A U.S.-Chile Free Trade Agreement: Economic and Trade Policy Issues
CRS Report for Congress
The U.S.-Chile Free Trade Agreement:
Economic and T rade Po licy Issues
Upda ted September 10, 2003
J.F.Hornbeck
Specialist in International Trade and Finance
Fo reign Affairs, De fense, and Trade Division
Congressional Research Service ˜ The Library of Congress
The U.S.-Chile Free Trade Agreement:
Economic and Trade Policy Issues
Summary
On J une 6, 2003, the United S tates and Chile sign ed a l ong anticipated bilateral
free t rade agreement (FTA) in Miami, Fl o rida, concluding a 14-round nego tiation
process t hat b egan on December 6 , 2000. Fo llowing hearings before the House W ays
and M eans, Senate Fi nance, and both J udici ary C ommittees , t he House passed t he
U.S.-C hile Free Trade Implementation Act (H.R . 2738) by a vote of 270 to 156,
followed by t he Senate one week later, 66 to 31. President George W . Bush s igned
the bill into law on S eptember 3, 2003 (P.L. 108-77) and i t will take effect on J anuary
Chile has now joined a s elect group of only five o ther countries tha t have an
FTA with the United S tates (Canada, M ex ico, J ordan, S ingapore, and Israel ).
Although m any point to the potential for trade growth b etween the t wo countries, t he
si gn i fi cance of t h i s FTA runs deeper: 1 ) i t i s t h e f i r s t agreem ent wi t h a S out h
American country; 2) it is an agreement with one of the most open and reformed
economies i n Latin America; 3) it ex em p l i f ies how trade policy i ssues, i ncluding
those with soci al and economic implications, can be resolved between a s mall
developing country and a large d eveloped one; and, 4) it may p rove t o b e a s t ep
t o ward com p l et i n g t he Free Trade A rea o f t he Am eri cas.
T h e F T A al l o ws i n creased m arket access, wi t h 85% of bi l at eral t rad e i n
consumer and i ndustrial p roducts eligible for duty-free treatment immediately, and
other p roduct t ariff rates being redu ced over time. S ome 75% of U.S. farm ex ports
w i l l enter C hile duty-free within four years and all duties will be fully phased o u t
within 12 years after implementation of t he agreem ent. For C hile, 95% of its ex port
products gain duty-free s tatus immediately and only 1.2% fall into the l ongest 12-
year phase-out period. Other critical issu es resolved included environment and labor
provi si ons, m ore open governm ent procurem ent rul es, i ncreased access for servi ces
t rade, great er prot ect i o n o f U .S . i nvest m ent and i nt el l ect ual p ropert y, and creat i o n o f
a new e-commerce chapter. The trade rem edies chapter is limited t o s afeguards s o
there i s n o change t o t he an t i d u m ping and countervailing duty options currently
available t o both countries.
The b ilateral n egotiation was a ch a l l e nging ex ercise for both countries and
although a broad-based agreement was stru ck, a few i ssues were controversial for
many Members o f C ongress, as ex p r e s s e d a t h earings in both t he House and the
Senate. Overall, because there are now multiple FTAs being contem plat ed, t here was
an overarching concern t hat p rovisions in the C hile FTA might become a “template”
for others t hat follow. In particular, attention t urned t o l angu age governing d ispute
resolution t reatment of labor provisions, and financial t ransfers (capital controls), as
wel l as t h e t em porary ent ry for busi n ess p ersons. T hes e a n d o t h er i ssues are
discussed i n t his report, which p r ovides b ackground and analysis o n C hile’s
economy, trade relations, and t h e b ilateral FTA. Because Congress has completed
action on t his FTA and i t has become law, this is the final version of t he report.
Contents
WhyaU.S.-ChileFTA? .............................................1
EconomicReform inChile ..........................................3
Chile’s TradePoliciesand Relations ...................................5
TheU.S.-ChileBilateralTradeRelationship .............................8
ReviewofNegotiations andPolicyIssues ..............................10
Tari ffs and M arket A ccess ......................................11
Services Trade ...............................................11
TradeRemedies ..............................................12
IPRandInvestment ...........................................12
LaborandEnvironment ........................................13
Congress andtheU.S.-ChileFTA ....................................15
TheU.S.-ChileFTAinBrief ....................................15
Labor Dispute S ettlement Provisions ..............................16
CapitalControls ..............................................18
Temporary Business P ersonnel and W o rkers .......................20
KeyProvisions ...........................................20
MajorPointsofDebate ....................................22
Appendix 1. C hronology of U.S.-Chile FTA ...........................24
Appendix 2. US-Chile Merchandise Trade, 1985-2002 ...................26
Appendix 3 . M ajor U.S.-Chile Product Trade and Tariff R ates, 2002/03 .....27
Appendix 4. C hile’s Multilateral, Regi onal, and Bilateral Trade Agreem ents . . 28
ListofFigures
Fi gu re 1. Growth in Chilean Trade with Major P artners, 1993-2001 ..........6
Fi gu re 2. Chile Direction o f Trade, 2002 ...............................7
Fi gu re 3. U.S.-Chile Merchandise Trade, 1992-2002 ......................9
ListofTables
Table1. Chile: Selected EconomicandFinancial Indicators ...............4
The U .S.-Chile Free Trade Agreement:
Economic and Trade Policy Issues
On J une 6, 2003, the United S tates and Chile sign ed a l ong anticipated bilateral
free t rade agreement (FT A) in M i a mi, Fl orida, concluding a 14-round nego tiation
process t hat b egan on December 6 , 2000. Fo llowing hearings before the House W ays
and Means, Senate Fi nance, and both J udici ary C ommittees, t he House passed t he
U.S.-C hile Free Trade Implementation Act (H.R. 2738) by a vote of 270 to 156,
followed by t he Senate one week later, 66 to 31. President George W . Bush s igned
the bill into law on S eptember 3, 2003 (P.L. 108-77) and i t will take effect on J anuary
Chile bilateral t rade).
The b ilateral n egotiation was a challe nging ex ercise f o r both countries and
although a comprehensive agreement was st ruck, s ome i ssues were contentious, as
ex pressed i n d ebat e at h eari n gs i n bot h t he House and t h e S enat e. Overal l , because
there are now multiple FTAs being considered, concern arose over t he potential for
the C hilean provisions to become a “template” for those i n other FTAs. S peci fically,
immigration, investment (capital controls), and l abor provisions em erged as t he hot
topics, and many Members o f C ongress effectivel y s ent t he mes s a ge that language
in the U.S.-Chile FTA would not b e a c ceptable i n future t rade agreements. A
s u m m ary of t h ese i ssues appears i n t he back of t h i s report . Because t h e F T A h a s
been signed into law, this is the final version of t he report.
W hy a U.S.-Chile FTA?
Trade agreements evoke strong reactions from s upporters and opponents alike.
Nowhere i s t his d ebate m ore alive t han i n t he U.S. Congress, which for eigh t years
was at an impasse over passage of trade promotion authority (TPA) until it renewed
TPA i n August 2002 as part of the Trade Act o f 2002 (P.L. 107-210). W ithout TPA,
the politically charged nat ure of t rade negoti at i o n s m ade passage of implementing
legi slation for multilateral and regi o n a l agreem ents more uncertain. In addition t o
complex m ulti lateral t rade arrangem ents, t he United S tates has pursued simpler
bilateral agreem ents that were ex pect ed to be less politically sensitive and therefore
more likely t o gain congressional approval, especi al l y i f TP A h ad not been renewed.
On September 28, 2001, for ex ample, P resident Bu s h sign ed into law t he
implementing l egislation for the U.S.- J o rdan FTA (P.L. 107-43). Bilate r a l F TAs
with Singapore and Chile were pursued with the ex pectation of s imilar s upport.
Opposition t o b ilateral FTAs, however, h as heated up for both econom i c and
political reasons. Economists, even t h o se who s upport free t rade, point out that
bilateral (and regional) agreements are poor substitutes for multilateral arrangements.
Although both countries in a b ilateral arra ngement m ay see t heir welfare i m p rove
t h rough t rade creat i on, t h e agreem ent m ay al so cause t rade (and i nvest m ent )
diversion, which c an negatively affect t hose both i n and outside of the agreement.
Although t rade diversion is often difficult to assess, it is a real consideration in
pursuing negotiations below t he multilateral l evel . 1
In addition t o economists’ q u e s t i o n s over t he trade effects o f b ilateral
agreements, t here is vehement opposition b y v arious interes t groups. P erhaps first
amon g m any are the import-competing i ndustries t hat b ear the b runt of the
adjustment costs of a trade agreem ent. Despite the wel fare gains t o s ociety as a
whol e (e.g. m o re effi ci ent resource al l o cat i on, l o wer p ri ced i m port s , great er sel ect i o n
of goods), those i ndustries s ubject to increased competition face potentially serious
pressure to adjust thei r operations to beco me more effici ent, lower-cost producers.
Competition i s generally accepted as a tenet o f doing business i n a market economy,
and o n a nat i onal l evel , t hese adj u st m ent cost s m a y b e sm al l and l ead t o great er
productivity. W hen t he rules change b ecause of trade agreements, however, affected
workers and industries resist s trongly and their concerns are an i ntegral p art o f t he
t r ade l i b eral i z at i o n d ebat e.
Strong criticism o f v irtually all t rade agreements also arises from groups argu ing
t h at any arrangem ent i s unaccept abl e unl ess i t i ncl udes s t rong provi si ons addressi ng
the impact of the t rade agreement o n l abor and enviro n m e n t a l conditions. W hen
joined with other groups protesting “gl obaliz ation” in general, a formidable coalition
is created. C ollectively, these i nterest groups raise t he question o f whether trade
agreements enhance t he social welfare o f participating countries. Given the i ntensity
of debate and amount of effort and resources needed to consummate an FT A, some
questioned whether the m argi nal gains fro m a U.S.-Chile bilateral agreem ent would
be justified given that Chile is a small and distant U.S. trade partner, and al ready has
a relatively open economy.
Advocates of the U.S.-Chile FTA responded t hat i t o ffered both economic and
political gains, with Chile seen as a potential strat egic foothold i n S outh America, a
regi on h i storically linked closely with Europe and Asia. From an economic
perspect i v e, U.S . busi n ess i nt erest s consi d ered C h i l e a p ri m e t a r get for ex p andi ng
ex port s and repeat edl y st ressed t he need t o reduce t he hi gh er t ari ffs t h ey faced
relative t o C anada and other countries that already h ad FT As with Chile. Lower-cost
U.S. imports from Chile also provided benefits to individual and business consumers.
