[Effects of a free trade agreement between Chile and United States: A general equilibrium view]
1994
Coeymans A, Juan Eduardo (Universidad Catolica de Chile, Santiago (Chile))
Chile's trade strategy has experienced a significant change of emphasis in the 1990's. From an exclusive reliance on unilateral integration since the mid 1970s, the country has shifted attention towards bilateral and regional integration in the American continent. In the past few years Chile has signed free trade agreements with Mexico, Colombia and Venezuela, and is now evaluating options with NAFTA and MERCOSUR. This paper studies the macroeconomic effects of a potential FTA between Chile and the United States using a computable general equilibrium model (CGE). Qualitatively and in order of magnitude, these results also indicate the likely effects of Chile's integration to NAFTA. An agreement of this type -judging by NAFTA- is more than a mere trade pact. Our analysis, however, evaluates only the elimination of trade barriers between Chile and the U.S. For the purposes of this study, the Chilean economy is divided into six sub-sectors: (1) agriculture and agroindustry; (2) mining; (3) manufacturing; (4) fishing; (5) services, and (6) government and defense. In this framework, the elimination of trade barriers produces a significant recomposition of trade towards the U.S., both in exports and imports. Chilean exporters -mostly prices takers- are bound to have an improvement in their terms of trade from the elimination of commercial barriers in the U.S. Potential gains from such an FTA, however, will not be distributed uniformly across economic sectors. Most benefitted will be those that -in the initial situation- face higher trade barriers in the U.S. and have less competition from imports. The most important effect of this trade agreement, however, would be an increase in foreign investment into Chile (a consequence of lower perceived country risk), of up to an additional 2% of GDP per year
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