ECONOMY-CHILE:
A Bridge Between Asia and South America
Daniela Estrada

SANTIAGO,  (IPS) - In the last few months, Chile has made it clear that it intends to become a trade platform between the vast Asia Pacific region and the Andean countries, by means of trade treaties and political integration. Prompt re-entry into the Andean Community of Nations (CAN) would be a step in that direction.

Chile could become the locomotive country hauling the Andean region not only into the enormous Asia Pacific market, but also into Panama and the European Union (EU), currently targeted by the CAN, Chilean analyst Verónica Barrios told IPS.

"Member countries of the CAN (Bolivia, Colombia, Ecuador and Peru) can take advantage of the open doors for trade that Chile has already established," explained Barrios, who holds a doctorate in international relations. She said that Asian countries prefer to negotiate with the entire region rather than with each country separately, because each individual market is small.

Chile is a member of the Asia Pacific Economic Cooperation (APEC) forum, composed of 21 countries jointly representing 2.5 billion people. Chile also has free trade agreements (FTA) with Panama and the EU - and with China, as of this week.

After attending the inaugural ceremony for President Álvaro Uribe, who began his second term as president of Colombia, Chilean President Michelle Bachelet embarked on Aug. 7 on a short but fruitful tour of Colombia and Ecuador, where she closed important political and trade agreements.

While in Colombia, Peruvian President Alan García extended an official invitation to Bachelet for Chile to return to the CAN. Chile left the bloc (called the Andean Pact at the time) in 1975, when the country was under the dictatorship of General Augusto Pinochet (1973-1990).

Bachelet accepted the invitation, and Santiago is now studying the details of its return to the trade bloc, probably as an associate member. The announcement is expected within the next few weeks.

According to Barrios, Chile could strengthen the CAN after Venezuela's departure. President Hugo Chávez of Venezuela decided to pull his country out of the bloc in April to protest Colombia and Peru's signing of FTAs with the United States.

Since 1996, Chile has been an associate member of the Southern Common Market (Mercosur), made up of Argentina, Brazil, Paraguay, Uruguay, and most recently Venezuela.

During her trip, Bachelet agreed with Uribe to start negotiations in October for an FTA between Chile and Colombia. The Chilean president and Ecuadorean President Alfredo Palacio also signed an accord to expand the Economic Complementarity Agreement reached in 1995, which should be on its way to becoming a free trade treaty soon.

In addition, Bachelet promised to support Ecuador's bid to join APEC in 2007, when the 10-year moratorium on the reception of new members expires.

As for Peru, the broad understanding reached by Bachelet and García has also resulted in an FTA, signed Tuesday in Lima by Chile's foreign minister, Alejandro Foxley.

But it is not only on the economic front that Bachelet, who took office in March, has been reaching out to the Andean Community nations. On Aug. 6, Bolivian President Evo Morales expressed a willingness to renew diplomatic relations with Chile, which were broken off in 1978, although he maintained Bolivia's historical claim to its own outlet to the Pacific ocean.

Three weeks earlier, on Jul. 18, delegations from both countries met in La Paz, and agreed to work on a broad agenda without excluding any issues. Among other things, they will be working on enlarging their ECA and the attached protocol, signed last year. Meanwhile, Chile continues to strengthen its relations with the Asia Pacific region. On Aug. 9, Congress unanimously approved the FTA signed with China in 2005 by the presidents of both countries, and on Aug. 21 Bachelet signed it into law. China, which has a market of 1.3 billion people, is today Chile's second trading partner, after the United States. "This FTA is especially important for Chile, as it is a decisive step towards establishing its position in the Asia Pacific region, a highly dynamic region with great commercial and economic power; and it also gives further backing to our idea of making Chile the bridge that will unite Asia and South America," said Minister Foxley.

On Aug. 8, the Senate ratified the Trans-Pacific Strategic Economic Partnership Agreement, or P4, between Chile, New Zealand, Singapore and Brunei. And at the end of this month, the third and fourth rounds of negotiations aimed at an FTA with Japan will take place.

At present, the Chilean government appears to be experiencing friction only in its bilateral relationship with Argentina, and in its association with Mercosur. On Aug. 10 the Chilean Federation of Dairy Producers (Fedeleche) petitioned the country's Distortions Committee, responsible for investigating the existence of price distortions for imported goods, to apply higher tariffs to imports of liquid and powdered milk and gauda cheese from Argentina, as these products are very competitively priced in the Chilean market.

Fedeleche's application was sponsored by the Ministry of Agriculture and the Senate. The dairy producers claimed that imports of these products from Argentina had soared 230 percent in the first five months of the year.

The Distortions Committee, made up of representatives of the Central Bank, the ministries of Finance, Agriculture, Foreign Affairs and Economy and the Customs Service, will make its decision in the next few weeks.

The Argentine government reacted immediately to the announcement, warning that if Chile applied protective tariffs it would not hesitate to take the matter to the World Trade Organisation (WTO).

The Bachelet administration was quick to point out that this was not a measure taken in reprisal for the quarrel with Argentina over cuts in the supply of natural gas to Chile, and the Argentine price hike for the fuel.

Against that backdrop, the speaker of the Senate, former president Eduardo Frei (1994-2000), and rightwing opposition members of parliament proposed that Chile should review its participation in Mercosur.

"We ask the government to be open-minded, to listen, and to convene the Senate and Chamber of Deputies Commissions on Foreign Relations, so that - taking advantage of the full political diversity there present - we may analyse the costs and benefits of Mercosur for Chile," Senator Juan Antonio Coloma of the ultraconservative Independent Democratic Union (UDI) said on Aug. 14.

The deputy foreign minister, Alberto van Klaveren, replied that it was "highly unlikely" that Santiago would leave Mercosur. However, the government is carrying out an analysis to evaluate Chile's financial participation, which will be made public in mid-September.

The director of the Centre of National Studies on Alternative Development (CENDA), Hugo Fazio, said that "Chile needs to decide a clear policy for international relations, because so far it has merely concentrated on signing FTAs with as many countries as possible."

"A coherent foreign policy must define preferences and priorities. Chile should strengthen its links with Mercosur, which with the addition of Venezuela represents 75 percent of South America's combined gross domestic product, and it should help to create the South American Community of Nations, and in partnership with those countries, design a strategy to relate to the rest of the world," Fazio told IPS.

"Chile should see its entry into the CAN as reinforcing the process of regional integration, but not as a counterweight to Mercosur, because that would be practically suicidal," the economist said. He believes Santiago should contribute more actively to development projects in Mercosur, particularly those related to energy.