Further, some of Chile’s ex ports to the United S tates have z ero or l ow tariffs al ready,
suggesting t hat t he adjustmen t co s t s t o import-competing firms could be l ow (see
appendix 3). U.S. investors also s aw Chile’s political and economic s t ab i lity as
attractive for foreign i nvestment.
From a t rade strategy perspective, it was argued t hat a U.S.-Chile FTA would
support U.S. i nitiatives with the Free Trade Area of the Americas (FTAA), currently
under negotiation, by encouraging great er Chilean support for U.S. issues and
perhaps even h elping define key n egotiating p aram et ers (e.g. l abor and envi ronm ent
1 For a discussion, see: CRS Report RL31072, Regional Trade Agreements: An Analysis of
Trade-Related Impacts, by Gary J . Wells. August 3, 2001.
provisions) t hat could b e p recedent-setting.2 The U.S.-Chile FTA was also offered
as a compelling cas e for passage of TPA l egislation, which would s erve as a s ignal
t o La t i n America and the res t of t he world of t he U.S. commitment to pursue and
complete trade agreem ents.
C h i l e al so saw a l o gi c i n p r i o r i t i z i ng an FTA wi t h t h e Uni t ed S t at es b ecause
ex port p rom o t i o n h as been a bui l d i n g b l o ck of i t s growt h and d evel opm ent s t rat egy.
Guaranteed access t o t he large U . S . m a r ket o ffers opportunities for increased and
perhaps m ore d i v ersi fi ed t rade. C h i l e al so envi si oned i ncreased forei gn i nvest m ent
as an attendant benefit o f t he FT A, and argued t hat its well-es tablished t rack record
on economic and t rad e r e f o rm made it the Latin American country most ready t o
nego tiate a b ilateral FTA. In s hort, despite its relatively s mall economy, C h i l e
presented itself as a country ready, w illing, and able t o negotiate a m utually
benefici al FTA with the United S tates.
In addi t i o n t o t he benefi t s t h at were ex pect ed t o accrue t o U.S . busi n esses,
investors, and consumers, an FTA with Chile was also s een as an opportunity for t he
U n i t ed States to support economic and t rade reform in Latin America, fo r w h i c h
Chile had b ecome a regional m odel. Trade was a b ig part of th e e c o nomic growth
and d evelopment s tory in Chile, and linked d irectly to increased productivity, h igher
standards o f living, greater diffusion of t echnology, and overall moderniz ation o f t he
country. T herefore, t he United S tates, it was argued, should s uppor t t hese gains
because they are a foundation for continued economic, s ocial, and political stability
and p rogress i n t he regi on. Trade agreem ent s were al so present ed as p l ayi ng a rol e
in development and have the added b enefit of “locking in” reforms, l ending a s ense
of perm anence to economic and political conditions that is conducive to attracting
and k eeping foreign trade and investment.
Clearly, t here were compet i n g v i e w points on t he desirability of a U.S.-Chile
FTA. A l ook at Chile’s economic developmen t i s one way o f addressing many, i f not
all, of the i ssues high lighted above preci sely bec a u s e Chile has b een an early and
aggressive reformer of economic and t rade policy i n Latin America. In this light, t o
t h e ex t ent t hat t he wel fare o f C hi l ean society h as improved with economic openness,
it may b e one indication t hat freer trad e can support a broad array o f economic and
political goal s. It is with this approach in mind t hat t his report i ntegrates a discussion
of Chile’s economic growth and devel opment with trade policy i ssues raised in both
the United S tates and Chile.
Economic Reform in Chile
Chile has b ecome one of the m ost open, reformed, and developed economies
in Latin America, a rebuilding process i nitiated und er t he military dict at orship of
Augusto P inochet (1973- 90) and accel erat ed under ci v ilian government following the
return of democratic rule in 1990. Chile transformed its state-dominated economy
2 T he FT AA would i nclude 34 nations of the West e r n H e mi sphere and i s s cheduled for
completion by J a n u a r y 2005. See: CRS Report RS20864, A Free Trade Area of the
Americas: Status of Negotiations and Major Policy I ssues ,byJ.F.Hornbeck.
into one grounded in market-based economic princi ples, first by stabilizing t he
economy and then restructuring i t (e.g. , lifting p rice controls, d eregulating l abor
market s, privatizing s tate enterprises, reducing t rade and ex change rat e res trictions).
As part of the process, Chile weat hered s ome devas tating domes tic setbacks,
including the 1982 economic collapse, followed b y t he sudden onset o f t h e Latin
A m eri c an debt crisis. C hile survived it all, however, and eventually thri v e d
economically, although not without incurring sign ificant s ocial costs along the way.3
Economic reform has continued i nto t he 21st century and act ual l y coi n ci ded w i t h
a p eri o d o f s t rong econom i c growt h t h at hel d for m ost o f t he l ast decade (see tab l e
1). Currently, C hile is adjusting t o t he slower economic growth ex perienced both at
home and abroad over t he past two years. In 2002, Chile’s gross domestic product
(GDP) rose b y only 1.7%, which was h igher t han m any of its neighbors. Although,
t h i s refl ect s a sl ower growt h rat e com p ared t o average econom i c growt h of over 5 %
in the l ate 1990s, C hile’s economy h as proven resilient in the face a global economic
downturn and contagion from t he Argentine financial crisis.
Table 1. C hile: Selected Economic and F inancial Indicators
1996 1997 1998 1999 2000 2001 2002
GDP Growth (%) 7.4 6.6 3.2 -1.0 4.4 2.8 1.7
Inflation - CPI Avg. (%) 7.4 6.1 5.1 3.3 3.8 3.6 2.4
Unemployme nt Rate (%) 6.5 6.1 6.2 9.7 9.2 9.2 8.8
Fiscal Balance ( % of GDP) 2.4 1.9 -0.1 -2.2 -0.9 -0.9
——
Current Acct Bal ( % o f GDP) -5.1 -4.5 -5.2 -0.1 -1.3 -1.4 -1.8
T e rms of T rade (% change ) -15.5 2.6 -12.6 0.9 -0.1 -8.0
——
Foreign Exchange Res. ( $bil) 15.5 17.8 16.0 14.7 14.7 14.4 15.6
Data Sour ce: International M onetary Fund and Central B ank of Chile.
Chile’s current macroeconomic managemen t res t s on t hree policy pillars: a
flexible exchange rate; i nflation-targeting m onetary policy; and s trict fiscal discipline
aimed at generating a public sect or surplus. On the positive s ide, tight fiscal control
h a s k ep t C h i l e ’s p u b l i c ex t e rn al d e b t p o s ition relativel y l o w , h el p i n g res t rai n i n fl at i o n
to 2.4% in 2002 and l eaving room for m onetary policy t o s upport economic growth
as well as price stability. P roductivity levels have been sufficient to see real wage
growth, as well. On the n egative s ide, unemplo ym ent h as remained around 9%, a
naggi ng problem facing Chilean policy m akers.
Trade reform began in the 1970s and helped t ransform the economy. By
dismantling its mu ltilevel tariff schedule a nd reducing nontariff b arriers, C h ile sought
t o e n ga ge foreign m arkets more aggressively and open itself t o i nternational
3 A detailed s ummary of this process with an emphasis on t rade poli c y may be found in:
CRS Report 97-56, Chilean Trade and Economic Reform: I mplications for NAFTA
Accession , by J . F. Hornbeck. October 17, 1997. pp. 1-9.
competition. The uniform average nominal import t ariff rate fell from 105% in 1973
to 15% in 1988, and t o 11% in 1991 under civilian government. C hile then reduced
the t ariff rate b y 1 percentage point each year until it reached 6% on J anuary 1, 2003.
Although n o t w i t hout adjustment costs, the competitive p ressures o f t rade reform
have clearly increased productivity and economic growth.
Continuing a t rend since t he mid-1980s , C hile has recently made a number o f
simplifyi ng capital m arket reforms, i ncluding abandoning its ex change rate band in
favor of a floating s ys tem, eliminating m ost controls on foreign capital, incl uding the
one-year, non-remunerated reserve requirement, and reducing and equalizing capital
gains t reatment of domes tic and foreign investment. 4 C h anges i n capi t al cont rol s and
e x c h a n ge r ate management have been e s s e n t i a l t o s p u r r i n g C h i l e ’ s e x p o r t - l e d g r o w t h .
Privatization and deregulation have also progressed beyond finan c ial s ervices to
i n cl ude t el ecom m uni cat i o n s , energy, and s el ect ed publ i c i n frast ruct ure, wi t h C h i l e
also leading Latin America i n t he divestiture of public-owned enterprises.
Chile’s record of reform, growth, and d evelopment corresponds with increased
measures of income and s ocial well b eing. In 2001, Chile’s per capita income level
was s econd o n l y t o Argentina’s i n Latin America and will likel y be first once dat a
refl ect Argent i n a’s f i n anci al cri s i s . In addition, Chile’s human development i ndex
(HDI) for 2002 ranked s econd in Latin America b ehind Argentina and ahead of the
m u ch l arger econom i es o f Br a z i l a nd Mex i co. 5 W elfare gains for t he poorer
segm ents of Chilean soci et y are al so being s een, with a rel ativel y l ow child mortality
rate and absolute m easures of poverty d eclining over t he past decade and regi stering
lower t han m ost o ther Latin American countries. 6 High unemploym ent and a s kewed
income distribution i n line with the res t of t he regi on, however, point to the need to
increas e t he quality and quantity of workforce participation, wh i c h i s rel at ed to
improving education, health care, and other public policies.
Chile’s Trade P olicies a nd Relations
Over t h e p ast d ecade, C h i l e’s i n creasi n gl y ex p a n s i v e and i ndependent t rade
policy portrays a strategy that is commonly referred t o as “open regionalism.” This
approach combines unilateralism with the formation of s ub-regi onal i ntegrat i on
groups open t o future ex p ansion, such as the Andean Community and t he Southern
Common M arket (Mercado C omun del S ur — M ercosur), among others, while also
4 Latin American Monitor: Southern Cone. J une 2001, pp. 4-5 a nd Central Bank of Chile,
Press Release, April 16, 2001.
5 T he Human Deve lopment Index ( HDI) i s a c omposite measure of a ve rage achieve me nt
in human development ( education, income, and life expectancy). Worldwide, Chile ranked
38 comp a r ed to Argentina ( 34), Uruguay (40), Costa Rica (43), M exico ( 54), V enezuela
(69), and Br azil (73). Argentina’s r ank may fall precipitously once corrected for its current
financial crisis. See: United Nations, Human Development Report 2002 , p. 149.
