revisiting chilean integration to world economy apec symposium: catalytic role of the apec process:...
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REVISITING CHILEAN REVISITING CHILEAN INTEGRATION TO WORLD INTEGRATION TO WORLD
ECONOMYECONOMY
APEC Symposium: Catalytic Role of the APEC Process: Behind the Border, Beyond the Bogor
Goals Chiba, Japan, 14-15 March 2005
OSVALDO ROSALESDIRECTOR
DIVISION OF INTERNATIONAL TRADE AND INTEGRATION, ECLAC (CEPAL)
FORMER CHILEAN VICE-MINISTER OF TRADE (2000-2004)
TABLE OF CONTENTSTABLE OF CONTENTS
Policy continuity; trade reform as integral part of development strategy
Three-pillar strategy of international integration
Remaining challenges and policy responses
MAIN FEATURES OF MAIN FEATURES OF CHILE’S TRADE REFORMCHILE’S TRADE REFORM
Early experience that began in middle of the 70´s, much earlier than the rest of Latin America. Now, more mature and greater consensus;
Chile’s economic policy has been relatively independent from trade agreements, unlike other LA countries where trade reform or FTA´s were specially conceived to support economic reforms
Trade reform in Chile has been characterized by its comprehensiveness (width, depth), persistence and speed; and
Trade reform has been part of a greater institutional transformation process, which involved diverse dimensions of Chilean economy and society.
CHILE’S TRADE POLICY PHASESCHILE’S TRADE POLICY PHASES
13,9
%
10,1
%
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10,0
%
26,3
%
20,0
%
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%
15,0
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%
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AÑOS
AR
AN
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L
20,00
30,00
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80,00
90,00
100,00
110,00
120,00
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ce 1
986=
100
Arancel Máximo Arancel Promedio TCR
Phase I
Phase II
Phase III
Phase IV
4 PHASES OF CHILE’S TRADE OPENING4 PHASES OF CHILE’S TRADE OPENING
Phase I (1973-1979): Trade reform; Reduce anti-export bias • Tariff reductions and its unification, NTB reduction, • Opening of investment regime, exchange rate unification,• Introduction of drawbacks and reimbursement Value-added tax• Reduce risks for exporters (Pro-Chile and its network)• Sectoral subsidies: very focused, especially on forestry and automotive sectors.
Phase II (1982-1984): Crisis management, preserving the trade opening process almost intact:
• Tariff increases up to the consolidated 35% level in GATT;• Creation of a mechanism to correct “distortions” in foreign trade; and• Limited exceptions allowed for in the uniformed tariff system (price bands)
Phase III (1985-1989): Trade Opening once again• Trade Opening once again; Re-initiate export-based growth strategy Macroeconomic recovery and stabilization; Privatization and debt conversion programs; Export incentives:
i) deferred payments of import duties on capital goods importation; and ii) simplified “reintegro” system (drawbacks); and
Creation of special export regime (almacenes particulares).
Major Results: 1974-1989• Increase in trade volume export diversification by product and by destination
Phase IV: since 1990 to the present
CHILE’S TRADE CHILE’S TRADE DYNAMISMDYNAMISM
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Andean Community Mercosur Argentina Brazil Chile Colombia
Chile
TOTAL EXPORTS (1990=100)
Source: CEPAL, International Trade Division o the basis of official data.
TRADE DIVERSIFICATION BY TRADE DIVERSIFICATION BY DESTINATIONDESTINATION
Source: CEPAL, International Trade Division o the basis of official data.
Herfindahl-Hirshmann Index
0.00
0.10
0.20
0.30
0.40
0.50
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0.80
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ico
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zuel
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uras
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a Ri
ca
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dor
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a ElSa
lvad
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guay
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ia
Perú
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ntin
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Urug
uay
Bras
il
Chile
1986-1989 1999-2002
TRADE DIVERSIFICATION BY PRODUCTTRADE DIVERSIFICATION BY PRODUCT
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Arg
en
tin
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Bo
livia
Bra
sil
Ch
ile
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sta
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Para
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ay
Perú
Uru
gu
ay
Ven
ezu
ela
1986-1988 2001-2003
HHI =1 (total concentration)
Source: CEPAL, International Trade Division o the basis of official data.
