The year 2013 marked a decade since the Free Trade Agreement (FTA) between Chile and the United States came into force, while in January 2015, zero tariffs and the end of shipment quotas began. This new agreement ispositive for Chile, and the country has the distinction of having achieved the tariff relief in a record time of 12 years, compared to the 18 or 20 years that it takes to establish other bilateral agreements with the US.
“The FTA marked a standard that was not necessarily applied to other agreements. Since the first minute of 2015, all tariffs were eliminated, along with the quotas. In addition, in our case, there are no excluded products, whereas other agreements signed by the US include significant exceptions”, says Andrés Rebolledo, Director of the General Directorate for International Economic Affairs (Direcon), part of the Chilean Ministry of Foreign Relations.
Direcon notes that since 2003, Chilean shipments to the US have almost tripled, growing from US$3.799 billion to US$9.273 billion in 2014. This is a key point, given the diversified nature of the Chilean export portfolioto the US: last year, non-copper shipments accounted for 72% of the total.
What opportunities arise for Chilean exports following the elimination of tariffs and quotas?
Zero tariffs imply a process; we did not go from a tariff of 10 to a tariff of 0 overnight on 31 December. Potential impacts are conceivable on products that were previously subject to quotas, about ten in all, including fruit, avocados and milk-derivatives. Five or six years ago, some of these made up the entire quota and in some cases, they were exported over the limit, with the entire tariff being paid. Therefore, there is significant potential in this area. A scenario of certainty over time can have an impact on other products.
What is the next step in the economic relationship between the two countries? What issues will be discussed next?
From now on, a new agenda has been initiated, covering issues revolving around economic trade cooperation (no longer in the tariff sense), like regulation as a general concept. And when I say regulation, I mean issues relating to sanitary and phytosanitary measures, technical legislation in general and others, which are becoming increasingly noticeable in international trade, such as food safety, climate change, rules of origin, and a series of regulations that are, in short, those that will affect trade in the future. The important thing in this relationship is to have a broad agreement in which we cover numerous issues and an institutional framework in place that can take full advantage of this new agenda. In this way, there is a big difference between having an agreement and not having an agreement.
On what issues is greater progress needed? What are the pressing areas in terms of health and the environment?
We have a health committee that meets regularly on a relatively smooth basis. During these past 12 years of applying the FTA, Chile has managed to open up many products that were initially closed off, thanks to negotiations and this institutional framework. In a number of cases, for example, chicken, we had a quota with a zero tariff, but which were we unable to utilize because we did not have the right health regulations in place. The same thing happened with certain types of fruit which was resolved along the way. There are products facing pending health procedures, but these issues have to be prioritized. Eight years ago, for example, citrus fruits were irrelevant, and as a result, there was no urgency to open these up in terms of health and safety. Nowadays, however, they are relevant. The important thing is to have an institutional framework in place.
Furthermore, we have been asking that the certification of certain products is done at source, that we do not have to wait for it to be done at the point of destination, and rather that it recognizes the local institutions. This process is ongoing. This does not mean that these products cannot enter the country, just that they are being certified at destination.
Going back to the new trade agenda with the US, what are the key ideas or points being addressed?
The FTA includes a chapter on environmental cooperation, which has not yet been fully developed. Meetings have been held, but there is room for more work to be done. The US has extensive experience, for example, in the area of food safety, with oneborder regulation obliging Chile to establish procedures which are different even to those that exist in the Latin American and global standard.
There is a similar situation regarding climate change. Markets are increasingly demanding certifications and measurements of carbon footprints, of water and even the possibility of being declared carbon neutral. This represents an additional, different standardto other international markets. These are issues on which we have to work, and we will probably have to ‘flick a switch’ to try to bring this experience to bear in the agreements and in establishing programs of cooperation. For example, the US has an innovation and entrepreneurship roundtable with Mexico and other countries, on issues of Corporate Social Responsibility, which we could, eventually, replicate. Today, these issues are part of the ‘soft’ standard, but are becoming increasingly linked to trade. We have to recover that agenda in the bilateral relationship and take advantage of the US experience to devise new programs.
And what are the priorities for Chile in this regard? On what specific areas would you like to establish roundtables with the United States?