6 Less than 2% of Chile’s population lives on less than $1.00 per day compared to 10% in
Br azil, 8% in Mexico, and 15% in Venezuela. T he under-5 mortality rate for Chile is 12 per
1,000 compared to Arge ntina ( 19), Brazi l ( 36), M exico ( 29), a nd V e nezuela ( 22). See: T he
World Bank. 2003 World Development Report , pp. 58-59 and 112-14.
leaving open t he po ssibility for bilateral and ex tra-regi onal t rade agreem ents. As
pointed out in one study, i t d iffers from earlier, fundamentally uns uccessful, attempts
at economic integration i n Latin America by emphasizing trade opening rather than
collective s ub-regi onal p rotectionism.7
The “open regionalism” policy t ook shape i n t he early 1990s when Chile sign ed
economic complementarity agreem ents (simplified free t rade agreem ents) with
Bo livia, M ex ico, Venez u ela, Colombia, a nd Ecuador under guidelines set out by the
La t i n Am eri can In t e gr at i o n A ssoci ation (Association Latinoamericana de Int egraci on
— ALADI). Similar arrangem ents followed with Peru and Argen t i n a. Chile has
sign ed FT As with Canada, M ex ico, and C en tral America. In April and October 2002
respectivel y, Chile completed negotiations for an FTA with the European Union and
South Korea. It is currently courting o ther countries including J apan, New Zealand,
and S i n gapore, a n d cl o si ng i n on an agreem ent w i t h t h e E uropean Free Trade
Association (EFTA), see appendix 4. All are considered part of a s trategy t o open
industrial economies further to Chilean ex por t s . C hile joined Mercosur as an
a s s o ciate m ember i n 1996, limiting its commitment largely b ecause of Mercosu r ’ s
hi gh er com m o n ex t ernal t ari ff. C h i l e i s al so an act i v e p art i ci p ant i n t he W o rl d T rade
Organization (WTO), s eei ng it as the venue to settle controversial i ssues less suited
to regi onal or bilateral discussions.
Figure 1 . G row th i n Chilean Trade w ith MajorTrade d at a
Partners, 1993-2001reflect C h ile’s
openand
independent trade
policy. It s ex ports
totheworld
expandedby89%
overtheeight
years1993-2001
(seefigure1)and
importsgrewby
56%.Although
Chile is not part of
theAndean
Communityora
fullpartnerof
Mercosur,its
fastestexport
growthhasbeen
intra-regi o n a l , a t es tament to Chile’s trade s trat egy t hat combines unilateral
reductions in tariff and nontariff b arriers with an aggressive effort t o e n t e r i nto
bilateral arrangements. From 1993 to 2001, Chilean ex ports ex panded b y 126% to
Latin America, compared to 100% to t h e U n i t ed S tates, 43% to J apan, 70% to the
rest of Asia, and 71% to the European Union. Chile’s trade with Can a d a points t o
7 Weintraub, Sidney. Development and De mocracy i n t he Southern Cone: I mperatives for
U.S. Policy i n South America. Washington, D.C. Center for S trategic and Int e r national
Studies, 2000. pp. 2-3.
another i nteresting t rend. Although t he dollar v alue of ex ports is very small, it grew
by some 380%, an i ssue t hat was not lost on many U.S. business advocates of a U.S.-
Chile FTA, who argued t hat t he Chile-Canada FTA put U.S. firms at a competitive
disadvantage until a s imilar o r b etter agreement could b e reached wi t h t h e United
States.
Figure 2 . Chile Di rection of Trade, 2002
As seen i n f i gure 2 , C hile has d iversified ex port m arkets, which n o t only
increases opportunities for trade, but also reduces dependence o n a few m arkets and
thereby s oftens ex posure t o foreign shocks (e.g. A rgent i n a). It s l argest ex port m arket
is the European Union, which accounted for 23% of ex ports in 2002, followed b y t he
United S tates with 20%, and Latin America with 19%. J apan accounted for 11% of
Chilean ex ports and t he rest of Asia 17%. These figures reflect some relative change
over t he past decade, as seen i n t h e growt h p at t erns i n f i gure 1 . T here was a decrease
in the European Union’s and J a p a n ’ s s hare of Chilean ex ports, as well as t o Latin
America. Although C hile’s ex p o r ts to Latin America h ad been rising during t he
1990s, s low regional growth at the turn of the century reduced its export market
share. The ex po r t s h ares t o Asia and the United S tates, two areas that have
e x p e ri enced rel at i v el y fast er growt h, have ri sen recent l y. T here was al s o a l arge
increase i n C hilean ex port s hare to Canada, although from a very small b ase.
Latin America i s C hile’s larges t importing area, accounting for 35% of imports,
followed by t he EU with 18%, t he United S tates with 15 %, an d A s i a with 13%.
J apan and Canada follow at a distance w ith 3% an d 2 %, respectivel y. The EU t rade
presence i n C h i l e has d e c l i n ed over t he past decade, as i t di d wi t h ot her Lat i n
American countries. The relative importance o f t he United S tates s uggests t hat C hile
has h ad a s t rong i n cent i v e t o pursue a b i l at eral FTA, o t h er t h an a general preference
for ex p anding its ex port b ase.
Chile’s open regionalism and ex port d rive n t rade pol i cy h ave b een chal l enged,
however, for not focusing enough o n d iversifying t he country away from minimally
refined agriculture and mining p r oducts (copper, fish, grap es, and wood).
Manufactur e d products account for l ess t han 15% of total ex ports, s uggesting t wo
potential problem s. Fi rst, relying on t raditional commodities can provide strong
ex port earnings, but ear n i n gs are unpred ictable given the volatile nature of
commodity prices (see Chile’s swings in its terms of t rade in tab l e 1 ). 8
Second, little movement toward a m anufact ure-based, value-added approach to
ex port p romotion can limit long-term economic growth, a point d e v e l o p e d b y an
In ter-American Development Bank (IDB) study argu ing t hat t h e r e latively poor
income growth performance of commodity ex porting countries can be traced to this
lack of ex port d iversification. Although m any Latin American countries have
e x p a n d e d t h e i r i n t r a - r e gi o n a l t r a d e , d e e p e n i n g i n t e g r a t i o n w i t h d e v e l o p ed economi e s
seem s n ecessary t o achi eve great er ex port d i v ersi fi cat i on.
The l arge gai n s i n ex port m anu f a c t ures of Mex i co and t he C ent ral A m eri can
countries in the 1990s, f o r e x ample, were re lated, in some measure, to preferential
trade arrangements with the Un i t e d S tates. Other Latin American countries had
much slower growth of manufacture d ex ports. 9 W h ether C hile will adopt ex port
di versi fi cat i o n as p art o f i t s l ong-t erm d evel opm ent s t rat egy i s uncl ear, but C h i l e’s
effort s t o d evel op t rade rel at i onshi ps w ith developed economies, including the U.S.-
Chile FTA, would s eem to be an important component of such a goal.
On Chile’s import s ide, most from d evel oped countries are capital goods,
high lightin g t h e l i n k b etween an open t rade policy (lower t ariffs on capital goods)
a n d d evelopment (capital goods form the i nvestment base for o ther produc t i o n ) .
Im portantly, t her e i s s t r ong competition i n t he Chilean capital goods market from
firms around the world. Given Chile’s many trade n egotiations underway, t here was
pressure ex erted by U.S. firms to ex pedite the C hile-FTA. A cl oser look at the
structure of U.S.-Chile trade s u ggests there is potential for mutual benefit from
strengthening t rade ties b etween the t wo countries.
The U.S.-Chile Bilateral Trade Relationship
The United S tates i s C hile’s largest s in gl e-country trading p artner, accounting
for 20% of Chilean ex ports and 15% of imports in 2002. By contrast, C hile is the
United S tates’ 34th l a r g e s t ex port d estination and 36th largest import contributor,
accounting for 0.3% of U.S. trade (2002 data). Chile’s relatively s mall share o f U.S.
t rade h as act ual l y sl i pped s l i ght l y i n recent years, but i t s i n creasi n g openness t o U.S .
trade i s evident in the numbers. In 2002, Chile’s per capita imports from t he United
8 Inter-American Development Bank ( ID B ) . Integration and Trade in the Americas:
Periodic Note, December 2000. Washington, D.C. p. 14. At the other end of t he spectrum,
ma nufactured goods account for 71% of Mexico’s exports, r eflecting t he large amount of
maquiladora t rade with the United States.
9 Ibid., pp. 12-15.
States were $163, high er than other m ajor S outh American countries considered less
liberaliz ed in their t rade policies such as Argentina ($44) and Braz i l ($71). 10
Figure 3 . U.S.-Chile Me rchandise Trade, 1992-2002
Trends in U.S.-Chile merchandise trade are shown i n f i gure 3 (dat a appear i n
appendix 2) and mirror t he trend i n C hi l e ’ s e c o n o mic growth. U.S. ex ports grew
sign ificantly in the f i rst half of the l ast d ecade, rising by 77% from 1992 to 1997.
After t hat, they fell preci pitously for t wo years, coinci ding with the preci pitous fall
in Chile’s economic growth from 7.4% in both 1996 and 1997 to 3.4 % i n 1998 and
-1.1% in 1999 (see tab l e 1 ). As economic growth picked up again i n 2000, rising to
5.4%, s o t oo did t he demand for U.S. goods , but econom i c and U.S. export trends
faltered again in 2001 and 2002, with the United S tates running a m erchandise trade
deficit with Chile for t he first time since 1988. In 2002, U.S. ex ports were not much
above levels ten years earlier. This pattern parallels declining ex ports levels to Latin
Am eri ca, as a w hol e, refl ect i n g w eaker econom i c condi t i ons and t herefore dem and
for imports in general.
U.S. imports from C hile have grown s teadily since 1992, reflecting continuing
U.S. interest in Chilean products and t he ex tended ex p ansion of the U.S. economy.
U.S. imports grew by 172% from 1992 to 2002, a h igher rate o f import growth t han
f rom either Latin America, ex cluding Mex i co (107%), or the world (118%). The
United S tates m aintained a trade s urplus with Chile from 1989 until 2000; in 2001
10 See: CRS Report 98-840 E, U.S.-Latin American Trade: Recent Trends ,byJ.F.
Hornbeck,p.4.
t h e t rade balance t urned t o a deficit equal t o 6 % o f t otal trade b etween t h e t w o
countries and 18% in 2002.
Major U.S. p roducts ex ported t o C hile are m ostly capital goods (see appendix
3). These i ncl ude: m achi n ery (31%), part i cul arl y com put ers, offi ce m achi n ery, and
industrial equipment s uch as gas turbines an d bulldoz ers; electrical machinery (16%)
inclu d i ng television and radio transmission apparatus, telephone equipment, spare
parts, integrated circuits, s ound record in g equipment and media; vehicles (8%)
m o stly trucks and passenger cars; ai rcraft and parts (5%), and optical/medica l
i n st rum ent s (5%). In recent years, t h e U.S . ex port t rends have ex hi bi t ed a sl owi n g
in transportation equipment s uch as airplanes and aut om obi l es, and an i ncrease i n
computer and electronic equipm ent relative t o o ther goods.
