial reduction of financial support for farming. Moreover, from a systemic perspective, an increasingly globalised and harmonised world cannot operate properly without universal rules. In our time at least, bilateral agreements will never be able to replace the multilateral trading system.

Mario Matus, Chile Ambassador to the WTO, WIPO and UNCTAD
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Author:Matus, Mario
Publication:EFTA Bulletin (Switzerland)
Article Type:Column
Geographic Code:3CHIL
Date:Dec 1, 2013
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