Safety and security in international trade, climate change and the environment. We are working on an agenda with Chilean exporters. There is a concept called the Authorized Economic Operator, in which certain businesses can become certified as a way of assuring the US about their exports, and thereby enter into a kind of fast-track system to the US market. But to do this, companies must adopt certain procedures, they become certified and they must invest. In Chile, the body overseeing this system is the National Customs Service. We hold a roundtable on competiveness for exporters, in the framework of the Productivity, Innovation and Growth Agenda. This consists of 12 measures, one of which is certification as an authorized economic operator on issues of safety.
How do you foresee the future trade relationship between Chile and the United States?
It is a market that will probably keep diversifying in terms of products, companies, goods and services, with new actors emerging as service exporters. There are different ways of exporting services; when tourists visit or students come to study, they are exporting services. The US is the fifth largest receiver of Chilean foreign exports, with around US$7 billion invested in the services sector.
We are participating in other negotiations too, as well as the bilateral ones, as observer members of the Pacific Alliance (in which there is also an interesting working agenda). Here, interest has been shown indrawing up an agenda of cooperation with the Alliance. We are also negotiating in the TPP.
TRANS-PACIFIC PARTNERSHIP AGREEMENT
Negotiations in the Trans-Pacific Partnership Agreement have been taking place for the last six years. Driven by the US, these negotiations include a total of 12 countries: Australia, Brunei, Canada, Chile,Japan,Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam.Rebolledo calls the process “arduous”, in the sense that Chile has already successfully negotiated an FTA with the United States. As a result, the main objective of the Chilean government during TPP talks is to safeguard the agreements underlined in this bilateral instrument.
In concrete terms, Chile wins in terms of cumulation of origin, by raising standards and rules of international trade and, eventually, gaining access to markets like Japan and Malaysia. Is there any risk? Yes, in sensitive issues like intellectual property and digital content. But, as Rebolledo says, “we want to safeguard what we have in the bilateral (treaty) … not open up the sensitive areas”.
Chile currently has FTAs with 56 countries and with all the countries negotiating in the TPP. What are the additional benefits of signing this agreement for the country?
Basically, if taken from the tariff perspective, it provides Chile with benefits regarding particular countries, with which we have more limited agreements: Malaysia, Canada and above all, Japan. With Japan, we have an agreement with exceptions, with plenty of quotas and, although it is still not clear whether the TPP will include exceptions, it will be a broader agreement and deeper than the one we have at present, so there are still important issues to play for.
The TPP is determining trade legislation and standards that do not currently exist, whether in bilateral agreements or in the World Trade Organization (WTO). Therefore, rules are being drawn up in many areas, including new ones, for example, on issues like regulatory coherence, State companies, transparency, labour issues and environmental issues, which will probably be the standards that help to shape the world map in terms of trade law. Historically, this role has been fulfilled by the WTO or GATT (the General Agreement on Tariffs and Trade), but today these rules are being devised by means of large-scale agreements, such as those negotiated between the US and Europe or the TPP.
The FTA with the United States is a broad agreement. Is there any additional area in which the TPP could be advantageous for Chile?
One important element, potentially, is the concept of cumulation of origin. When you have a bilateral agreement, I can sell my phone, but I have to abide by a rule of origin. I cannot bring in parts from China and expect that the recipient gives me a zero tariff reduction; I have to stick to the negotiated rule of origin. Today, I have the chance to accumulate intermediate materials, supplies, or goods between the two: if I want to make a telephone and I have materials from the United States, I will incorporate these and they will be considered Chilean, thereby helping to abide by this rule of origin.
The TPP opens the possibility of cumulation of origin with 12 countries, allowing for material to be used from any of the other 11. This, therefore, opens up more options for the productive headquarters, as I will be able to purchase from four or five countries, I can cumulate origin, and then I can sell the product to any of the other members of the agreement. And they can also cumulate my supplies. Therefore, it creates a win-win situation, as I have more supply options and products are more likely to be purchased by others. And this isprobably one of the most important elements of the expansion that could occur as a result of trade issues beyond tariffs. Indeed, for Chile, this is more important than the topic of tariffs.
Since APEC, there has been a renewed impetus to the TPP negotiations, but doubts remain in certain sectors. What role is the Cuarto Adjunto (meaning Fourth Initiative) [a space for debate opened by the Chilean Government] playing in this regard?
