Prof Claudio Dordi - Professor of International Law at Bocconi University (Milan), and MUTRAP III Team Leader

Mr Federico Lupo Pasini - Lawyer and consultant specialized in international economic law and policy. Based in Hanoi.

The literature on the assessment of the economic and trade performances of the FTAs concluded by the EU is quite comprehensive: however, most of the researches are conducted before the agreement is negotiated and is entered into force, as they are intended to support the negotiators to understand the magnitude of the effects of each agreement. Few analytical studies have been published to analyze the impact on trade and on the economies of the FTAs members after the agreement entered into force. In this research we select, among the countries which participated to a FTA agreement with the EU, only those agreements which might represent a reasonable example for Viet Nam. For this reason we excluded all the agreements with EU members’ candidates or with countries that are geographically close to the EU as well as the agreements with countries which are not comparable to that of Vietnam and we selected some agreements which already entered into force for a minimum number of years, allowing the possibility of an effective assessment of their impact on the members’ economies.

The Main Features of Chile

	Chile
Surface	756600 sq km
Population	17 millions
GDP	116 bn. Euro
GDP per capita	6829,2 Euro
Export/GDP	32,1%
Import/GDP	28,3%
Trade/GDP	60,4%

 

The EU-Chile Free Trade Agreement

	Chile
Signed	18.11.2002
Entered into force	1.3.2005

 

Main issues covered

The Association Agreement between the EU and Chile entered covers a number of relevant issues as follows:

-          Progressive liberalization of trade in goods;

-          Establishment of a agreed discipline on customs, rules of origin, TBT and conformity assessment procedures, SPS, safeguards, antidumping;

-          Progressive liberalization of trade in services;

-          Improvement of the environment for reciprocal foreign investments;

-          Liberalization of movement of capitals;

-          Government procurement;

-          Protection of intellectual property rights;

-          Protection of competition;

-          Dispute settlement.

Trade performances

EU-Chile trade showed a clear increase of trade flows from the entering into force of the FTA agreement (2005). The annual growth rate in the period 2005-2008 was 19.17% for the export and 12.47% for the import.

Exports: the entry into force of the agreement boosted the exports only in the first year of implementation (2006). Since 2007 the exports growth rate has been limited (2007: + 3%) or negative (in 2008 and in 2009). While in the last two years this has been probably due to the economic and financial crisis, the data of 2007 probably illustrate that the trade effects of the agreement on exports have been quite limited. This is confirmed by data in table 2, which shows similar data regarding the annual exports growth in the pre-crisis (2005-2007: table 2) pre-agreement (2002-2005) periods (respectively: +30.77% and + 30.66%) annually.

The post-agreement period growth rate of import (+12.47%) has been lower than the pre-agreement one (+18.11%). The higher increase of exports compared to import amplified the trade balance surplus for Chile (in the post-period, +25.76%). The agreement did not influence the relative value of the trade balance: indeed, comparing the period 2005-2007 (pre-crisis and post-agreement) with the 2002-2005 period (pre-agreement), table 2 shows similar growth rates (+51% vs. +54%)

Table 1

	Chile-EU Trade (000 USD)
	Value in 2002	Value in 2003	Value in 2004	Value in 2005	Value in 2006	Value in 2007	Value in 2008	Value in 2009	Growth 2005-2008	Growth 2002-2005
Export	4290406	4972083	7882569	9569440	15883042	16364055	16193417	9646674	Annual	Annual
Growth rate		15.9	58.5	21.4	66.0	3.0	-1.0	-40.4	19.17	30.66
Import	3042924	3286535	3584266	5013443	5177083	5957093	7132448	6578245
Growth rate		8.0	9.1	39.9	3.3	15.1	19.7	-7.8	12.47	18.11
Trade balance	1247482	1685548	4298303	4555997	10705959	10406962	9060969	3068429
Growth rate		35.1	155.0	6.0	135.0	-2.8	-12.9	-66.1	25.76	54.00

Source: ITC, Trade Map

Table 2

	Growth 2005-2007	Growth 2002-2005
Growth rate export	30.77	30.66
Growth rate import	9.01	18.11
Trade balance	51.14	54.00

Source: ITC, Trade Map

 

It is highly probable that trade flows have not been deeply influenced by the implementation of the agreement for a number of reasons. The very low level of average tariffs already applied in the reciprocal trade between the two FTA members before the agreement is probably one of this: table 3 below shows that the in the bilateral trade there had not been substantial reduction of tariffs.

