Chilean Official Lauds Benefits of Free Trade

A small country like CostaRica cannot afford to be excludedfrom global commerce. It musthave a proactive trade policybased on seeking permanenttrade agreements with its maintrading partners, according toChilean Interior Minister andVice-President José MiguelInsulza.While serving as Chile’sForeign Minister during the late 1990s,Insulza played an active role in definingChile’s foreign trade policy, which has centeredon the negotiation of free-trade agreements.Insulza visited Costa Rica on Monday asa guest of the Foreign Trade Ministry(COMEX) to give a conference on Chile’sexperience negotiating free-trade agreementsand entering the global marketplace.He was here during Tuesday’s tragedy at hiscountry’s embassy (see separate story.)“FREE-trade agreements are likebridges,” Insulza explained. “They areplaced by the government, but are used byprivate citizens. The government does notexport, but it is responsible for creating theright conditions that make it possible for privatecitizens to export.”Trade agreements help cement traderelations between countries by providingcompanies and investors with an addedsense of certainty and security. These conditions,along with a good business climate,lead to increased trade and investmentbetween the countries that sign trade agreements,Insulza said.Insulza said he is pessimistic about theimmediate future of multilateral trade negotiations,namely the stalled Free-Trade Areaof the Americas (FTAA) and the DohaDevelopment Round of the World TradeOrganization (WTO) negotiations. Giventhe slow pace of multilateral forums, Insulzarecommended Costa Rica take the reins andmove forward in negotiating bilateral andregional trade agreements.Based on Chile’s experience enteringfree-trade agreements, Insulza predicted theCentral American Free-Trade Agreement(CAFTA) with the United States, ifapproved, would benefit Central America,increasing its exports to the United Statesand attracting additional foreign directinvestment to the region.Insulza also said it would be beneficialfor Central America to negotiate a free-tradeagreement with the European Union (EU).CHILE is often cited by economistsand policymakers as an example of how arelatively small country can achieve significanteconomic growth through anexport-based development model. Onrepeated occasions, top Costa Rican officialshave called Chile a role model CostaRica should strive to emulate.Chile began opening its markets andconcentrating its efforts on exports in thelate 1970s and early 1980s — nearly adecade before the idea caught on in the restof Latin America. Having this head startgreatly benefited the country, Insulza said.The export-based development modelled to unprecedented economic growth duringthe 1990s. Chile cemented its model bynegotiating permanent trade and investmentagreements with the majority of its neighborsand trading partners.Today, Chile has signed various types oftrade and investmentagreements with 47 countries representing80% of its trading partners.Chile has signed and implemented free tradeagreements with the United States,Canada, the European Union (EU), everycountry in Latin America with the exceptionof Panama and the Caribbean Communityand South Korea, among others. The countryis also in the process of formalizing itstrade relations with Japan and India.THE main objective of Chile’s tradepolicy has been to consolidate and improveaccess to foreign markets for its products.Insulza warned of the dangers ofdepending on unilateral trade concessionand the need to replace them with reciprocaltrade agreements. Most Central Americanexports enter the United States duty-freethrough the Caribbean Basin Initiative(CBI) and the Generalized System ofPreferences (GSP), unilateral trade concessions.Central American exports to Europebenefit from EU’s version of GSP.Costa Rica’s main objective during theCAFTAnegotiations was to consolidate CBIprivileges. To eliminate the uncertainty ofGSP and unilateral trade concessions, exportershave asked the government to negotiatea permanent trade agreement with theEU in the near future (TT, Oct. 17, 2003).THE problem with these types of preferencesis that they are not permanent andcan be revoked at any time by the governmentsthat award them. Reciprocal tradeagreements consolidate these privilegesand make them permanent, providingexporters and investors with greater certainty,Insulza explained.To make the most of its trade agreements,Chile has striven to improve itsinternal business climate by eliminatingunnecessary procedures and requirementsand reducing transaction costs. An openeconomy, a good business climate andpolitical and social stability are essential inattracting foreign direct investment, whichin turn creates jobs, he said.However, trade policy needs to beimplemented in such a way that it allowsthe government to retain its autonomy andauthority in regulating economic activities.While it may seem like a paradox, findinga balance between globalization and stateregulation is essential, he explained.FOR Costa Rica to continue to succeedin the global market and make the most ofthe opportunities created by the free-tradeagreements it has signed, it must continue todiversify its export base, offering new productsin addition to those it is already successfulat exporting, Insulza said.Insulza also said it is essential to ensurethat small and medium businesses haveaccess to affordable credit. The countrymust develop qualified human resources byinvesting in science and technology andmake the investments needed to improve itsinfrastructure, especially its shipping ports.