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Chile Takes Its Trade Elsewhere

By Anthony Faiola
Washington Post Foreign Service
Thursday, December 25, 1997; Page A29

SANTIAGO, Chile—For most of the 1990s, this nation has been America's jilted sweetheart. Proposed as the next country to sign a free-trade accord with the United States, Chile has been left at the altar as the political debate over presidential powers to consummate such accords rages in Washington.

Tired of waiting for President Clinton to win "fast-track" authority, Chile, the region's most liberalized economy, has gone courting other beaus. U.S. companies say they are the losers; one recent study indicates U.S. firms are missing out on $480 million in business a year without an accord, partly to Canadian and Mexican firms whose governments have already signed free-trade agreements with Chile.

Although Chile's market of 14 million people is small and no one suggests losses here will have a significant impact on the U.S. economy, free-trade proponents say the situation has evolved as an ominous lesson on the price of American protectionism.

As Chile has signed free-trade agreements with other nations, the increase in imports of U.S. products has slowed from a 43 percent jump in 1995 to almost zero growth in 1997. In part, that is because Chile's accords with Mexico and Canada have made products from those nations more competitive. But it is also because such multinational corporations as Chrysler Corp. and IBM have stopped shipping many products from U.S. factories to Chilean docks, switching instead to products made in their Canadian and Mexican plants to take advantage of lower tariffs, Chilean trade authorities say.

For Chile, which began free-trade talks with the Bush administration, the sticking point of late has been Clinton's inability to win renewal of fast-track authority, which would give him power to negotiate trade agreements that Congress can approve or reject but not change.

Congressional opponents, primarily in the president's own Democratic Party, insist that environmental and labor standards must be mandated in the legislation to ensure fair competition. Supporters argue that setting such restrictions in stone would effectively prevent good faith negotiations with foreign nations.

U.S.-CHILE TRADE
Chile, tired of waiting for President Clinton to win renewal of fast-track authority to sign a free-trade accord with Santiago, has turned to other trading partners, including Canada and Mexico, and American corporations are losing hundreds of millions of dollars a year. However, some multi-national corporations are shipping products made in their Canadian or Mexican plants to Chile.
Main Chilean products exported to U.S. in 1996
(in millions of dollars)
  Value
Copper cathodes $429
Fresh grapes 345
Copper for refining 164
Gold in rough, except in powder 146
Edible salmon products 160
Pine boards and other wood products 100
Apple juice 43
Wines with origin designation 42
Main products imported from the U.S. in 1996
(in millions of dollars)
  Value
Machines for pharmaceutical and chemical industry 126
Other heavy machinery 88
Automotive-related equipment 87
Cars with piston engines 80
Gasoline for non-automotive uses 59
Parts, accessories for data processing machines 57
SOURCE: American-Chilean Chamber of Commerce
While they argue, "the simple reality is that U.S. companies are losing down here because Washington can't solve this debate over free trade," said Alexander Fernandez, president of the American Chilean Chamber of Commerce. "There is clearly a lack of understanding of the economics involved. Every day they put this off, our position down here is slipping away."

While generally endorsing labor and environmental practices in Chile, fast-track opponents say the line must be held here nevertheless because the Chilean accord will be an example for future trade agreements.

"The agreement with Chile will become the model for the others that the United States enters into," said Thea Lee, assistant director of public policy for the AFL-CIO. "We therefore have a basic principle of fair labor that must be included."

Since the United States entered into the North American Free Trade Agreement with Canada and Mexico in 1993, Chile has sought membership. But as the United States has been unable to pursue serious negotiations without fast-track, Chile decided to sign its own "mini-NAFTAs" with Canada and Mexico, which dropped Chile's 11 percent across-the-board duty on most imports from those nations.

In close bidding races for business, the 11 percent drop can make an important difference, company executives say. For instance, when VTR Telecommunications, a major Chilean cable and telephone provider, recently solicited bids to modernize its equipment, the short list included Canada's Northern Telecom Inc. and two U.S. companies, Lucent Technologies Inc. and Motorola Inc. The Canadian company won the $180 million contract, partly because of the 11 percent difference, those close to the deal say.

"There's no doubt it helped us," said Juan Luis Gutierrez, general manager for Northern Telecom in Santiago. "Of course, I think there were plenty of other reasons we won, but all things being equal, 11 percent can make the difference and help get a contract."

There has also been a boom in the number of U.S. companies shipping products from plants in Canada or Mexico to Chile. Until this summer, Chrysler had been selling minivans here that were made at its St. Louis plant, then it switched to importing those made at its plant in Ontario to capitalize on lower tariffs. It is now shipping Neons from its Mexican plant. Previously, Chrysler imported Neons from a plant in Illinois.

The numbers are still small. Chrysler's sales in Chile, for instance, amount to fewer than 4,000 vehicles a year. However, "it still means less utilization of our U.S. labor," said Dario Verdugo, Chrysler's manager of business development. "But as long as it's cost effective, Chrysler is going to turn to its operations in Canada and Mexico to get the product."

The United States remains Chile's largest trading partner, and Canadian and Mexican trade growth here is only beginning. To cement increasingly lucrative trade ties with Chile, Canadian Prime Minister Jean Chretien and more than 400 businessmen and politicians are to arrive in Santiago in January – something that has some American businessmen worried but Canadians thrilled. "Canadian firms have a window of opportunity here that we aren't going to pass up," said Brian Oak, director of trade for the Canadian Embassy in Santiago.

The trip comes as Chilean officials, long enthusiastic about the idea of a trade accord with the United States, are playing it more coolly, suggesting that they may work toward closer ties with Europe and Asia while they continue to develop free trade with America's NAFTA partners.

"We don't need an accord with the United States anymore. Yes, we still want one, but we have made strides in other directions that have helped our economy and will continue to without a U.S. trade agreement," said Jose Joaquin Brunner, secretary general to Chile's president and cabinet.

© Copyright 1997 The Washington Post Company

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