SANTIAGO, Chile, Nov. 13 (UPI) -- Rocked by economic turbulence, the Chilean government nonetheless will have much to show when the time comes to evaluate its performance in 2002. Among its highlights figure the April signing of a free trade agreement with the European Union and a similar accord reached in October with South Korea.
The latter could not have come at a better time for Chilean authorities. The country recently saw an abrupt fall in the value of its currency, the peso. And it realized that, for the third year in a row, its gross domestic product growth for 2002 will be confined to about 2 percent.
The impact of the weak economy on the government was shown in President Ricardo Lagos' jubilant words when he was briefed Oct. 24 about the agreement.
"The projections are that within seven years we will be able to double our exports to (South) Korea. In 2001, they were more than $580 million. Doubling that figure means more employment, more growth, and more work for Chileans."
More than two years in the making, the Chile-South Korea trade pact is a first for both nations in many respects. For Chile, as it signs its first commercial pact with an Asian nation, this is the fulfillment of its long-held goal of becoming an "economic bridge" between South America and Asia.
Pending approval of the pact in both countries' legislatures, Chilean trade authorities said that the agreement should become effective during the first half of 2003. And its impact will be felt immediately, since it's stipulated that from day one, 77.5 percent of Chile's non-copper exports enter South Korea duty-free. Within five years, the figure rises to 88.4 percent.
South Korea benefits too, since 66.7 percent of its shipments will enter Chile duty-free, rising to 83.7 percent after five years.
The accord is pivotal in Chile's export diversification, since copper comprises more than 70 percent of its shipments to South Korea. And it means even more in light of the fact that global copper prices are weak -- and that Chile insists on financing much of its budget from the revenues of state-owned National Copper Corp., or Codelco, the world's largest copper producer. But even at low prices, copper exports will increase Chile's trade with South Korea.
Based on official estimates from the government's Chilean Copper Commission, Cochilco, South Korea's economic growth demands increasing volumes of copper-intensive manufacturing. In 2001, the Asian country was the world's fifth-largest copper market, acquiring some $836 million.
The pact provides long periods to eliminate duties for the rest of the mining industry -- up to seven years, according to Chilean trade official Mario Matus.
The same goes for most Chilean fish exports: 277 fishery products will immediately be duty-free, while the rest will take five to 10 years to achieve that status.
Another industry that should benefit from greater access to the fiercely protectionist South Korean market is agriculture. According to Osvaldo Rosales, director of economic relations for the Foreign Ministry, before the agreement Chilean agricultural products faced tariffs averaging 50 percent.
"The most favored tariff with South Korea used to be around 8 percent and as for agriculture, it ranged from 45 percent to 50 percent, and that's only the average, given that there were tariffs of 60 percent and 100 percent. In this sense, the agreement grants Chilean producers a great advantage," Rosales said.
Chile will open its markets to such leading South Korean products as cars, trucks, cell phones and other technology goods, which comprise nearly 66 percent of the country's exports to Chile.
South Korea is Chile's third-largest market in Asia -- after Japan and China -- and its fourth-largest largest trading partner. Chilean exports to South Korea have fluctuated during the past decade, from $243 million in 1992 to more than $1 billion in 1997.
The Asia crisis hurt Chilean exports considerably, although they have begun to recover, as shown in the $580 million shipped by Chile to South Korea last year.
Investment and financial market issues were a roadblock to previous efforts to reach a deal, so they were largely excluded from this agreement -- except for a clause stipulating that four years from its implementation, the parties will consider adding financial services to the deregulation list.
The postponement was due to the Chilean authorities' reluctance to open the country's financial markets to more powerful competitors, a policy it followed in trade agreements with Canada (1996) and Mexico (1999).
"Chile wanted it that way because we are extremely careful about these issues," Matus said. Further, he said, the country is holding free trade talks with the United States. "We can not negotiate in parallel with the United States and (South) Korea. Once the talks are concluded, we will be able to begin talks with (South Korea)," Matus added.
According to Lee Song Joo -- director of South Korea's Department for Multilateral Commerce -- the countries "decided to sign the free trade agreement after having overcome the last obstacle, which concerned financial markets and investment."
The Chile-South Korea trade agreement dates back to the 1999 Asia Pacific Economic Cooperation summit in New Zealand. Then, both countries began to consider forming a trade agreement. They held their first negotiations in Santiago that December.
After some initial progress, what looked to be insurmountable differences arose. On the one hand, South Korea wanted to restrict access to several Chilean agricultural products, while Chile was firm on protecting its financial markets. During the fourth round of talks, in December 2000, the countries froze their dialogue over an inability to agree on finance and farming. Talks only resumed this August and concluded last month in Geneva.
The agreement with South Korea gives Chile a chance to seek other trade alliances in Asia -- and Chile is already acting on that. Along with New Zealand and Singapore, Chile plans to open talks next year on a three-way partnership.