The t op five U.S. i m p o r t s f rom Chile are n atural resource based goods that
reflect some refi n i n g of the bas ic resource, but little value-added m anufact uring
activity. They account for n early 70% of to t a l i m p o rts from C hile and i nclude:
copper articles (19%), mostly refined alloys; edible fruits and nuts (18%), most of
which are grapes ; fish (15%), mostly salm on; wood (13%), various types o f l umber;
and b everages (4%), vi rt ual l y al l w i n e. R ecent t rends have seen an i n crease i n grape
and fish imports, with a s teady l evel or slight decline i n d emand for copper, wood,
and wine p roducts relative t o o ther goods.
Revi ew of Negotiations and P olicy I ssues
The congressi onal d ebat e over t rade agreem ent s i n v a ri abl y t u rns t o t hei r
potential economic effect s o n t h e United S tates, incl uding both aggregat e
m acroeconom i c, as wel l as, sect or al effect s. Assessi ng t h ese effect s i s t he
responsibility of the United S tates International Trade Commission (ITC), which i n
J une 2003 released a comprehensive study as part of the congressional consultation
process. The report provides both quantitative and qualitative estimates of t he FTA’s
possibleimpact.
The overall estimate of the ITC study was t hat b y 2016, when the full effect of
the t ariff eliminations would be felt, U.S. ex ports to Chile would i ncreas e i n a range
between 18% and 5 2 % ; U.S. imports would rise b etween 6% and 14%. The study
noted that this would b e v ery s mall relative t o t otal U.S. trade and that the economy-
wide effects o n t rade, p roduction, and overall e conomic welfare would be s mall to
negligible (in a range of negative 0.001% to a positive 0.003% of GDP). This is in
keeping with general ex p ectations from t he outset o f t he nego tiations that recogn iz ed
the limited benefits that could be achieved by t he FT A gi v en Chile is al ready a
relatively s mall open economy with a relatively s mall trade position with the United
States. The ITC finding, however, s erves as an e s t imate of confirmation, focusing
l a rgel y on t he implications of tariff re duction, which m ay be quantified, u n l i k e11
changes i n m any nontariff b arriers.
11 United States International T rade Commi s s i o n . U.S.-Chile Free Trade Agreement:
Potential Economywide and Se lected Sectoral Effects. USIT C Pu b lication 3605. J une
(continued...)
The rest of t his section briefly summarizes t he major policy i ssues that had t o
be reconciled i n t he negotiating proces s and references the ITC’s co n clusions with
respect t o each m aj o r i ssue area, where appl i cabl e.
Tariffs and M arket Access
For t he Uni t ed S t at es, m arket access and part i cul arl y reduci n g t ari ff rat es, w as
a central go al of the n e g o t i a t i ons. For countries that have trade agreements with
Chile, s uch as C anada, the uniform 6% tari ff is being phased out on most goods, an
advantage t he United S tates wanted t o eliminat e. On the other side, t he primary U.S.
imports from C hile f a c e v a r ying l evels o f t ariffs, although s ome goods enter t he
United S tates duty free under normal t rade relations (see appendix 3 for U.S. t ariff
t r eatment of major C hilean ex ports). The m ajor U.S. imports from C hile do no t
qualify for duty-free t reatment under t he Generaliz ed S ystem of P references (GS P ),
a p referential t rade arrangement m ade by d eveloped countries fo r d eveloping country
imports. The United S tates and Chile negotiated t ariff reduction phase-out schedule
on a p roduct-by-product b asis that differentiated t reatment for s ensitive p roducts, as
was done in the North American Free Trade Agreement (NAFTA).
The ITC identified t he major s ect ors t hat would likel y benefit the m ost from t he
FTA based on quantitative estimates of t h e l i k el y i ncrease i n U.S. ex ports and
imports for t he year 2016, when the full effect of the t ariff reductions would b e felt.
The estimated ranges of i ncreas e i n U.S. ex ports for t he most affect ed sect ors are:
1) motor vehicles and transportation equipment (35%-215%); 2) tex tiles, apparel, and
leather goods (29%-101%); and 3 ) coal, oil, gas, and o ther minerals (26%-72%). Fo r
U . S . i m ports, t he range estimates for most affected sectors are: 1 ) d airy products
(169%-575%); 2) tex tiles, apparel, and leather goods (77%-372%); and o ther crops
(55%-114%), p a r t icularly avocados when the t ariff rate quota i s eliminated in 12
years. In al l cases, t he i n creases a r e e s t i m at ed t o b e l arge on a p ercent age basi s
because of relatively h igh t ariff o r t ariff equivalent barriers o n t hese goods. Because
t h e changes are com put ed from rel at i v el y s mall bases o n a d o l l a r v alue basis,12
however, t he effects o n i ndustry p roduction are ex pected to be small.
ServicesTrade
Services are an important part of U.S. ex ports and are a key negotiating area i n
t rade agreem ent s . T he Uni t ed S t at es i s a l e a d i n g p rovi der o f fi n anci al (i nsurance,
banking, s ecurities), t el ecommunications, and management consulting s ervices . The
U.S.-Chile FTA would l ower barriers and would enhance disci plines with respect to
the provision of these s ervices, but would not alter s ignificantly U.S. imports of these
services, nor would t here likely b e a large change i n t he U.S. ex port position. Fi rst,
Chile has only a smal l presence i n t he United S tates with respect to thes e s ervices and
11 (...continued)
2003. pp. xiii-xv. In addition t o a revi ew of the literature, t he study bases its conclusions
on a computable general equilibrium model ( CGE) that estimates the “likely i mpact of a t he
U.S.-Chile FT A f or 22 aggr egated sectors.” See pp. 2-3, 53-55, and Appendix C.
12 Ibid., pp. xv-xviii and 46, 51, and 57. T he r eport has a detailed discussion of the FT A’s
possible effects by s ector and commodity.
second, Chile is a relatively small market for U.S. services and has been relatively
open for some time.13
TradeRemedies
In addition t o t ariff reductions, t rade remedies pres ented negotiators w i t h
sign ificant challenges. In t he United S tates, low t ariffs on most products have caused
domestic industries t o rely o n t rade remedy laws to fight import competition.
Perhaps t he most controversial i ssue was the application of U.S. antidumping statutes
(investigations to determine i f goods are b eing sold at less than fair value), which
Ch i l e ex pressed a desire to address i n t he bilateral FTA. This was not a n ew issue
a n d w as tackled i n t he Canada-Chile FT A, which p rovides for the “recip r o c a l
ex emption from t he application o f anti- d u m p i n g laws,” ex cept under “ex ceptional
ci rcum st ances.”14 The t hrust of t hat agreem ent appears not to force t he elimination
of antidumping remedies, but to make their use a l ast rather t han first recourse, under
WTOguidelines.
Chile’s sensit i v i t y to U.S. antidumping investigations was based on their
“frequent and at times unjustified use,”15 and Chile argued that just the filing of
dumping charges i nitiated a proces s with significant unrecoverable costs regardless
of t h e i nvest i gat i on’s out com e. In recent years, ant i dum p i n g i n v est i gat i ons were
concluded o n C hilean salmon, mushrooms, grapes, and raspberries. T he IT C ruled
t h at t h ere w as reasonabl e i ndi cat i o n t hat m at eri al i nj ury w as caused t o U .S . p roducers
in the cases of salmon, mushrooms, and raspberries, but not for grapes.16 The United
S t at es i ndi cat ed t h at t rade rem edy l aws woul d not be nego t i at ed unl ess o t h erwi se
directed by Congress and t h e Bu s h Administration, andextendedanoffertoChile
to make the p rocess m ore t ransparent. C hile responded with concrete proposals t o
make this suggestion operational. 17 The United S tates also had NTB concerns over
C h i l e’s pri ce b and s ys t e m u sed t o m ai nt ai n dom est i c agri cul t u ral p ri ces and i t s
sanitary and phytosanitary regulati o n s that restrict imports of U.S. agricultural and
meat products. 18
IPR and Investment
Among the other issues of speci al interest to the United S tates were i ntellect ual
property rights (IP R) and i nvestment provisions. C hile has s igned t he Trade R elated
In tellectual P roperty R ight s ( TRIPS), but its congress has yet to pass legi slation
13 Ibid., pp. 94-101.
14 Government of Canada, Canada-Chile Free T r ade Agr eement, February 1997.
Antidumping was a lso a ddressed i n t he Chile-M exico FT A.
15 On Chile’s trade agr eements, s ee: [http://www.direcon.cl/acuerdos/index.htm]
16 IT C antidumping rulings may be viewed at: [http://www.usitc.gov/7ops/7opsindex.htm]
17 Conversations with office of the UST R, August 17, 2001 and Embassy of Chile, M ay 9,
18 Office of the United States T rade Representative. 2002 National Trade Estimate Report
on Foreign Trade Barriers . pp. 38-39.
implementing t he provisions. In addition C hile has a lso s igned t wo World
Intellect ual P roperty Organization (WIPO) t reat i e s , b u t has failed t o conform fully
to these obligations, as well. The U.S.-Chile FTA reaffirms obligations under TRIPS
and adds another l ayer of important protec tion for U.S. industries, which i f enforced
would potentially increase revenues t o a number o f i ndustries i nclu d i n g : m otion
picture, sound recording, business s oftware, book publishing, pharmaceuticals, and
agricultural chemicals, among others. 19
Chile is known for its transparent and high level t reatment of foreign i nvestment
and h as eliminated restrictions on capital i nflows that ex isted i n t he 1990s (see nex t
section). As a W TO m ember, it is a s ignatory to both t he W TO Agreement o n Trade
Related Investment Measures (TRIMS) and the W TO General Agreement o n T rade
i n S ervi ces (GATS ), bot h o f w hi ch affect investment rules. The U.S.-Chile FTA
go es beyond these rules and p rovides U .S. i nvestors with strong protection. As
importan t as these provisions are for the United S tates, the ITC estimates t hat
because of Chile’s historically open economy and small i nvestment market, t he FTA
might foster increased U.S. investment in Chile, but it is unlikel y t o be significantly
hi gh er t h an woul d o t h erwi se be t h e case.20
Labor and E nvi r onment
Labor a n d environment p rovisions have become accepted as l egitimate, but
difficult issues to resolve i n t rade agreem ents. At t he heart of t he matter i s whether
a d ifference i n environmental and labor standards b etween developed and developing
countries creates economic and s ocial i ssues that should b e addressed i n t rade
agreements. T his h as led t o a strong divergence of opi n i o n , both among groups
within the United S tates, and b etween developed and developing countries.
