RIO DE JANEIRO, BRAZIL – Much has been heard in recent months -and years- about the importance of the network of 30 free trade agreements with 65 countries for the Chilean economy. But what is their accurate weight? Foreign trade is equivalent to 60% of the country’s Gross Domestic Product (GDP) and last year 94.2% of the value of products exported from Chile went to countries or blocs with trade agreements in force.
A study by the Undersecretariat for International Economic Relations (Subrei) recalls that import tariffs are the main barrier Chilean goods face when they reach their destination. Chile is at a disadvantage in international trade: local shipments travel, on average, 13,593 kilometers to reach port, that is, it is the exporting country that is farthest from its importing markets.
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But that does not stop companies from arriving. Last year, 7,601 national firms registered sales abroad, exporting -collectively- 4,696 different products to more than 200 markets, generating more than 557 thousand various export documents.
The report details that if Chile did not have trade agreements, the emblematic products of the exportable offer would have to pay “high” customs duties to enter each destination.
Bottled wines would have to pay €15.4 per hectoliter to enter any European Union country, or US$0.63 per liter in the United States. To enter Thailand, 54% of their value would be added and 20% in Brazil or 15% in Japan. These tariffs are “so high that they limit the competitiveness and commercial attractiveness of our goods,, which could eventually leave Chile out of some of these markets, according to Subrei.
CHINA, USA AND EU
The Undersecretariat “zoomed in” on the three main export destinations to capture the contribution of trade agreements. Chile sent 595 products to China last year, totaling US$ 28.813 billion in revenue, including fresh cherries, copper concentrates, molybdenum ores, and fresh grapes.
The Asian giant’s general tariff average is 7.1% and 12.7% for the agricultural sector, but for certain domestic products, it rises sharply. Fresh blueberries and frozen strawberries rise to 30%, and frozen beef and avocados to 25%. The FTA allows Chilean shipments to pay a general tariff of 0.4% and 1.9% in the agricultural sector, one of the lowest in the world.
In 2020, 986 products were shipped to the USA, generating US$10.921 billion, highlighting the export of salmon, grapes, tangerines, oranges and bulk wine. The average tariff of the world’s largest economy is 3.3% and rises to 4.7% for agricultural products. For leather and footwear products it rises to 56%, for clothing to 32% and for dairy products to 19.6%. However, last year Chilean goods paid only 0.025% to enter the US.
To the European Union, 1,586 products were sent from Chile in 2020, for US$7.090 billion, highlighting copper, bottled wine, avocados, iodine and blueberries. The tariffs applied by the bloc are high in some sectors: for dairy products they reach 37.6%, for fishing 11.6% and for concentrated apple juice they range from 18% to 30%.
The Association Agreement with the EU allowed 96.6% of local shipments to have preferential tariff treatment when entering the bloc in 2020. And, when the modernization of the AA comes into force, 99.6% of Chilean goods will have preferential treatment.
POSITIVE EXTERNALITIES
Rodrigo Yáñez, head of Subrei, emphasizes that although one of the fundamental components of the trade agreements signed by Chile is the negotiation of the reduction of customs tariffs, “the positive externalities arising from the FTAs are not only limited to the direct exporter.”
Under the wing of the large export industries – such as mining, aquaculture and agribusiness – “important networks of local suppliers” have developed, which have allowed the indirect creation of jobs. Today, 1.2 million jobs depend directly on exporting companies, but the figure doubles when considering the employment generated by the local networks of suppliers of firms with sales abroad.
The study highlights the strong link between investments and exports: 45% of domestic shipments are generated by companies that receive foreign direct investment, and 96% of these exports go to countries with which Chile has signed FTAs.
Yáñez also details that these networks “have facilitated the transition of our export basket towards an intensive phase in added value and innovation-generating services.”