The Free Trade Agreement (FTA) signed between the United States and Chile, which went into effect on January 1, 2004, is a comprehensive agreement tsets the standard for Latin America.  It covers traditional trade issues such as tariffs and quotas, rules of origin, customs procedures, and dispute resolution.  The agreement also covers foreign investment, labor and environmental regulations, government procurement, intellectual property rights, and electronic commerce.

Chile

Chile, a country roughly 3,000 miles long and an average of about 100 miles wide, with nearly 16 million inhabitants and a rich diversity of topographies and climates, offers a very promising market for U.S. goods and services.  Its dynamic economy, often cited as exemplary in Latin America and the world, is marked by steady growth, solid macroeconomic fundamentals and policies, strong institutions, transparent regulations, open markets, and a desire to develop alliances with the principal markets of the world.

Consumer Goods and Industrial Products

The Free Trade Agreement provides significant benefits to consumers, and to large and small businesses in both countries, by eliminating bilateral tariffs, lowering trade barriers, promoting economic integration, and generally expanding economic opportunities.  Benefits can be seen in lower prices on products traded between the two countries, and new international markets for exporters of goods and services from both countries.  Small businesses could be particularly benefited by the provisions of the agreement and the cooperation arrangements that have been set up to provide information, share know-how and expertise, and facilitate import and export procedures.

Tariff Reductions

One of the immediate benefits of the Free Trade Agreement is the reduction in costs resulting from the rapid elimination of tariffs.  As soon as the agreement was approved, 85% of industrial products and consumer goods could be traded duty-free between the two countries.  The majority of the remaining items were scheduled to be duty-free within four years, with all tariffs on industrial products completely phased out within ten years.

Some of the key U.S. export sectors that gain immediate duty-free access to the Chilean market include agricultural and construction equipment, autos and auto parts, computers and information technology products, medical equipment, and paper products.  Textiles and apparel are duty-free provided they meet the agreement’s rules of origin, generating opportunities for producers of fiber, yarn, fabric, and finished apparel.

For agricultural products, more than 75% of the tariffs are eliminated in the first four years of the agreement, and the rest of the agricultural tariffs are scheduled to be phased out over 12 years.  There is also be a phase-out of Chile’s price bands on wheat, wheat flour, edible vegetable oil, and sugar.  Tariffs on Chilean wines are equalized with the current U.S. tariff rates, and then phased-out.  U.S. farmers and ranchers have duty-free treatment for exports of pork and pork products, beef and beef products, soybeans and soybean meal, durum wheat, feed grains, potatoes, certain processed food products, and distilled spirits.

Services Trade

The agreement encourages trade in services by providing open access to markets and transparency in the application of regulations and laws.  The agreement covers the cross-border supply of services, in terms of services provided by electronic means (Internet) and the travel of nationals of the two countries, as well as the right to invest and establish a presence for providing services in the country.   Provisions are made for protecting intellectual property rights, and parameters are set up for enforcing labor and environmental standards.

Transparency

Regulatory transparency includes fair and open administrative procedures, consultation with interested parties before issuing regulations, providing advance notice and comment periods for proposed changes in regulations, and publication of all regulations.

Open Access

Substantial access is provided to the entire range of services in the Chilean market, across a broad range of sectors, including computer-related services, telecommunications, construction and engineering, tourism, advertising, express delivery service, professional services, wholesaling, retailing, franchising, adult education and training, and environmental services.

E-Commerce

Chile and the U.S. agreed to protection and non-discriminatory treatment of digital products, and agreed not to impose duties on those products.   Customs duties on digital products delivered on hard media, such as DVD or CDs, will be based on the value of the physical media and not on the digital product, such as the software, text, music, or video.  The two countries also agreed to cooperate in policy issues regarding e-commerce, making this a leading-edge agreement. 

More Than a Tariff Agreement

The Free Trade Agreement between the United States and Chile is intended to promote investment and ensure that the necessary infrastructure, systems and procedures exist for enhancing trade and investment between the two countries.

Investments

U.S. investors in Chile can count on a secure and predictable legal framework.  Unless specifically stated otherwise, U.S. investors can establish, acquire, and operate investments in Chile, on an equal basis with Chilean investors.  The types of investments protected under the agreement include enterprises, contracts, debt concessions, and intellectual property.  The agreement provides U.S. investors in Chile the same substantive protections that Chilean investors have in the U.S.  These include due process protections and the right to receive fair market value for their property in the event of an expropriation.

Dispute Settlement

Investors’ rights are backed by an effective and impartial system for settling disputes, with open and transparent procedures including dispute panel hearings that are open to the public, and where interested parties have the opportunity to express their views.

Intellectual Property Rights

Intellectual property protection, such as on patents, trademarks, and trade secrets, exceeds the normal standards in the region and is considered to be state-of-the-art.  The agreement calls for non-discriminatory protection on U.S. intellectual material transmitted over the Internet.  Trademarks and Internet domain names are protected to avoid “cyber-squatting”, ensuring government involvement to settle disputes.  The agreement applies the principle of “first-in-time, first-in right” to trademarks and geographical place-names. 

Protection of copyrighted material ensures that only authors, composers, or other copyright owners have the right to make their work available online.  Copyright owners maintain all rights, including rights to temporary copies of their work on computers, to prevent unauthorized sharing over the Internet.  Copyright protection is for extended terms, in accordance with U.S. and international standards and trends.

As part of the protection on patents and trade secrets, the agreement provides that test data and trade secrets that are submitted to a government product-approving agency will not be disclosed for a period of five years for pharmaceuticals and ten years for agricultural chemicals.  Also, these agencies will not grant approval to products that infringe on patents.

For purposes of enforcing the intellectual property rights, the agreement calls for tough penalties for piracy and counterfeiting, with criminal penalties for end users and the government’s right to seize, forfeit, and destroy pirated or counterfeit goods and the equipment used to produce them.

Competition

The agreement contains provisions prohibiting anti-competitive conduct and requires a competition agency to enforce that law.  State enterprises and officially-designated monopolies are prohibited from abusing of their status to harm the interests of U.S. companies or to discriminate in the sale of goods or services.

There are also provisions establishing non-discrimination by Chilean government entities in their procurement practices, including advance public notice of purchases and timely and effective bid review procedures.  These provisions cover most Chilean central government and regional government entities, airports, seaports, and municipalities.

According to anti-corruption provisions in the agreement, bribery in government procurement is specified as a criminal offense in both countries.

Customs Procedures and Rules of Origin

The agreement contains specific obligations on how customs procedures are to be carried out, with requirements for efficiency and transparency in their administration and commitments to publish customs laws and regulations on the Internet.

The rules of origin are simple but strong, and are designed to ensure that only U.S. and Chilean goods benefit from the agreement. These rules determine whether there is enough regional content in a particular product to qualify it for duty-free treatment.

Facilitating Entry of Personnel

In order to facilitate the entry of  business visitors, investors, traders, and professionals, the agreement provides for a special professional visa for Chileans to enter the U.S., and establishes that there is no limit on the number of U.S. professionals who can enter Chile each year.

Labor and Environmental Laws

The agreement provides for a commitment on the part of both countries to enforce their domestic labor and environmental laws, and indicates that trade and investment should not be encouraged at the cost of environmental protection. There is a mechanism involving monetary assessments to enforce commercial, labor, and environmental obligations. The agreement calls for the countries to work together on projects to protect wildlife, reduce environmental hazards, and promote labor rights according to international standards.