Advocates of including labor and envir onment p rovisions in trade agreements
argu e t hat d eveloping countri es enjoy an “unfair” compe titive advantage because
thei r l ower standards t ranslate into lower costs, which in turn are reflect ed in lower
p r i c e s f o r goods that compete with those p roduced in developed countries. 21 Ov e r
time, t his argument s uggests t hat t he difference i n s tandards l eads t o i nvestment and
jobs moving abroad to take advantage o f t he lower p roduction c o s t s . On t he other
hand, many studies show that these costs are u sually not high enough t o d etermine
business l ocation, where p roductivity remains t he primary factor.22 There a r e a l so
19 USIT C, op. cit., pp. 109 and 118.
20 Ibid., pp. 103-108.
21 T he difference i s t hat t he social costs associated with envi ronmental d e gr a d a t i on,
pollution, poor working conditions, and low wages are not captured i n t h e production
process. T hrough l egal and r egulatory measures, developed countries require that
businesses bear many of these costs, which are t hen r eflected in the f inal (relatively higher)
price of t he good or service i n t he market place.
22 See: CRS Report 98-742, Trade with Developing Countri es: Effects on U.S. Workers ,by
J . F. Hornbeck. September 2, 1998, pp 11-13. Productivity and wage l evels a re, however,
highly correlated. See: Rodrik, Dani. Sense and Nonsense in the Globalizatio n D e b ate.
(continued...)
soci al concerns t o t h e l abor and envi ronm ent al i ssue t hat rel at e d i rect l y t o t h e hum an
impact of diminished h ealth and living conditions caused b y pollution, poverty, and
unsafe working conditions. Given countries ’ d ifferent lev e l s of development and
therefore capacities t o addres s t hese issues , t here is considerable disagreem ent over
how far a trade agreement s hould go i n engaging t hese domestic policy i ssues.
Developing countries, i nclud i n g C hile, h ave ex p ressed t wo basic concerns
regarding t he inclusion o f environmental and labor provisions in trade agreements:
1) that their s overeignty m a y be undermined if such agreements endorse high er
standards; and 2 ) t hat s uch p rovisions may be u sed t o j ustify d isgu ised protectionism.
Free trade advocates in the United S tates and other d e v eloped countries have
ex pressed s imilar s entiments i n opposition t o p lacing en v i r o nmental and labor
provisions in trade agreements.
Labor and environment provisions in trade agreem ents have evolved over time.
NAFTA’s si de agreem ent s set a precedent i n bot h l abor and envi ronm ent p rovi si ons
that al l parties: 1) not relax s tandards t o attract investment or reduce costs of ex ports;
2) strive to improve standards over time, and; 3) enforce effect i v ely t heir laws and
regulations. The U.S.-J ordan bilateral FTA (the implementing l egislation was signed
into law b y P resident Bu sh on Septem ber 28, 2001 — P .L. 107-43 ) t ook labor and
environmental p rovisions a s tep farther. It i ncludes m ost k ey features of the NAFTA
side a g r e ements, but moved t he provisions to the m ain body of the t ex t, thereby
placing these p rovisions under t he dispute resolution p rocess o f t he entire agreement.
S i gn i fi cant l y, t hi s i ncl udes l angu age s t at i n g t hat an affect ed part y m ay t ake “any
appropriate and commensura t e m easure,” including trade s anctions if the dispute
remains unresolved. 23
Chile recognized the importance of l abor and environment p rovisions when it
included t hem i n t h e 1 9 9 6 FTA with Canada, but kept them equally general i n
NAFTA-like s ide agreem ents. The labor and environment p rovisions differ from t he
J o rdan m odel b y t hei r pl acem ent i n a si de agreem ent a n d t h e i r rel i ance o n l ess
stringent dispute resolution options, em phasizing monetary assessments rather than
t rade s anct i ons. 24 Duri ng t h e n egot i at i ons, i t w as uncl ear whet her t he C h i l e-C anada,
U.S.-J ordan, or some new o r h yb rid m odel would work for the U.S.-Chile FTA. U.S.
nego tiators looked t o guidance i n t he TPA l egislation and the core d ebate focused on
di sput e resol ut i o n and enforcem ent m echani s m s , p art i cu l a r l y t h e u se of t rade
sanctions in cases of noncompliance. Chile was on record, however, as flatly
rej ect i n g i ncl u si on of any l angu age t hat allows for t he use o f t rade sanctions.
22 (...continued)
Foreign Policy. Summe r 1997, Numb er 107. pp. 30-33.
23 See: CRS Report RS20968. Jordan-U.S. Free Trade Agreement: Labor Issues,byMary
J a ne Bolle. pp. 2-3 a nd CRS Report RS20999. U.S.-Jordan Free Trade Agreement:
Analysis of Environmental Provisions, by M ary T iema nn. pp. 2-3.
24 Gove rnme nt of Canada. Canada-Chile Free Trade Agreement. Article by Article
Chapter Summaries. February 1997.
Congress and the U.S.-Chile FTA
In recent years, t h e Uni t e d S t a t e s h as si gn ed bi l at eral FTAs wi t h J o rdan,
S i ngapore, and C hile. All three h ave common elem e n t s , b u t each reflects country
specific i ssues. A recurring question for the U.S. C ongress with respect to the t rade
nego t i at i o n p rocess h as been, t o w hat ex t ent does one agreem ent b ecom e a m odel for
another? For ex ample, when t he U.S . -Chile FTA was sign ed in December 2002,
United S tates T rade Repres entative R obert Zo ellick announced that it could s erve as
a “t em p l at e” for U.S . -C ent ral Am eri can Free Trade A greem ent (C A FTA). 25
As the 108 th Congress considered the U.S.-Chile FTA implementing l egislation,
a few i ssues beca m e h i gh l y cont roversi al and som e Mem b ers s uggest ed t h at som e
language in this agreement s hould not be considered as a m o d e l f o r f u ture FTAs.
One o r m ore o f t h e s e issues were raised in hearings before the House W ays and
Means and Senate Fi nance C ommittees, as wel l as both J udici ary C ommittees. This
section p rovides a brief s ummary of the r elevant provisions in the U.S.-Chile FT A
and amplifies t he debate over t hree cont roversi al aspect s o f t he agreem ent .
The U. S. -Chi l e FTA i n Br i e f
With implementation of t he U.S.-Chile free t rade agreem ent, Chile joined a
select group of only five o ther countries that h a v e an FTA with the United S tates
(Canada, Mex i co, J o r d a n , Is rael, and Singapore). M arket access was a critical
p r o v i s i on, with duty-free access n egotiated for all goods traded between the t w o
countri es . W hen t he agreem ent enters i nto force on J anuary 1, 2004, fu lly 87% of
bila t eral t rade in consumer and i ndustrial p roducts will become duty-free
immediately, with the rest receiving reduced tariff treatment over time. S ome 75%
of U.S. farm ex ports will enter C hile duty-free within four years and duties on all
goods will be fully phased out within 12 years. W ith a few ex ceptions, t he agreement
will also increase m arket access for a b road range o f s ervices, with new opportunities
for t he financial s ervices sector, among others.26
Ex port s ubsidies o n agricultural p roducts will be eliminated, but either country
will be able to respond in-kind i f d amaged by third p arty ex port s ubsidies. There i s
al s o a s a f e guards p rovision to address possible s urges i n agricultural imports from
Chile.27 Im portantly, t he chap t e r o n t rade remedies deals only with the s afeguards
provision, so there i s no change t o t he antidumping and countervailing duty options
currently available t o both countries under W TO rules.
Fo r C hile, 95% of its ex port p roducts will gain immediate duty-free s tatus and
only 1.2% will fall into the l ongest 12-year phase-out period. Other important market
access gai ns wi l l i n cl ude phasi ng out t h e l ux ury t ax on aut o m obi l es over four years,
25 Washington T rade Daily, US,Chile ReachFTA, December 12, 2002.
26 T he f ull t ext of t he agreement has 24 chapters filling hundreds of pages. T he entire t ext
ma y be f ound at: [ http://www.ustr.gov].
27 CRS Agriculture Policy a nd Farm Bill electronic briefing book, Agriculture in the U.S.-
Chile Free Trade Agreement , [ ht t p : / / www.congr e ss.go v/ br bk/ h t ml / e bagr 53.ht ml ] .
l e s s restrictive t reatment of tex tile and apparel p roducts that meet rules o f o rigi n
criteria, and reduction over time of Chilean price bands, a provision not incl uded i n
either of the FTAs C hile negotiated with Canada and t he European Union.
Other achieve m e nts o f importance t o t he United S tates i nclude consolidating
and s tabilizing rules go v e rning openness of services trade, telecommunications,
intellect ual property rights (IP R), e-commerce t rade, an d investment. T hese areas
were of much great er interest to the United S tates t han C hi l e and reflect gains for
high ly competitive U.S. i ndustries. There are few ex ceptions to t h e n ew services
rules, benefitting firms working i n financi al , t el ecommunications, computer, and
professi onal s ervi ces. C hi l e’s approach t o IP R i s al s o adj ust ed t o accom m odat e U.S .
concerns ove r s oft ware, m u si c, t ex t , and videos. A new e-commerce chapter
addresses t he growing t rade in digital products.
Despite thes e m any achievements, the 108th Congress raised questions on three
provisions in particular that may prove even more difficult to pass in future FTAs if
language is similar t o t hat o f t h e U . S . - C h i le FTA. These i nvolve the t reatment of
labor and financi al transfers i n dispute s ettlement, and the t em p o r ary entry for
business p ersons.
Labor Di spute S ettl ement P r ovi si ons
A k ey controversy s urrounded t he t r e atment of three l abor provisions in the
agreem ent . Labor advocat es argu ed t h at t h ey are a s t ep b ackward from t he provi si ons
agreed to in the U.S.-J ordan bilateral, as well as th e G en eral i z ed System of
P references and C ari bbean Basi n T r a d e P art nershi p A ct , w hi ch current l y govern
much of the U.S. t rade with La tin America. Specifically, p rovisions: 1 ) requiring
effective enforcem ent of domes tic labor laws, 2) reaffirming commit m e n t s t o ILO
basic p rinciples, and 3 ) requiring p a r t i e s t o s trive t o ensure t he “non-derogation”
from domestic standards (not weakening o r reducing p rotections to encourage t rade
and i nvestment) are treated differently. 28
In the first cas e, fail u r e t o enforce domes tic labor laws can be formally
challenged in the d ispute resolution p rocess as d efined in the FTA (Article 22.16(1)).
