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REVISITING CHILEAN
INTEGRATION TO WORLD
ECONOMY
APEC Symposium: Catalytic Role of the APEC
Process: Behind the Border, Beyond the Bogor
Goals
Chiba, Japan, 14-15 March 2006
OSVALDO ROSALES
DIRECTOR
DIVISION OF INTERNATIONAL TRADE AND INTEGRATION, ECLAC
(CEPAL)
TABLE OF CONTENTS

Policy continuity; trade reform as integral
part of development strategy

Three-pillar strategy of international
integration

Remaining challenges and policy
responses
MAIN FEATURES OF CHILE’S
TRADE REFORM

Began in 1973, much earlier than the rest of Latin
America. Now, more mature and greater consensus;
 Chile’s economic policy has been executed relatively
independent from trade agreements, unlike other
countries where economic reforms were conceived
as preparation for trade reform.
 Trade reform in Chile has been characterized by its
comprehensiveness (width, depth), persistence and
speed; and
 Trade reform has formed part of a greater institutional
transformation process, which involved diverse
dimensions of Chilean society.
CHILE’S TRADE POLICY PHASES
Phase II
Phase IV
Phase I
Phase III
FOUR PHASES OF CHILE’S TRADE OPENING

Phase I (1973-1979): Trade reform; Reduce anti-export bias
•
•
•
•
•

Phase II (1982-1984): Crisis management, preserving the trade opening
process almost intact:
•
•
•


Trade Opening once again; Re-initiate export-based growth strategy
Macroeconomic recovery and stabilization;
Privatization and debt conversion programs;
Export incentives:
 i) deferred payments of import duties on capital goods importation; and
 ii) simplified “reintegro” system (drawbacks); and
Creation of special export regime (almacenes particulares).
Major Results: 1974-1989
•

Tariff increases up to the consolidated 35% level in GATT;
Creation of a mechanism to correct “distortions” in foreign trade; and
Limited exceptions allowed for in the uniformed tariff system (price bands)
Phase III (1985-1989): Trade Opening once again
•




Tariff reductions and its unification, NTB reduction,
Opening of investment regime, exchange rate unification,
Introduction of drawbacks and reimbursement Value-added tax
Reduce risks for exporters (Pro-Chile and its network)
Sectoral subsidies: very focused, especially on forestry and automotive sectors.
Increase in trade volume export diversification by product and by destination
Phase IV: since 1990 to the present
CHILE’S TRADE DYNAMISM
TOTAL EXPORTS (1990=100)
400.0
Chile
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
1980
1982
1984
Andean Community
1986
1988
Mercosur
1990
1992
Argentina
Source: CEPAL, International Trade Division o the basis of official data.
1994
1996
Brazil
1998
Chile
2000
2002
Colombia
2004
TRADE DIVERSIFICATION BY
DESTINATION
Herfindahl-Hirshmann Index
0.80
0.70
1986-1989
0.60
1999-2002
0.50
0.40
0.30
0.20
0.10
Source: CEPAL, International Trade Division o the basis of official
data.
Chile
Brasil
Uruguay
Argentina
Perú
Bolivia
Paraguay
El
Salvador
Guatemala
Nicaragua
Ecuador
Colombia
Costa Rica
Honduras
Venezuela
México
0.00
TRADE DIVERSIFICATION BY PRODUCT
Herfindahl-Hirshmann Index
0.60
1986-1988
0.50
2001-2003
HHI =1 (total concentration)
0.40
0.30
0.20
0.10
Source: CEPAL, International Trade Division o the basis of official
data.
Venezuela
Uruguay
Perú
Paraguay
Nicaragua
México
Honduras
Guatemala
El Salvador
Ecuador
Costa Rica
Colombia
Chile
Brasil
Bolivia
Argentina
0.00
PHASE IV BEGAN IN 1990





Deepen unilateral opening: 1991 and 2004
Addressed not only tariffs but also diverse
dimensions of trade policy
Improvement of prior reforms (financial
system, telecommunications) and
regulatory framework
Broadening private sector participation
(infrastructure and ports, etc.)
Concerted Opening: trade agreements.
CHILE’S TRADE OPENING AS INTEGRAL
PART OF DEVELOPMENT STRATEGY
1.
Opted in favor of trade opening
• Growth acceleration and poverty reduction
• Broad national consensus on X-oriented strategy
• Technological catch-up advances faster in open
economies
2.
Link between competitiveness and social cohesion
•
•
Lower level of poverty
Public policies to support SMEs and vulnerable groups
o
o
o
3.
CORFO, INDAP (management, technology)
PROCHILE (export promotion)
SENCE (training)
Open regionalism
•
•
•
Multilateral
Unilateral
FTAs – PTAs
COHERENT AND SOUND PUBLIC
POLICIES