 

Table 3. EU tariffs applied on Chilean imports.

Product Name	Year	Simple Average	Weighted Average	Standard Deviation	Maximum Rate
Total Trade	2004	4.01	1.84	5.55	57.6
Total Trade	2008	4.19	2.09	5.36	57.6
Agricultural	2004	6.12	9.22	8.04	57.6
Agricultural	2008	6.39	9.42	8.02	57.6
Industrial	2004	3.64	1.02	4.46	26
Industrial	2008	3.84	1.12	4.37	26

Source: World Bank, Wits

 

It should be taken into consideration, however, that the share of import from Chile in the total import of the EU increased from 0.24% in 2004 to 0.27% in 2008, while, like in 2004, Chile exports to EU amount to 25% of total Chilean exports. This shows that the FTA has probably helped Chile in maintaining, at least, the same market share in EU imports.

Copper is the most important product exported to the EU: in the period 2004-2008 its exports increased by 17% (6.8 bn. USD in 2008); the other four main products exported are Ores (+16.3%, 2.9 bn.), Edible fruit (+18.6%, 1.8 bn.), Beverages-spirits-vinegar (+10.7%, 0.8 bn.), pulp of wood (16.8%, 0.8 bn.) and seafood (+13%, 0.5 bn.). The economic crisis on Chilean exports to the EU (-40%); copper is still the most important products exported to the EU (amounting to 31% of total export towards EU in 2006, reduced to 19.7% in 2009).

The data available from the Central Bank of Chile shows that the export to EU of industrial products, in the period 2003-2009 (the official statistics take into account the date of signature), increased annually by 9.5%, while the growth rate of agricultural products, in the same period, was 15.8%.

The share of EU export to total Chilean import in 2009 is around 15%, almost the same value of 2005 and 2004 (16%). The economic crisis had the effects of restoring the presence of EU products in the Chilean market (in 2008 the share was only 11%). Machinery (+6% in the period 2004-2008, 2.1 bn. USD the value of import in 2008), Electronics (+20.9% and 1 bn.), Automotive (+15.4% and 0.7 bn.), pharmaceuticals (+18.7% and 0.24 bn.) and articles of iron or steel (+15% and 0.28 bn.) are the most important imported products from the EU.

In line with the huge economic growth, there has been an increase of import of capital goods from the EU (annual increase of 10% from the signature of the agreement). Consumers’ goods from the EU increased, in the same period, by 11.7%.

Investment performances

The EU is one of the main investors in Chile, in line with the world tendency. The following table and charter illustrate the evolution of EU FTDIs in Chile since 1998 (data in millions of EURO).

partner\time	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
Chile	1590	4676	1537	3048	1564	1643	1987	889	997	763	1157	39

Source: Eurostat.

 

It is apparent that FDIs from the EU to Chile reveals great fluctuations until 2004. Afterwards, there has been, with some minor exceptions (2006 and 2008) a constant decline. The huge increase in 1999 was due to the important inflows of capital from Spain, traditional Chilean partner, following the process of internationalization carried out by Spanish enterprises in that period. The privatization processes in Spain of the second half of the 90s gave a unique opportunity to have liquidity to access to the Latino American markets of telecommunications, oil, electricity and financial services. Indeed, between 1997 and 2001, more than 55% of Spanish FDIs had been directed to Latin America. In 2008, the main sectors of EU investments in Chile have been transport and storage (29,1%), mining (25%), electricity, gas and water (17,1%), financial services (13,1%).

There are no evidences of any effects promoted by the conclusion of the FTA, on the promotion of FDIs from the EU to Chile.

 

partner\time	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
Chile	-9	-72	46	110	2138	-295	23	-26	200	1125	168	-967

Source: Eurostat

 

The above charter and table show that after the entry into force of the FTAs there had been an important increase of FDIs from Chile to the EU (except in 2008 and 2009: however, due to the international economic and financial crisis, these data are not fully reliable). The investments are mainly concentrated in the services sector (60%) while 40% are focused on the industrial sector.

Conclusions

As forecasted in a previous study, the effects of the FTAs on the trade relationships between Chile and the EU have been positive, but modest, regarding their magnitude. This is probably due to the already existing openness between the two entities before the entry into force of the FTA agreement.

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