Herfindahl-Hirshmann Index
PHASE IV BEGAN IN 1990PHASE IV BEGAN IN 1990
Deepen unilateral opening: 1991 and 2004 Addressed not only tariffs but also diverse
dimensions of trade policy Improvement of prior reforms (financial
system, telecommunications) and regulatory framework
Broadening private sector participation (infrastructure and ports, etc.)
Concerted Opening: trade agreements.
CHILE: PRESENT LEVEL OF TRADE OPENINGCHILE: PRESENT LEVEL OF TRADE OPENING
MFN 2004MFN 2003MFN 2002
Effective tariff
Source: Camara de Comercio de Santiago
TYPES OF TRADE AGREEMENTS SIGNEDTYPES OF TRADE AGREEMENTS SIGNED
LAIA
(ALADI)NAFTA type
Based on
GATT, GATS
and WTO model
WAITING RATIFICATION
NEGOTIATION ON GOING
BOLIVIA, COLOMBIA, ECUADOR, PERU, VENEZUELA, MERCOSUR
CANADA, CENTRAL AMERICA, USA, MEXICO, REP OF KOREA
EU AND EFTA
CHINA,
NEW ZEALAND, SINGAPORE AND BRUNEI (P4),
JAPAN, AND INDIA
CHILE’S TRADE OPENING AS INTEGRAL CHILE’S TRADE OPENING AS INTEGRAL PART OF DEVELOPMENT STRATEGYPART OF DEVELOPMENT STRATEGY
1. Opted in favor of trade opening• Growth acceleration and poverty reduction• Broad national consensus on X-oriented strategy• Technological catch-up advances faster in open
economies
2. Link between competitiveness and social cohesion• Lower level of poverty• Public policies to support SMEs and vulnerable groups
o CORFO, INDAP (management, technology)o PROCHILE (export promotion)o SENCE (workforce training)
3. Open regionalism• Multilateral• Unilateral• FTAs – PTAs
COHERENT AND SOUND PUBLIC POLICIESCOHERENT AND SOUND PUBLIC POLICIES
Functional links between macroeconomic stability and trade opening
• Correct sequencing of economic reforms• Central role of exchange rate policy• Anti-cyclical macro-management (from 2000)
o Fiscal policy: “structural surplus” ruleo Stabilization funds (copper, petroleum) o Monetary policy: inflation targeting with “bands”o Exchange rate policy: flexible exchange rates
(dampen external shocks)o Sustainable current account deficit: low level of
external debt, sufficient reserves, prepayment of public debt in times of economic prosperity, net creditor at the IMF
CHILE: NECESSARY COMPLEMENTS TO CHILE: NECESSARY COMPLEMENTS TO TRADE OPENINGTRADE OPENING
1. State modernization• Institutional upgrading• Government as catalyst for ICT adoption
o Taxes through internet (90%)o Electronic invoices;Digital signatures; Single digital windows
2. Infrastructure to support foreign trade• Quality and connectivity in telecommunications• Concessions on highways, ports and airports• Network of trade representatives in 65 locations around the
world.3. Vigorous social policies
• Social expenditures grow faster than GDP• Unemployment insurance• Focalization of social programs • Reforms in education and health care• Special Programs for extreme poor (Chile Solidario)
ECONOMIC GOVERNANCE AND ECONOMIC GOVERNANCE AND INSTITUTIONAL STRENGTHENINGINSTITUTIONAL STRENGTHENING
• Strong supervision and prudential regulation of the financial system
• Autonomy of the Central Bank• Transparency• Low level of corruption• Autonomous regulatory agencies. • “Market-friendly” regulatory mechanisms• Expedient and transparent judicial system (pending
task)o Economic courtso Specialized arbitration
PART 2PART 2
CHILE’S THREE-PILLAR CHILE’S THREE-PILLAR STRATEGYSTRATEGY
PROS AND CONS OF EACH PILLAR: PROS AND CONS OF EACH PILLAR:
UUNILATERAL OPENING, WTO AND NILATERAL OPENING, WTO AND FTASFTAS
UNILATERAL LIBERALIZATIONUNILATERAL LIBERALIZATION
Major advantages• Reduces anti-export bias• Favors trade creation• Stimulates competitiveness• Creates export lobbies that
counter protectionist lobbies• Stimulates adoption of new
technologies in key sectors: IT-related sectors; Business-related and financial services
Major Disadvantages• Does not secure preferential
access to third markets • Nor guarantees legal certainty
in trade and investment with trade partners
• Does not stimulate X diversification (tariff escalation abroad)
• Less maneuver space for international business alliances
• Policies are still seen as “reversible” by third countries and by domestic agents (weak “lock-in” effects)
WTO: THE BEST SCENARIOWTO: THE BEST SCENARIO
• Only mechanism to tackle the systemic issues • Three pillars of agriculture (access, export