Functional links between macroeconomic stability
and trade opening
• Correct sequencing of economic reforms
• Central role of exchange rate policy
• Anti-cyclical macro-management
o Fiscal policy: “structural surplus” rule
o Stabilization funds (copper, petroleum)
o Monetary policy: inflation targeting with “bands”
o Exchange rate policy: flexible exchange rates
(dampen external shocks)
o Sustainable current account deficit: low level of
external debt, sufficient reserves, prepayment of
public debt in times of economic prosperity, net
creditor at the IMF
CHILE: NECESSARY COMPLEMENTS TO
TRADE OPENING
1. State modernization
•
•
Institutional upgrading
Government as catalyst for ICT adoption
o
o
o
o
Taxes through internet (75% - 80%)
Electronic invoices
Digital signatures
Single digital windows
2. “Completing markets”
•
•
•
Education and training
Long-term and venture capital
Technology innovation
CHILE: NECESSARY COMPLEMENTS TO
TRADE OPENING
3.
Infrastructure to support foreign trade
•
•
•
4.
Quality and connectivity in telecommunications
Concessions on highways, ports and airports
Network of trade representatives in 65 locations
around the world
Vigorous social policies
•
•
•
•
•
Social expenditures grow faster than GDP
Unemployment insurance
Focalization of social programs
Reforms in education and health care
Special Programs for extreme poor (Chile Solidario)
ECONOMIC GOVERNACE AND
INSTITUTIONAL STRENGTHENING
•
•
•
•
•
•
•
Strong supervision and prudential regulation of the
financial system
Autonomy of the Central Bank
Transparency
Low level of corruption
Autonomous regulatory agencies. Vigorous
competition policy
“Market-friendly” regulatory mechanisms
Expedient and transparent judicial system (pending
task)
o Economic courts
o Specialized arbitration
PART 2
CHILE’S THREE-PILLAR
STRATEGY
PROS AND CONS OF EACH PILLAR:
UNILATERAL OPENING, WTO AND
FTAS
UNILATERAL LIBERALIZATION
Major advantages
• Reduces anti-export bias
• Favors trade creation
• Stimulates competitiveness
• Creates export lobbies that
counter protectionist lobbies
• Stimulates adoption of new
technologies in key sectors:
IT-related sectors; Businessrelated and financial services
Major Disadvantages
• Does not secure preferential
access to third markets
• Nor guarantees legal certainty
in trade and investment with
trade partners
• Does not stimulate X
diversification (tariff escalation
abroad)
• Less maneuver space for
international business alliances
• Policies are still seen as
“reversible” by third countries
(weak “lock-in” effects)
WTO: THE BEST SCENARIO
• Only mechanism to tackle the systemic issues
• Three pillars of agriculture (access, export
subsidies, domestic support)
• Antidumping and other disciplines
• Special and differential treatment (SDT)
• Capacity Building
• Multilateral rules favor small economies
• Multilateral agreements favor trade creation and
reduce costs in administrating agreements
• Only multilateral forum that has been successful in
challenging or even modifying trade policies of the
major trading economies
• Greater recognition of its dispute settlement
mechanism
WTO’S WEAKNESSES
Its weaknesses
•
•
•
•
•
Lengthy negotiations (6 to 10
years)
Protracted periods to address
issues that are of interests to
Developing Countries including
tariff reductions in the sensitive
sectors (10 years and more)
Until now, limited coverage of
and depth in issues that are key
to developing countries
(agriculture, AD, textiles)
Persistence of differences in:
tariff escalation, domestic
support and tariff peaks
As based on consensus,
decisions are taken on a lowest
common denominator dictated
by the most protectionist
countries
Weak commitment of developing
countries
• “Geneva is where the action
takes place”
• With few exceptions, developing
countries do not have a strong
influence in the process;
• Benefits are not owned:
appropriation problems
• Strong heterogeneity in capacity
building and trade negotiations
capability;
• Different levels of domestic
consensus about opening-up
and strategies of international
market participation
MULTILATERAL WEAKNESSES
STIMULATE FTAs
Lengthy WTO negotiations
hurt small and open
economies that:
•
•
•
•
Need immediate market access
to big markets
With legal certainty, and
Are willing to go beyond the
WTO in terms of speed and
depth;
Cannot stay outside FTAs while
competitors take full advantage
of those FTAs (“Domino” effect)
Objectives of FTAs
Secure access to large and
stable markets; serving as a
catalyst of technological
change and quality
enhancement in products
and services
FREE TRADE AGREEMENTS (FTAs)
2. Benefits
 Consolidate and expand access
to main markets
 Provide greater legal certainty
for exporters and investors
 Wider coverage of rules and
disciplines beyond the WTO in
several chapters (e.g., Customs,
Investment, and IPR)
 In the absence of progress in
multilateral forums, FTAs may
regulate trade and investment
rules with large trading partners