In the case o f t he other t wo provisions, which are s upported i n p r i n ciple, s uch
recourse is not available. The USTR points t o cooperative m echanism s for
improving workers’ rights in the FTA,29 but labor advocates argu e t hat unless all
t h ree are enforceabl e, t he FTA p rovi des “a m eani n gful t rade d i s ci pl i n e where — and
only where — t he country’s labor law s ar e adequate. Otherwise we would s imply
l o ck i n l o w and unaccept abl e l abor st andards t hrough our t rade agreem ent s .”30
28 For more backgr ound on these i ssues, s ee: CRS Report RS21560, Free Trade Agreements
with Singapore and Chile: Labor Issues, byMaryJane Bolle.
29 UST R. Response t o t he Labor Advi sory Committee ( LAC) report on t he proposed FT As
with Singapore a nd Chile. Undated. May be f ound at UST R web s ite.
30 Polaski,, Sandra. Carnegie Endowme nt for Internatio n a l P eace. Testimony Before the
Senate Committee on Finance on t he Implementation of t he U.S. B i l ateral Free Trade
(continued...)
Al t hough C h ile has a sound record in support of bas ic labor ri ghts, s uch
differentiated t reatment is challenged as inadequate for u se in other countries,
part i cul arl y t hose i n C ent ral Am eri ca, 31 andsoraisesaquestionforsomeas to
whether t he Chile agreement does o r s hould constitute a p recedent.
In addition, in the one case where the formal d ispute resolution p rocess m ay be
invoked, it is differentiated from d isputes related t o commercial i ssues. Ultimately,
if a comm ercial d ispute remains unsettled, the country faces the possibility of
suspension of benefits under t he FTA “of eq u i valent effect” (Article 22.15(2)),
resulting i n t he raising of t ariffs, or payment of a m onetary assessment equal t o 50%
of what a d i s put e p anel det erm i n es i s “of e quivalent effect.” This article does not
apply t o t he disputable labor provision. The difference i s t hat t he option for failing
to resolve a l abor dispute i s a monetary assessment, which would b e capped at $15
million per year, with recourse to an equivalent dollar val ue of suspen d e d b en efits
(higher t a r i f fs) i f t he monetary assessment i s not paid. The monetary assessment
w o u l d a l s o be pai d i nto a fund and ex pended for “appropriate labor initiatives .”
Labor advocat es argue t hat by capping the assessment at $15 million and having the
assessment p aid i nto a fund in the o ffending country render t he l a b o r provisions
ineffective. The USTR argues t hat for a s mall country like C hile, s uch a fine would
be si gn i fi cant rel at i v e t o t he dol l ar v al ue of t h e t rade benefi t s i t wi l l recei ve. 32
From a congressional p erspective, ther e i s an additional question o f whether
differences in the t reatment of the t hree labor provisions in some way fail t o m eet in
full the principal negotiating objectives of Congress as outlined in TPA l egislation.
Although t he three p rovisions are not accord ed the ex act same treatment in the FTA,
neither are t hey i n t he TPA l angu age. S ection 2102(b)(11) of the Trade Act o f 2002
(TPA) s tates t hat among the principal l a bor negotiation objectives is the provision
“to ensure that a party to a t rade agreem ent with the United S tates does not fail to
ef f ect i vel y enf orce the environmental o r labor laws.” This may be cont ras t ed with
the apparently weaker objective “to strengthen t he capacity of United S tates t rading
partners to promote r espect for core l abor standards, ” and, in Sec. 2102(a)(1)(7) t o
“strive to ensure that t h e y do not weaken or reduce t he protections afforded in
domestic environmental and labor laws as an encouragem ent for t rade.”
There i s a final point. Although t he TP A p rovisions seem to differ with respect
to treatment of these t hree labor provisions , under t he dispute resolution p r o v i s i on
(sec. 2102(b)(12)(G)), a p rincipal nego tiating objective also listed i s “to seek
30 (...continued)
Agreements with Singapore and Chile. J une 17, 2003. p. 2.
31 Polaski, Sandra. Issue Brief: Central America an d t he U.S. Face Challenge — and
Chance f or Historic Breakthrough — on Workers’ R i g h t s . Carnegi e Endowme nt for
International Peace. February 2003. pp. 1-2.
32 See: USTR, op. cit., and Report of t he Labor Advi sory Committee f or Trade Negotiations
and T rade Policy ( LAC) . The U.S.-Chile and U.S.-Singapore Free Trade Agreements.
February 28, 2003. pp. 5-9 a nd Lee, T hea M. Testimony of the AFL-CIO Before the U.S.
House of Representatives Committee on Ways and Means, Subcommittee on Trade on the
Implementation of U.S. bilateral Free Trade Agreements with Singapore and Chile. J une
provisions that treat United S tates principal negotiating objectives equally” with
respect to the ability to resort to dispute s ettlement, t he availability of eq u i v alent
procedures, and t h e a v a ilability of equivalent remedies. W hereas the l abor groups
have argued that this is not the cas e with labor and commercial disputes , t he USTR
has responded t hat t his s tandard has b e e n m et s ince both commercial and labor
disputes are s ubject to monetary assessments and s uspension o f b enefits. The dispute
settlement procedures do operate slightly differently, however, and it may be a m atter
of interpretation as t o whether t h ere i s a problem in thei r m eeting congressional
negotiating objectives.33
CapitalControls
A s e cond controversial p rovision in the agreem ent rel at es t o capi t al cont ro l s .
The rel evant l anguage i s s et out in the dis p u t e s ettlement portion of C hapter 10 —
Investment of the FTA. Duri n g t h e 1990s, C hile became famous for controlling
capital i nflows, a policy i ntended t o limit the real appreci ation of t he Ch i l ean peso
that large capital i nflows can cause. This policy, some argue, helped Chile avoid t he
currency over v al u a t i on problem that contributed to multiple developing country
fi nanci al cri ses i n t hat d ecade. C h i l e’s m ai n cont rol pol i cy o n port fol i o capi t al ,
known as t he Ley d e Encaje, was discontinued i n 2001. W h ile in force, however, i t
raised issues with respect to the U.S. position favoring t he free flow o f t ransfers an d
paym ents related t o i nvestment, which has become a s tandard position i n both U.S.
bilateral i nvestment treaties (BITs) and other FTAs.34 In hearings on the U.S.-Chile
FTA, some Members o f C ongress ex pressed concern t hat U.S. n egotiated positions
insisting on t he free flow of payments and transfers might be imprudent if they inhibit
countries from using controls on capital t o help m aintain fin an ci al s t ability during
times of i nternational financi al turmoil.35
The p rovisions at issue appear in two annex es o f t he investment chapter o f t he
U.S.-Ch i l e FTA t hat cover t reatment of both l ong-term and short-term capital
investment. The provision in Annex 10-F focuses on the t reatment of long-term
investments under C hile’s Decree La w 600 (D.L. 600). This l aw provides an
investment option i n t he form of a contract with th e G o v e rnment of Chile that
stipulat es certain rights of the i nvestor, b u t a l so requires t hat foreign direct
investment (FDI) remain i n country for a min imal p eriod o f one year (three years at
one point). Should a dispute arise, t he language in the U.S.-Chile FTA would allow
the i nv e s t o r t h e option t o m ake a claim in international arbitration as opposed to
33 It should also be noted that under t he principal negotiating obj ectives with respect to labor
is the provi sion: 1) “to r ecognize t hat parties t o a trade agr eement r etain t he right t o exercise
discretion” in investigati n g and prosecuting compliance matters; 2) t hat “a country is
effectively enforcing its laws” i f its reflects r easonable action as b e i ng taken; and 3) “no
retaliation may be authorized based on t he exercise of these r ights or t he right t o establish
domestic labor standards.” Sec. 2102(b)(11)(B).
34 See: U.S. De partme nt of State. Fac t S h e e t : Bilateral I nvestment Treaty Program .
J anuary 22, 2001, [http:// www.state.gov/ e/eb/rls/fs/197pf.htm] , a nd NAFT A Article 1109.
35 It should be noted that there i s a n ongoing, a n d s o far unresolve d, debate among
economists over the efficacy and wisdom of using capital controls as a t o ol t o manage
international capital volatility.
having to work through t he domestic Chilean court s ys tem as s et out in D.L. 600. It
is the l ess controversial p rovision of the t wo.
The m ore controversial p r ovision relates t o C hile’s Ley d e Encaje,which
governs s hort-term portfolio cap ital flows, and the recourse that U.S. investors m ay
have i f faced wi t h rest ri ct i ons on t h e out ward fl ow of cert ai n paym ent s and t ransfers
as d e f i n e d i n A n n ex 10-C. This annex m ust b e understood as part of the l arger
dispute s ettlement provisions related t o forei gn investment, as defined in Section B
of Chapter 10. The U.S.-Chile FTA adopted what has b ecom e m o r e or less of a
standard provision, which s tates t hat, U.S. investors who seek to fi l e a claim for
breach of t h e C hapt er 10 provi si ons can do so onl y aft er si x m ont hs have l apsed from
the event gi ving rise to the claim. This ge n e ral r u l e a pplies t o a broad range of
potential i nvestment disputes such as fa ilure to observ e n a t i onal t reatment or
expropriation.
Annex 10-C, the m utually-agreed compromise d eveloped b y C hilean and U.S.
negotiators, i s act ually an important ex ception t o t he six -month rule. Paragraph 1 (a)
st at es t h at cl ai m s al l egi ng t h at C h i l e has b reached an obl i gat i o n under Chapter 10
from its imposition of restrictions on transfers can only be made one year after the
rest ri ct i o n w as put i n pl ace, wi t h cert ai n ex cept i ons. In general , t he Uni t ed S t at es
want ed t o m ak e s u re t h at C h i l e di d not have a general “bal ance of paym ent s ”
ex ception t o impose capital controls.36 Chile wanted to ensure that it would not be
penalized if it were ever to reimpose its Ley d e Encaje. Under C hile’s LeydeEncaje,
any s hort-term capital i nvestment in Chi l e required t hat an additional
nonremunerated d eposit equal t o 10%-30% of the i nvestment value b e p laced in the
Central Bank o f C hile for one year.37 The d eposit would b e forfeited i f t he portfolio
investment were repatriated i n l es s t han one year, imposing an a d d i t i onal cost o n
capital volatility. In essence, Annex 10-C attempts to reconcile thes e go a l s b y
allowing for an ex t ension from s ix months to one year (the life o f t he encaj e)ofthe
“cooling o ff period” before a claim can be made for dispute resolution relate d t o
restrictions on t r ansfers and payments, and by stipulating t hat t he encaj e is not an
open-ended i nvitation t o res trict (may not substantially impede) capital movements.38
The important qualification rel ating t o portfolio capital s tates t hat C hile will not
incur any liability for dam ages:
36 For example, i f Chile were faced with a l arge and prolonged trend of capital outflows and
sought to have full freedom to restrict them without being hel d liable f or any damages
investors might incur.