subsidies, domestic support)• Antidumping and other disciplines• Special and differential treatment (SDT)• Capacity Building
• Multilateral rules favor small economies• Multilateral agreements favor trade creation and
reduce costs in administrating agreements• Only multilateral forum that has been successful in
challenging or even modifying trade policies of the major trading economies
• Greater recognition of its dispute settlement mechanism
WTO’S WEAKNESSES WTO’S WEAKNESSES Its weaknesses • Lengthy negotiations (6 to 10
years)• Protracted periods to address
issues that are of interests to Developing Countries including tariff reductions in the sensitive sectors (10 years and more)
• Until now, limited coverage of and depth in issues that are key to developing countries (agriculture, AD, textiles)
• Persistence of differences in: tariff escalation, domestic support and tariff peaks
• As based on consensus, decisions are taken on a lowest common denominator dictated by the most protectionist countries
Weak commitment of developing countries
• “Geneva is where the action takes place”
• With few exceptions, developing countries do not have a strong influence in the process;
• Benefits are not owned: appropriation problems
• Strong heterogeneity in capacity building and trade negotiations capability;
• Different levels of domestic consensus about opening-up and strategies of international market participation
MULTILATERAL WEAKNESSES MULTILATERAL WEAKNESSES STIMULATE FTAsSTIMULATE FTAs
Lengthy WTO negotiations hurt small and open economies that:
• Need immediate market access to big markets
• With legal certainty, and• Are willing to go beyond the
WTO in terms of speed and depth;
• Cannot stay outside FTAs while competitors take full advantage of those FTAs (“Domino” effect)
1. Objectives of FTAs
( Chilean approach) Secure access to large and
stable markets; serving as a catalyst of technological change and quality enhancement in products and services
FREE TRADE AGREEMENTS FREE TRADE AGREEMENTS (FTAs)(FTAs)
2. Benefits Consolidate and expand access
to main markets Provide greater legal certainty
for exporters and investors Wider coverage of rules and
disciplines beyond the WTO in several chapters (e.g., Customs, Investment, and IPR)
In the absence of progress in multilateral forums, FTAs may regulate trade and investment rules with large trading partners
Some benefits in investment and transparency on institutions in charge of trade and investment policies
3. Problems
• May deviate trade (especially intra-regional)
• May politicize trade more than in multilateral negotiations
• May slow down the progress in multilateral, regional negotiations or unilateral tariff reductions
• May lead to neglect of macroeconomic management and/or advances in economic reforms, when they are viewed as “automatic” products of FTAs signed with big trade partners
SOME CONCLUSIONS ON FTAsSOME CONCLUSIONS ON FTAs
• FTAs do not substitute development strategies• Can support high-quality participation of the country in
the international economy, if it´s part of an international strategy
• If complemented by other necessary components:o Macroeconomic stabilityo Infrastructureo Institutional stability and Modernization of the Stateo Social cohesion
• If the process creates political spaces that permit to address the challenges of competitiveness
o Increasing productivityo Enhancing formation of “Clusters” and Value-chainso Technological innovationo International alliances
POLITICAL ECONOMY IMPLICATIONS of POLITICAL ECONOMY IMPLICATIONS of FTAsFTAs
Following a right sequence of information dissemination and consensus building, FTAs can be conducive to:• Better governance of economic and political system• Upgraded quality of public administration• Enhanced institutionality between the gov’t and business
organizations• Greater opportunities to get labor-related organizations
involved in policy debate on development and to generate a dialogue between unions and business organizations
• Important to develop transparent and participative processes with business communities and labor organizations, political parties, and civil society during the process of negotiations
• Convenient to connect parliamentary approval of the agreement with guidance for administrating FTAs
• Not to forget the fiscal impact of FTAs!!
