Joining an Existing Regional Trade Agreement from the Perspective of a Small Open Economy: Chile's Accession to NAFTA and MERCOSUR

Abstract

During the mid 1970s, Chile began a bold program of unilateral trade liberalization following decades of protectionism, effectively putting an end to four decades of import substitution policies. Like other countries Latin America, Chile had relied on quantitative restrictions (QRs) and, some cases, high tariffs to protect the production of importables. Agricultural exports were subject to QRs; moreover, agriculture suffered a high indirect taxation from industrial protection (Hurtado, Valdrs, and Muchnik). The current trade regime is simple to describe: a uniform tariff of 11% applies to all importables except wheat, sugar, and edible oils, which have a price band scheme which provides additional protection beyond the uniform tariff. There are no QRs on imports and no export taxes, licensing, or quotas. A uniform VAT applies to all imports and domestic production, and under the Uruguay Round Agreement (URA) of April 1994, Chile bound tariffs at 25% for all products except wheat and sugar (at 31.5%). Thus, Chile's program of tariffs, like several countries Latin America, had already occurred at the time of the URA April of 1994. Chile, therefore, came out of the GATT negotiations with virtually no mandated changes to its trade policies. Today, Chile's agricultural trade policy is facing new challenges. One is to maintain an open trade regime the face of continuous pressure for protection of importables because of a stress on profitability since about 1990. A second challenge is to improve trade-related institutions such as rules for dealing with contingency protection measures (safeguards, antidumping, etc.,) that remain out of step with liberalized trade. A third challenge is related to preferential trade agreements (PTAs), which have taken on astonishing prominence more recently the trade policy debate of the postUruguay round Latin America. Regional agreements are in and trade agreements proliferate: MERCOSUR the Southern Cone; NAFTA North America; the Free-Trade Agreement at the Summit for the Americas Miami; and older treaties such as the Andean Trade Preference Act. Add to these the trade