The Christian Science Monitor
June 06, 2003

Trade to flow freely between Chile and the US

             A free-trade agreement being signed Friday is the first of its kind in South America.

             By Clinton Porteous | Special to The Christian Science Monitor

             SANTIAGO, CHILE - Next month, in the small southern Chilean town of Tomé, a local fabric factory will start operating again - after being
             closed for more than a year.

             Once a modest mill, the rebuilt plant is going global, supplying a large US clothing maker with fine textiles. Thanks to the new US-Chile
             free-trade agreement, which will be signed Friday in Miami, the fabrics will enter the US duty-free, instead of being hit with tariffs of up to 36

             "We were looking forward to this free-trade agreement; that is why we selected Chile," says Juan Pablo Grez, general manager of the
             US-backed partnership that has taken over the mill site. The plant will supply Tom James, the world's largest manufacturer of custom-made
             dress apparel, based in Nashville, Tenn.

             Tom James, which until now had no Latin American presence, is just one of many multinational companies choosing Chile as its base of
             regional operations.

             While Chile already provides a stable environment for business and has long promoted itself as the economic gateway to Latin America, it
             now has a trump card.

             Chile will be the first country in South America to sign a free-trade agreement with the US. And it will be at the forefront as the Bush
             administration pushes for the Free Trade Area of the Americas (FTAA), covering all 34 countries from Canada down to the southern tip of

             Analysts agree the US-Chile agreement is the most important development in Western Hemispheric trade since the North American Free
             Trade Agreement (NAFTA) took effect in 1994.

             The agreement creates incentives for US manufacturers, banks, insurers, telecommunication companies, agribusinesses, and most other
             US enterprises to enter the Chilean market with virtually no restrictions. US companies, for example, will no longer have to exclusively use
             Chilean raw materials in their products.

             Tariffs on 85 percent of traded consumer and industrial goods will be eliminated immediately - most will be gone in four years, and all will
             completely disappear within 12 years. The textile and apparel industry is one of the big winners, with tariffs being scrapped immediately. By
             contrast, tariffs on farm goods will be withdrawn more slowly and selectively.

             Chile's National Chamber of Commerce says two-way trade - worth more than $8 billion annually - could jump 30 percent. The
             Chilean-American Chamber of Commerce says Chile's GDP could rise between one and three percentage points through the deal.

             For its part, Chile wants to attract American companies with a higher level of technology to break its reliance on copper exports and
             agricultural products.

             The US government hopes the agreement will mark the beginning of a new push for the regionwide FTAA and put pressure on other Latin
             American countries - especially Brazil - to come on board.

             Left-leaning Brazilian President Luiz Inacio Lula da Silva called the FTAA a US bid of "annexation" in the lead-up to his election victory last
             October, although he has since toned down his rhetoric.

             And both Brazil and Argentina, under its new president, Nestor Kirchner, are looking to strengthen the Mercosur trade bloc, a potential rival
             to the FTAA.

             The original plan to have the FTAA operating by 2005 is looking increasingly unrealistic. Chile only achieved its goal of a US free-trade
             agreement after a decade of persistence.

             Chilean president Ricardo Lagos said last month that in the runup to the pact's finalization, 30 international companies had already
             established facilities in Chile. Most of the major US firms have arrived in the past three years.

             But Mr Lagos said one of the greatest barriers to be overcome is the lack of English language skills in the labor force. "Our first challenge
             is to strive with extra force for bilingualism," he said.

             Even so, Delta Airlines has already established a regional call center in Santiago, and Citigroup and Motorola have both established
             software centers here serving Chile and other Latin American countries.

             Next month, Unilever Bestfoods Latin America will officially move its Latin American headquarters from the US to Santiago. One of the key
             reasons the Chilean capital won out over regional rivals São Paulo, Mexico City, and Buenos Aires is its low rates of violent crime.

             Company president Alberto Sobredo, who is from Argentina, cited security as a major factor in the decision to relocate to Chile. "We travel
             a lot and need to know that our families are in a safe and comfortable place," he said.

             On the economic side, part of the attraction is Chile's wide web of trade agreements and its associate membership in the Mercosur trade
             group. It already holds five free-trade agreements, including pacts with Canada, Mexico, and the European Union, and trade associations
             with no less than 10 regional countries.

             This means US companies can come to Chile, produce goods or services locally, then export them regionally and worldwide, capitalizing
             on the preexisting network of trade agreements.