PART 3PART 3REMAINING CHALLENGES AND REMAINING CHALLENGES AND
POLICY RESPONSESPOLICY RESPONSES
STAGES IN CHILE’S TRADE POLICYSTAGES IN CHILE’S TRADE POLICY
• Unilateral trade liberalization (1974-89)• Open Regionalism, focus on Latin America (1990-99)• FTAs with mega-markets (US, EU) (2000-03)• Strategic orientation towards Asia (2004-05)
o APEC 2004 in Chile, FTA with S.Koreao Singapore, New Zealand, Brunei (P-4)o China, India (already signed) and Japan (in negotiation)o Thailand and Malaysia in the phase of pre-negotiation…ASEAN?
• Innovation leap into the knowledge society (2005-…)o Trade strategy as part of a global strategy to promote the presence in
international networks of innovation and technological changeo Reinforcement of the links between trade policy, productivity
enhancement and technological upgrading, as well as human capital formation
o Think “big” with a global vision: international alliances, entrepreneur associativity, niches in the global economy, international value chains
WEAKNESSES OF THE EXPORT MODEL WEAKNESSES OF THE EXPORT MODEL PERSISTPERSIST
• Still high concentration of commodities • Weak linkages between X and the rest of the economy• Low participation of SMEs in X as direct or indirect exporters• Limited effort to promote X and make use of the
opportunities offered by the FTAs• Low level of “quality” certification• Very low effort of R&D
• Limited incorporation of knowledge in X• Weak linkages between universities and enterprises
• Lack of commitment of private sector with the technological issue• Ideological constraint: State´s role and alliances among government
ad private sector
OBJECTIVE: IMPROVE THE QUALITY OF OBJECTIVE: IMPROVE THE QUALITY OF PARTICIPATION IN INTERNATIONAL PARTICIPATION IN INTERNATIONAL
MARKETSMARKETS
• Deepen the export model stimulating further its dynamism, diversification and sustainability, taking benefits of FTAs• Special national programs oriented to exploit the benefits of these FTA´s
with US, EU, China and APEC zone • Reinforce the linkages with the global economy maximizing rents
associated with natural resources and position itself in the dynamic sectors of the global markets• International Alliances on trade, investment and technology
• Intensify efforts on innovation, technological diffusion and the formation of human capital• Special joint-ventures with APEC countries, learning of their experiences
• Progressive reduction of productivity gaps among distinct domestic sectors• To define some critical clusters that incorporate SME in the X chains
MAJOR COMPONENTS OF THIS STRATEGYMAJOR COMPONENTS OF THIS STRATEGY
• Efficient administration of the opportunities offered by the FTAs (US, EU, China, S. Korea)
• A strategic “bet” towards Asia: China, Korea, Japan, Singapore, New Zealand
• A bridge of trade and investment between S. America and Asia Pacific• Investment platform and web of trade agreements
• Deepen economic ties with Brazil, Argentina and Peru:o Sharing our presence in Asiao Fostering subregional physical and energy integration
• Reinforce business alliances with Mexico and Canada to exploit further the US and Central American markets
• To invite Peru and Thailand to be part of the P4 agreement and to explore how to share some trade and investment initiatives in South America and Pacific Asia
Osvaldo Rosales ECLAC 29
REVISITING CHILEAN REVISITING CHILEAN INTEGRATION TO WORLD INTEGRATION TO WORLD
ECONOMYECONOMY
THANK YOU [email protected]
OSVALDO ROSALESDIRECTOR
DIVISION OF INTERNATIONAL TRADE AND INTEGRATION, ECLAC (CEPAL)