U.S., Chile Reach Agreement on Free Trade

The United States and Chile reached an accord on Dec. 11 for a free-trade agreement that the Bush administration called “a positive signal to the hemisphere.” It moves the United States one step closer to becoming the largest free-trade zone in the Western Hemisphere.

The agreement will lift tariffs on more than 85 percent of goods from both countries in the first year, with remaining tariffs decreasing to zero over the next four years.

Two-way trade between the United States and Chile totaled $4.8 billion for the first nine months of this year, compared with $227 billion with Canada, the United States’ largest trading partner. Chile is the United States’ 37th largest trading partner.

Industry sources compare the signing of the U.S./Chilean free-trade agreement, which was in the works for more than a decade, to the passing of the Caribbean Basin Initiative (CBI), which took three years.

Gary Hufbauer, a trade expert at the Institute for International Economics in Washington, D.C., said the shipment of apparel and textile products would be an integral part of Chile’s free-trade agreement with the United States; however, it is not likely to affect domestic producers.

“Chile is not a huge competitor for apparel manufacturing in the same way that China, Mexico or the Caribbean countries are,” he said, adding that it will probably be more of a competitor on specialty items, such as trimmings and tablecloths, but definitely not mass merchandise.

The largest category of imports from Chile is agricultural, along with minerals such as copper. Woven apparel is less than 1 percent of the country’s shipments to the United States.

Presently, the U.S. exports more to Chile than to Guatemala through CBI. Guatemala is the United States’ 44th largest trading partner, with two-way trade estimated at about $4.3 billion in 2001. Guatemalan apparel imported to the United States through the Caribbean Basin Trade and Partnership- Development Act (CBTPA)—an agreement that eliminates duties on apparel goods imported from the Caribbean region as long as they are made from U.S. yarn or fabrics—equaled roughly $1.5 billion last year.

Julie Hughes, president of International Development Systems in Washington, D.C., said the Chilean free-trade agreement leaves a lot of room for growth for both countries. According to Hughes, fabric and yarn used for apparel is currently less than 1 percent of U.S. exports to Chile. However, things may change.

“The Chilean free-trade agreement provides duty-free access to each market by manufacturers provided the products meet a yarn rule of origin, and the yarn must be made in the U.S. or Chile,” according to Tom Travis, an attorney at the Sandler, Travis and Rosenberg law firm in Washington, D.C., who specializes in international trade matters impacting the apparel industry. This absence of duties may entice U.S. manufacturers away from CBI countries and to Chile.

One of the more important differences between the Chilean free-trade agreement and CBTPA is that the latter imposes tighter requirements for exportation on products from Caribbean countries that come into the U.S. market. There is no equivalent opening for products entering CBI countries, said Hughes.

Travis agrees, adding that the agreement will provide an incentive for Chilean exporters to enter the U.S. apparel markets.

“It provides more opportunity for consumers and retailers and [it provides] access to the U.S. market for a democratic country in Latin America,” he said. —Claudia Figueroa