37 Encaj e bancario is a Spanish financial t erm f or reserve.
38 Note, t here are t wo exceptions allowing recourse to the s ix-month s tandard, but neither
affects portfolio capital. The f irst exception guarantees that there are no restrict i ons on
transfers and payments related t o f oreign direct investment (excluding investments designed
with the purpose of gaining direct or indir ect access t o t he financial market). T he second
exception guarantees that t h e r e are no restrictions on payments made on loans or bonds
issued in foreign markets, i ncluding inter- and i ntra-company debt financing between
affiliated enterprises provided such payments are r elated to conduct i n g b u s i n ess i n t he
affiliated enterprises. The language related to financial markets effectively prohibits
portfolio capital from qualifyi ng under t hese exceptions, a provision added by Chile.
arising from its imposition of res trict i v e m eas ures with respect to
paym ents and t ransfers that were incurred within one year from t he date on
which t he restrictions were imposed, p rovided t hat s uch restrictions do not
substantially impede t ransfers.39
There are two important thresholds that the Ley d e Encaje m u st not ex ceed t o
avoid t riggering a claim for dispute resolution. Fi rst, it cannot affect an investment
for m o r e t h a n one year. Historically, t his h as been the case. Second, the encaj e
cannot be considered as having “substantially impeded” capital outflows. Although
in any act ual arbitration a panel would be empowered to determine what constitutes
“s ubstantially impede,” t his l anguage was crafted with the i ntent t hat t he forfeiture
of the encaj e not be construed as s ubstantially impeding capital outflows and so may
be viewed as unlikely t o open t he door to U.S. investor dispute s ettlement.40
The U.S.-Chile FTA provisions do not eliminat e C h i l e ’s ri ght t o reimpose its
c api t al cont rol l aws p er se, especi al l y t h e Ley d e Encaje, but do ex tend certain
additional rights t o U.S. i nvestors. In addition, they indicate t hat U.S. i nvestors could
pursue dispute s ettlement if Chile were to impose controls that substantially impeded
portfolio capital from l eaving t he country, s etting u p t h e debate over whether such
restrictions belong in FTAs. Attention t o t h e issue has grown i n t he aftermat h of
c ongressional approval for the U.S.-Chile FTA, particularly in light of t h e n u m b e r
of subsequent FT As that are h eading for c ongressional action. Although i n t he U.S.-
Chile cas e t he language governing capital controls may be viewed as a compromise,
it is far from clear that language adopted to fit t he specific C hilean case will be able
to accommodate other count r i e s nego tiating FTAs with the United S tates, or U.S .
congressional concerns.
Tempor ar y Busi ness Per s onnel a nd Wor ker s41
Key P rovi sions. C h apt er 1 4 o f t he U.S . -C hi l e F T A c r eat es separat e
categories o f entry for citiz ens o f each country to engage in a wide range of business
and i nvestment activities on a temporary basis, i.e., nonimmigrants. The FTA
addresses four speci fic cat egories of t em porary nonimmigrant admissions currently
governed by U.S. immigration l aw: busines s visitors; t reat y t rad e rs ; i ntracompany
t ransfers; and p rofessi onal workers. T hese cat e g o r i es p aral l el t he vi sa cat egori es
com m onl y referred t o b y t h e l et t er and num eral t h at denot es t h ei r s ubsect i o n i n
§101(a)(15) of the Immigration and Nationality Act : B-2 visitors, E-1 treaty t raders,
39 Annex 10-C, paragr aph 1(e).
40 Discussions with representatives of the U.S. T reasury and the Embassy of Chile. If t he
Ley de Encaje were, f or examp l e , r e i mposed with a 50% deposit, this mi ght well be
construed by a dispute settlement panel t o be sufficiently high as to “substantially impede”
capital f lows . T he specifics of any f uture case will be critical to determining t he outcome.
T his issue wa s f u rther c larified by U.S. Unde r Secretary of t he T r easury f or International
Affairs J ohn T a yl or in a s ide l etter t o t he Singapore M onetary Authori t y. Although t he
letter i s not binding for Chile, i t i s i ntended t o p rovi de “interpretive guidance” for a dispute
settlement panel. The term “substantially impede” was used in NAFTA Article 2104,
paragr aph 5(c), but not in bilateral i nvestment t reaties, and has not been tested in arbitration.
41 This section was wr itten by Ruth Ellen Wasem, Specialist i n Social Legislation.
L-1 i ntracompany t ransfers, and H-1B professional workers.42 Neither Party would
be allowed t o require labor certification o r o ther similar p rocedures as a condition o f
entry and would not be able to impose any numerical limits on thes e cat egories, with
some ex ceptions noted for t he professional w orkers (incl u d i n g an annual cap of
The FTA cl early stat es the des ire t o facilitate the t em porary entry of persons
fitt i n g t hese cat egories, provided t he person complies with applicable immigration
m easures for t em porary ent ry ( e.g ., publ i c heal t h and s afet y as w el l as n at i onal
security). Chilean citizens who are busines s visitors, for ex am ple, would be able t o
enter t he United S tates for business purposes on t h e b asi s of an oral decl arat i o n o r
letter from t he em ployer speci fying t he princi pal place of business, detailing i n t he
FTA an admissions policy not currently specified in statute.
Title IV of the enabling l egislation amends several s ections of the Immigration
and Nationality Act (INA, 8 U.S.C.). Fo r em o s t , it amends §101(a)(15)(H) o f INA
to carve out a portion o f t he H-1B visas — to be design ated the H-1B-1 v isa — for
professional workers entering through t he FT As. In m any ways t he FT A p rofessional
worker visa requirements parallel t he H-1B visa requirements, notably having similar
educat i onal requi rem ent s. The H -1B v i s a, however, s p e ci fi es t h at t h e o ccupat i o n
require highly specializ ed knowledge, while the p roposed FT A p rofessional worker
visa specifies that the o ccupation r equire only s pecializ ed knowledge.
The l egislation also amends §212 of INA t o add a l abor attestation requirement
for employers bringi ng in potential FTA professional worker nonimmigrants t hat i s
similar t o t h e H - 1 B labor attestation s tatutory requirements. The additional
attestation requirements for “H-1B d ependent employers” currently specified in §212
are not included i n t he labor attestation requirements for employers o f t he proposed
FTA professional worker nonimmigrants.
There are numerical limits of 1,400 new entries under t he p r oposed FTA
professional worker visa from C hile. The legi slation does not limit the number of
times t hat an alien m ay renew t he FT A p rofessional worker v isa o n an annual b asis,
unlike H-1B workers who are limited t o a total o f 6 years. It counts an FTA
professional worker against the H-1B cap the first year he/she enters and again after
the fifth year he/she seeks renewal. Although t he foreign n ational holding the FTA
professional wo r k e r v i s a would remain a temporary resident who would only b e
permitted t o work for any employer who had m et the l abor attestation requirements,
the foreign national with a FTA professional worker visa could l egally remain in the
United S tates i ndefinitely.
42 For b ac kground, see CRS Report RS20916, Immi gration and Naturalization
Fundamentals, a nd CRS Repo r t R L 3 1 381, U.S. Immigration Policy on Temporary
Admi ssions ,bothbyRuthEllenWasem.
43 For a discussion of the l abor ma rket requireme nts f or employme nt-based vi sas, see: CRS
Report RS21520, Labor Ce rtification f or Permanent Immi grant Admi ssions ; CRS Re por t
RL30498, Immigration: Legislative I ssues on N onimmigrant Professi onal Specialty (H-1B)
Workers ; a nd CRS Report RS21543, Immigration Policy f or Intracompany Tr a n s fers (L
Visas): I ssues and Legislation, all by Ruth Ellen Wasem
On J u ly 10, 2003, the House J udiciary C ommittee h eld a “mock” mark-up o f t he
US TR ’s draft l angu age. C h ai r m a n S e n s enbrenner t ook t h e l ead i n st at i n g t hat
“immigration policy does not belong in free t rade agreem ents,” citing C ongress’s
plenary authority over immigration policy i n Article 1, §8 of the U.S. C onstitution.
Mem b ers o n bot h s i d es of t h e ai s l e ex pressed agreem ent w i t h C h a i r m an
Sensenbrenner’s position, with several M embers go ing further to state t hat t he draft
language was a n “ i n s ult to Congress.” The House J udici ary C ommittee
recommended i ncluding the FTA professional workers in the H-1B nonimmigrant
visa and coun t i n g an FTA professional worker against the H-1B cap the first year
he/ s h e e n t e rs and agai n aft er t he fi ft h year he/ s he seeks renewal . T hese
recom m endat i ons are refl ect ed i n t h e l egi s l at i o n as i nt roduced and p assed.
Title IV of S. 1416/H.R. 2738 also amends the INA to include Chile citizens as
E-1 t reat y t raders and E -2 t reat y i nvest ors.
Ma jor P oints of Debate. The USTR m aintains that ens u ring cross-border
m o b i lity of professionals and other business persons is critical for U.S. comp a n i es
in developing new m arkets and business opportunities abroad. The USTR further
argu es that the t emporary business p ersonnel p rovisions in the FTAs are not
immigration policy b ecause they only affect temporary entry. The USTR points out
that it issued a notice of i ntent t o negotiate provisions to facilitate the t em porary entry
of business p ersons in O c t o ber 2001 and t hat i t b riefed congressional s taff on the
FTA p rovi si ons on num erous occasi ons.
Ot hers ex press concern t hat t he US TR has overreached i t s nego t i at i n g aut hori t y
by incl uding immigration provisions in the FTAs. Critics m ai ntai n t hat t he USTR’s
assertion t hat t emporary entry of foreign business p ersonnel and professional workers
is not immigration policy i s disingenuous. M ore generally, s ome point out that these
provisions woul d constrain current an d future C ongresses when t hey consider
rev i s i n g immigration l aw on business p er sonnel, treaty i nvestors and traders,
i n t racom p a n y t ransfers, and professi onal workers because t h e Uni t ed S t at es woul d
run t he risk of violating t he FTA.