The Cuarto Adjunto has provided a lot of transparency to the process. (Through this tool) we have been able to provide substantial information to those involved regarding where and what is being negotiated. Therefore, criticism around a lack of knowledge (about the process) has dissipated. We have held almost 30 meetings since the end of March 2013, we have met with 120 organizations of all types; businesses, NGOs, and representatives of employees and universities. It is an important instrument and, undoubtedly, for negotiations of this magnitude, it makes complete sense to hold discussions with those involved, rather than dealing with the issues in an abstract manner.
And has this implied broader acceptance of the TPP in terms of sensitive issues, like industrial property and copyright law?
It has been ten months since we began pushing these negotiations, and there are some issues which have been resolved. The most sensitive of these are industrial property in two forms: intellectual property (medication) and copyright law; as well as the environment (conservation issues); and issues relating to investment, services and the Central Bank. All have been evolving over time. It should be remembered that we are 12 (countries), and there are different sensitivities as a result. In some cases, positions are collective,while in others, we are more isolated. Nevertheless, there are still issues which we have not managed to resolve and that remain sensitive for us. In particular, there is intellectual property, in which we have maintained our position, consistently expressing our concerns regarding medication patents, in particular, as well as certain aspects concerning digital issues relating to the internet.
In relation to what you mentioned about medication patents, it has been said that this could affect sales of generic medicines.
Chile has assumed a standard as part of the FTA with the United States, from which we do not wish to move; we want to keep this protected. This has already involved great effort during the negotiations ten years ago. There are different regulations concerning patents, but basically they relate to the levels of protection of the products associated to patents versus generic ones. We do not want this to affect generic medicines. All these rules establish a trade-off regarding how much time the exclusivity of a patented medicine lasts, versus the possibility of one entering the market with the same active ingredient, but that is generic. In different ways, usually the bigger country wants to protect and assign time to this issue. The standard is how much room is given for the generic medicine to enter in the short term with legal flexibility. This is the dilemma.
And how do you foresee the negotiations on this issue? Are there other countries which share the position of Chile?
There are some but not many, since the US has already resolved this standard with other countries participating in the TPP process.
And if the proposal is agreed upon as it stands in terms of the protection of medication, for Chile, which would prevail, the FTA agreement or the new standard?
There will be a special concept in which the bilateral and TPP agreements coexist. In this case, the highest standard prevails, which is why it is complicated, because in the future there may be deliberation as to which of the two is higher. We are trying to establish safeguards in the most explicit terms possible in the TPP regarding what hasalready been established in the bilateral agreement. (The idea is to try) to avoid this discussion becoming open to interpretation in the future. We are working to secure what we already have,since we do not want to open up these sensitive issues which have previously been clarified in the FTA.
Another sensitive issue relates to the responsibilities of Internet Service Providers (ISPs) and internet content. What is the position of Chile?
The US establishes that whoever deems there to have been a breach of copyright has the chance to request the ISP to remove the relevant content. And Chile does not have this assurance in the FTA, and we are therefore defending the position of the bilateral agreement.
Minister Heraldo Muñoz indicated that TPP negotiations could be completed by mid-2015. Does this date still stand?
Chile is not committing itself to any particular date. The US has said that it is interested in concluding the process by mid-2015. And they are attempting to obtain a Trade Promotion Authority in the US Congress, a fast-track allowing for negotiation guidelines to be compiled. Everything seems to indicate that they will achieve this quite soon, which could be favourable to the conclusion of the TPP.
Once the TPP has been approved, will Chile have to make any legal or regulatory adjustments?
That depends on the content of the final agreement.
Finally, is Chile willing to sign the TPP at any cost, even if it loses out on issues that have already been approved by the FTA?
We will ensure that this does not happen. We are seeking a balanced agreement, with clear benefits, like the cumulation of origin or the evaluation of trade standards, but that do not involve having to open up complex and sensitive issues that are already covered by a bilateral instrument, particularly relating to intellectual property. And this has been our focus since day one. We sat down to negotiate in good faith, but our view is to reach a balanced agreement that combines two things: potential benefits and safeguards for the sensitive issues at the level at which these have already been established in the FTA.
Since the FTA came into force, Chilean shipments to the US have almost tripled, growing from US$3.799 billion to US$9.273 billion in 2014.
“We are trying to establish safeguards in the most explicit terms possible in the TPP regarding what wehave already establishedin the bilateral agreement. The idea is to try to avoid this discussion becoming open to interpretation in the future”.