 Some benefits in investment and
transparency and institutions in
charge of trade and investment
policies
3. Problems
• May deviate trade (especially
•
•
•
intra-regional)
May politicize trade more than
in multilateral negotiations
May slow down the progress in
multilateral, regional
negotiations or unilateral tariff
reductions
May lead to neglect of
macroeconomic management
and/or advances in economic
reforms, when they are viewed
as “automatic” products of FTAs
signed with big trade partners
SOME CONCLUSIONS ON FTAs
• FTAs do not substitute development strategies
• Can support high-quality participation of the country in the
international economy
• If complemented by other necessary components:
o Macroeconomic stability
o Infrastructure
o Institutional stability and Modernization of the State
o Social cohesion
• Create political spaces that would permit addressing the
challenges of competitiveness
o Increased productivity
o Enhanced formation of “Clusters” and Value-chains
o Technological innovation
POLITICAL ECONOMY IMPLICATIONS
of FTAs
Following a right sequence of information dissemination
and consensus building, FTAs can be conducive to:
• Better governance of economic and political system
• Upgraded quality of public administration
• Enhanced institutionality between the gov’t and business
organizations
• Greater opportunities to get labor-related organizations
involved in policy debate on development and to generate a
dialogue between unions and business organizations
• Important to develop transparent and participative processes
with business communities and labor organizations, political
parties, and civil society during the process of negotiations
• Convenient to connect parliamentary approval of the
agreement with guidance for administrating FTAs
• Not to forget the fiscal impact of FTAs!!
PART 3
REMAINING CHALLENGES AND
POLICY RESPONSES
STAGES IN CHILE’S TRADE POLICY
•
•
•
•
Unilateral trade liberalization (1974-89)
Open Regionalism, focus on Latin America (1990-99)
FTAs with mega-markets (US, EU) (2000-03)
Strategic orientation towards Asia (2004-05)
o APEC 2004 in Chile
o Singapore, New Zealand, Brunei (P-4)
o China, India (already signed) and Japan (in negotiation)
• Innovation leap into the knowledge society (2005-…)
o Trade strategy forms part of the global strategy to promote the presence
in international networks of innovation and technological change
o Reinforcement of the links between trade policy, productivity
enhancement and technological upgrading, as well as human capital
formation
o Think “big” with a global vision: international alliances, entrepreneur
associativity, niches in the global economy, international value chains
WEAKNESSES OF THE EXPORT MODEL
PERSIST
• Still high concentration of commodities to the detriment
•
•
•
•
•
•
of manufactures
Weak linkages between X and the rest of the economy
Low participation of SMEs in X as direct or indirect
exporters
Limited effort to promote X and make use of the
opportunities offered by the FTAs
Low level of “quality” certification: below the levels of
economies with less income per capita and lower trade
opening coefficient
Limited incorporation of knowledge in X
Lack of R + D
OBJECTIVE: IMPROVE THE QUALITY OF
PARTICIPATION IN INTERNATIONAL
MARKETS
• Deepen the export model stimulating further its dynamism,
•
•
diversification and sustainability
Reinforce the linkages with the global economy
maximizing rents associated with natural resources and
position itself in the dynamic sectors of the global markets
Intensify efforts on innovation, technological diffusion and
the formation of human capital
OBJECTIVE: IMPROVE THE QUALITY OF
PARTICIPATION IN INTERNATIONAL
MARKETS
• Upgrade the quality of markets and economic institutions
• Reconcile competitiveness with social cohesion
o Dynamic participation in international markets
through enhanced competitiveness
o Competitiveness that rests on technical progress
and productivity gains
o Progressive reduction of productivity gaps among
distinct domestic sectors
o Salary increases and inequity reduction based on
improved productivity and on labor markets that
facilitate an adequate distribution of these increases
MAJOR COMPONENTS OF THIS
STRATEGY
• Administer FTAs making good use of the opportunities
•
•
•
•
offered (US, EU)
A strategic “bet” towards Asia: China, Korea, Japan,
Singapore, New Zealand, India
Deepen ties with Brazil and others:
o Taking advantage of our presence in Asia
o Subregional physical and energy integration
o Investment platform and web of trade agreements
Reinforce business alliances with Mexico and Canada to
exploit further the US and Central American markets
Once again, indispensable to incorporate the technology
variable
REVISITING CHILEAN
INTEGRATION TO WORLD
ECONOMY
THANK YOU
OSVALDO ROSALES
DIRECTOR
DIVISION OF INTERNATIONAL TRADE AND
INTEGRATION, ECLAC (CEPAL)
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