The s pecific i ssue o f FTA professional w orker i s s parking t he most debate. The
Labor Advisory Committee, one of six private sect o r advisory committees for t he
USTR, i s critical of the provisions on the t emporary entry of business p ersonnel and
professi onal workers because i t appears to enabl e workers from C hi l e who h ave n o
di rect em pl oym ent ex cept a servi ce cont ract t o ent er t he Uni t ed S t at es.44 Others have
ex pressed concern t hat p rofessional wor kers from C hile would b e h eld t o a less
stringent s tandard than ex isting H-1B l aw (specializ e d k nowledge versus highly
specializ e d knowledge) and that the s tricter attestation requirements for H-1B
dependent em ployers would also be omitted.
The USTR argues t hat i t i s i ncorrect to assert that the l abor attestations required
under t he FTA would b e l ess rigorous than the LCA called for under c u r r e n t U . S.
law. According t o t he USTR, t he labor attestation required under t he FTA also i s t o
44 Report of t he Labor Advi sory Committee f or Trade Negotiations and T rade Policy ( LAC) .
The U.S.-Chile and U.S.-Singapore Free Trade Agreements. February 28, 2003. p. 9-11.
be modeled after the LCA that the Depar tment of Labor requires under t he ex isting
H - 1 B v i s a program, and (as is the case under t he H-1B program) fees may b e
col l ect ed al ong wi t h t h e l abor at t est at i ons. 45 The USTR s tates t hat t he labor
attestations, education and trai ning fees , and numerical limits provisions have been
added t o t he FTAs in response t o congressional concerns.
Issues surrounding legal authority to enforce immigration l aw are also arising.
S o me are questioning whether §106 and §107 of the l egislation would e n a b l e a n
international p anel to overrule decisions by officials i n t he Department of Homeland
S ecuri t y or by t h e A t t orney General t o rej ect vi sa appl i cant s from C hi l e and
Singapore. USTR responds that the panel that would be established by the FTA
would b e b i-national and would only d eal with cases bro u g h t b y a P arty to the
agreem ent i n whi ch t h ere i s al l eged t o b e a p at t ern of vi ol at i ons.46
45 Letter. U.S. T r ade Representative t o M r. George Becker, C h a i r , Labor Advi sory
Committee on T rade Negotiations and T rade Policy. c. March 2003.
46 For more analysis, see CRS Electronic Briefing Book on T r ade, “Immi gr ation Issues in
t h e Fr e e T r a de Agr eement s ,” at [ h t t p : / / www.congr e ss.go v/ br bk/ h t ml / e bt r a 135.ht ml ] .
Appendix 1 . C hronology of U.S.-Chile FTA
DateMilestone
November 29, 2000 Pr e s i d e n t G e o r g e W . B u s h notifies C ongress of his
intention t o n egotiate a free t rade agreem en t (FTA)
withChile.
December 6 , 2000 FTA n egotiations initiated.
Augu st 6, 2002 President Bush s igns the Trade Act o f 2002 (P.L.107-
210), which includes Trade Promotion Authorit y
(TPA).
August 22, 2002 P r e s i d e n t B u s h n o t i f i e s C o n g r e s s a g a i n o f h i s
intention t o negotiate the U.S.-Chile FTA , as
prescri b ed i n TP A.
December 11, 2002 FTA n egotiations concluded.
J anuary 29, 2003 President Bush n o t i f i e s C o n g r ess of his i ntention t o
sign the U.S.-Chile FTA.
J une 6, 2003 USTR Robert B. Zo ellick for the U n i t e d S t a t e s a n d
Foreign M inister S oledad Alvear for C hile sign FTA
in Miami, Fl orida.
J une 10, 2003 House W ays and Means C o mmittee, S ubc ommittee
on Trade holds hearing o n t he implementation o f t he
U.S.-ChileFTA.
J une 17, 2003 Senate C o mmittee on Finance holds hearing on the
implementation of t he U.S.-Chile FTA.
J uly 3, 2003 President Bush s ubmits to Congress ch anges i n U.S.
law required t o comply with FTA.
J u ly 10, 2003 Senate Fi nance, House W ays and Means, and House
J udiciary C ommittees hold p re-introduction “mock
mark-ups” on t he draft implementing l egislation
submitted by t he Bush Administration.
J uly 14, 2003 S e n a t e J u d i c i a r y C o mmittee holds hearing on t he
temporary entry provisions of the draft implementing
legislation.
J u ly 15, 2003 President Bush s ends required s upporting documents
a n d form al l egal t ex t of U.S . -C hi l e Free Trade
Im plem entation Act to Congress.
DateMilestone
J u ly 15, 2003 Id entical legi slation i ntroduced as H.R. 2738/S. 1416.
J uly 16, 2003 H o u s e J u d i c i a r y C o mmittee meets and orders H.R.
J uly 17, 2003 H o u s e W a ys a n d M e a n s a n d S e n a t e F i n a n c e
C o m mittees consider implemen t i n g l egi s l a t i o n . W a ys
and M eans C o m mittee o rders H.R. 2738 favorably
reported b y a roll call vote o f 3 3 - 5 . S enate Fi nance
Committee o rders S . 1416 f a v o rably reported b y a
voteof21-0.
J une 17, 2003 Senate J udiciary Committee favorably r e ports out S.
J u ly 21, 2003 H.R. 2738 reported b y t he House C ommittee o n W ays
and M eans (H.Rept. 108-224, Part I). S enate
Committees o n Fi n ance and the J udici ary file joint
report o n S . 1416 (S.Rept. 108-116).
J uly 22, 2003 H . R . 2738 report ed b y Hous e C ommittee o n t h e
J udiciary (H.Rept. 108-224, Part II).
House C ommittee on R ules provides for a closed rule
for consideration o f H.R. 2738 under which debate is
limited t o t wo hours and all points o f o rd er against
consideration o f H.R. 2738 are waived.
J u ly 24, 2003 H.R. 2738 agreed to in House, 270 to 156.
J u ly 31, 2003 H.R. 2738 agreed to in Senate, 6 6 t o 31.
Augu st 7, 2003 H.R. 2738 cleared for W hite House.
Augu st 22, 2003 H.R. 2738 presented t o P resident.
September 3, 2003 P r es i d ent Bush signs H.R. 2738 into law (P.L. 108-
J anuary 1, 2004 U.S.-Chile Free Trade Agreement t akes effect.
Appendix 2 . US-Chile Merchandise Trade, 1985-2002
(inUS$millions)
Yea r U.S.Expo r t s U.S.Impo r t s Tr a d eBalance Tr a d eTurnover %GrowthinU.S. Expo rt s %GrowthinU.S. Impo rt s
Data So ur ce: U.S. Dep a rtme nt o f Co mme rce.
Appendix 3 . M ajor U.S.-Chile Product Trade and
Tariff Rates, 2002/03
(% of total d ollar value)
Major U.S. %of Tar i f f Major U.S. %of NTRTar i f f F reeunder
Expor t s Tot a l Rat e Imports* Tot a l Rat e ** GSP #
Machinery: 34% 6% Edible Fruit a nd 20%
- Computers, (7%) Nut s :
- Office mach. (5%) - grapes ( 0806) (12%) $1.13-3 no
-parts (5%) 1.80/m
- gas turbines (2%) - fruit (0809) (3%) $.002- no
.005/kg
Electrical 14% 6% Copper: 17%
machinery - r efined (7403) (15%) 1% no
- unref. ( 7402) (2%) free
Vehicles (new) 8% 6% Fish ( mostly
salmon):13%
- f illet ( 0304) (11%) free
- fresh (0302) (1%) free
- froze n ( 0303) (1%) free
Aircraft 2% 6% Wood (lumber) free
-(4407,4409,15%
Medical 6% 6% Beve rage s: 4%
instruments - wine ( 2204) (4%) $.063/lit. no
Plastic 5% 6% Organic 4%
Chemicals:
- methanol(2905) (4%) 8% no
Organic2%6%Oil:
chemicals - not crude(2710) 2% $.525/bbl no
Other 27% 6% Other 25%
T otal 100% T otal 100%
Data So ur ce: U.S. Dep a rtme nt o f Co mme rce.
*B y H T S numb e r = Har mo nized T a r iff Sche d ule o f the U nited States. No te, H T S numb e r s ar e no t
provided on U.S. exports, which are sub j ect to Chile’s 6% no minal unifo rm import tariff r ate.
**NT R is the general o r no r ma l tariff rates ( also kno wn as mo st fa vo red nation r ates) a pplied to
products not given p referential tariff treatment.
#GSP = Generalized System of P r eferences or preferential tariff treatment given to select developing
country imports by developed countries. Some imports receive GSP treatment only if the exporting
country is cons i d e r e d a “least d eveloped country.” B ecause Chile does not qualify und er this
d e signa tio n, mo st o f its exp o r ts to the U nited States a r e no t e ligib le fo r G SP tr eatme nt.
Appendix 4 . C hile’s Multilateral, Regional, and
Bilateral Trade Agreements
Agreement Date Ef f ective Type
WT O ( GAT T ) J anuary 1995 multilateral free t rade agreement
(FTA)
APEC Nove mber 1994 regi onal a ssociation
Mercosur October 1, 1996 regi onal c ustoms union
(associate member)
FT AA negotiating ( J a nuary 1, regi onal FT A
LAIA J a nuary 1980 regi onal a ssociation
Bolvi a J uly 1, 1993 economic complementarity
agreement#, FTA to be negotiated
V enezuela J uly 1, 1993 economic complementarity agreement
Colombia J anuary 1, 1994 economic complementarity agreement
Ecuador J a nuary 1, 1995 economic compleme ntarity agreement
Peru J uly 1, 1998 economic complementarity agreement
Argentina s igned M ay 19, 2000 economic complementarity agreement
Canada J uly 5, 1997 bilateral FT A
Mexico 1998 bilateral FT A
Central Ame rica* signed October 18, FT A framework agreement
1999
European Union February 1, 2003 FT A
European Free under negotiation FT A
T r ade Association
J apan pre-negotiation i mpact bilateral FTA
studies completed
Singapore under discussion bilateral FT A
New Zealand under discussion bilateral FT A
South K orea negotiations concluded bilateral FTA
October24,2002
United States J anuary 1, 2004 bilateral FT A
# limited tr a d e agr eement nego tiated und er guid e lines see fo r th b y the Latin Amer ican I ntegr atio n
Asso ciation ( LAIA), kno wn in Spanish as the Asociación Latinoamericana d e I ntegración (ALADI).
* Guatemala, Honduras, Nicaragua, El Salvador, and Co sta Rica (ratified J anuary 2002).
Data so ur ce: Or ga nization o f Ame rican States. Fo r eign T r ad e I nfo r ma tio n System. T his ma y b e
f o u n d a t : [ h t t p : / / www. s i c e . o a s . o r g ] a n d E mb a s s y o f C h i l e .