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REVISITING CHILEAN INTEGRATION TO WORLD ECONOMY APEC Symposium: Catalytic Role of the APEC Process: Behind the Border, Beyond the Bogor Goals Chiba, Japan,

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Presentation on theme: "REVISITING CHILEAN INTEGRATION TO WORLD ECONOMY APEC Symposium: Catalytic Role of the APEC Process: Behind the Border, Beyond the Bogor Goals Chiba, Japan,"— Presentation transcript:

1 REVISITING CHILEAN INTEGRATION TO WORLD ECONOMY APEC Symposium: Catalytic Role of the APEC Process: Behind the Border, Beyond the Bogor Goals Chiba, Japan, March 2005 OSVALDO ROSALES DIRECTOR DIVISION OF INTERNATIONAL TRADE AND INTEGRATION, ECLAC (CEPAL) FORMER CHILEAN VICE-MINISTER OF TRADE ( )

2 TABLE OF CONTENTS Policy continuity; trade reform as integral part of development strategy Three-pillar strategy of international integration Remaining challenges and policy responses

3 MAIN FEATURES OF CHILES 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; Chiles 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.

4 CHILES TRADE POLICY PHASES Phase I Phase II Phase III Phase IV

5 4 PHASES OF CHILES TRADE OPENING Phase I ( ): 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 ( ): 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 ( ): 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: Increase in trade volume export diversification by product and by destination Phase IV: since 1990 to the present

6 CHILES TRADE DYNAMISM Chile TOTAL EXPORTS (1990=100) Source: CEPAL, International Trade Division o the basis of official data.

7 TRADE DIVERSIFICATION BY DESTINATION Source: CEPAL, International Trade Division o the basis of official data. Herfindahl-Hirshmann Index

8 TRADE DIVERSIFICATION BY PRODUCT Source: CEPAL, International Trade Division o the basis of official data. Herfindahl-Hirshmann Index

9 PHASE 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.

10 CHILE: PRESENT LEVEL OF TRADE OPENING MFN 2004 MFN 2003 MFN 2002 Effective tariff Source: Camara de Comercio de Santiago

11 TYPES 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

12 CHILES TRADE OPENING AS INTEGRAL PART 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 oCORFO, INDAP (management, technology) oPROCHILE (export promotion) oSENCE (workforce training) 3. Open regionalism Multilateral Unilateral FTAs – PTAs

13 COHERENT 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) oFiscal policy: structural surplus rule oStabilization funds (copper, petroleum) oMonetary policy: inflation targeting with bands oExchange rate policy: flexible exchange rates (dampen external shocks) oSustainable current account deficit: low level of external debt, sufficient reserves, prepayment of public debt in times of economic prosperity, net creditor at the IMF

14 CHILE: NECESSARY COMPLEMENTS TO TRADE OPENING 1.State modernization Institutional upgrading Government as catalyst for ICT adoption oTaxes through internet (90%) oElectronic 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)

15 ECONOMIC GOVERNANCE AND INSTITUTIONAL 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) oEconomic courts oSpecialized arbitration

16 PART 2 CHILES THREE-PILLAR STRATEGY PROS AND CONS OF EACH PILLAR: U NILATERAL OPENING, WTO AND FTAS

17 UNILATERAL 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)

18 WTO: 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

19 WTOS 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

20 MULTILATERAL WEAKNESSES STIMULATE 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

21 FREE TRADE AGREEMENTS (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

22 SOME 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: oMacroeconomic stability oInfrastructure oInstitutional stability and Modernization of the State oSocial cohesion If the process creates political spaces that permit to address the challenges of competitiveness oIncreasing productivity oEnhancing formation of Clusters and Value-chains oTechnological innovation oInternational alliances

23 POLITICAL ECONOMY IMPLICATIONS of FTAs 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 govt 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!!

24 PART 3 REMAINING CHALLENGES AND POLICY RESPONSES

25 STAGES IN CHILES TRADE POLICY Unilateral trade liberalization ( ) Open Regionalism, focus on Latin America ( ) FTAs with mega-markets (US, EU) ( ) Strategic orientation towards Asia ( ) oAPEC 2004 in Chile, FTA with S.Korea oSingapore, New Zealand, Brunei (P-4) oChina, India (already signed) and Japan (in negotiation) oThailand and Malaysia in the phase of pre-negotiation…ASEAN? Innovation leap into the knowledge society (2005-…) oTrade strategy as part of a global strategy to promote the presence in international networks of innovation and technological change oReinforcement of the links between trade policy, productivity enhancement and technological upgrading, as well as human capital formation oThink big with a global vision: international alliances, entrepreneur associativity, niches in the global economy, international value chains

26 WEAKNESSES OF THE EXPORT MODEL PERSIST 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

27 OBJECTIVE: IMPROVE THE QUALITY OF PARTICIPATION IN INTERNATIONAL MARKETS 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

28 MAJOR 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: oSharing our presence in Asia oFostering 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

29 Osvaldo Rosales ECLAC29 REVISITING CHILEAN INTEGRATION TO WORLD ECONOMY THANK YOU OSVALDO ROSALES DIRECTOR DIVISION OF INTERNATIONAL TRADE AND INTEGRATION, ECLAC (CEPAL)


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