Bringing Chile Into the Americas' Free-Trade Fold
WHEN Chile's president, Eduardo Frei, visits the White House next week, free trade will be uppermost in his mind. The Chilean government has already gained firm commitments from Presidents Bush and Clinton that - following approval of the North American Free Trade Agreement - Chile would be next in line for a free-trade agreement with the United States.
But the crucial questions of timing, conditions, and procedures for moving forward remain unsettled. Because they too want free-trade relations with the US, and consider the opening of talks with Chile a key milepost, many other Latin American and Caribbean governments are eager to know the responses to these questions.
Chile presents powerful economic credentials for a trade pact with the US. Over the past decade, it has produced the most impressive economic performance of any country in Latin America, and one of the strongest in the world. Investment, growth, and exports are all high and growing, while inflation and unemployment are low and stable. No one doubts that Chile's open, well-managed economy would be a good partner for the US.
Chile is an attractive partner on other than economic grounds. In the four years since the country returned to elected leadership - after suffering 17 years of Augusto Pinochet Ugarte's dictatorship - Chile has built one of Latin America's most vibrant, secure democracies. And significant progress has been made in reducing poverty and redressing economic inequities, fundamentally by raising taxes to pay for social programs.
The single fly in the ointment is that a free-trade agreement with Chile would not contribute much to the US economy. The US exports less than $2 billion a year to Chile, compared with its $100 billion in annual exports to Canada or its $40 billion to Mexico. Canada and Mexico are, respectively, the largest and third-largest markets for US sales overseas. Chile - a country of only 12 million people and some 4,000 miles from the US - ranks about 35th.
Chile cannot become a major US trading partner. The economic importance for the US of a free-trade agreement with Chile is, instead, that it is the next essential step toward building a hemisphere-wide free-trade area that eventually can incorporate every nation of the Americas. This is the announced goal of the Clinton administration and the most significant component of its Latin American policy. Accordingly, the US should be sure to manage any trade initiative toward Chile in ways that facilitate future initiatives with other Latin American countries.
Key opponents of NAFTA have said they are ready to support free trade with Chile - but only if the agreement is negotiated bilaterally and incorporates labor and environmental conditions far more stringent than those of NAFTA. This is a route that the Clinton administration should avoid, even though it appears to promise an easier path to congressional approval.
A bilateral agreement with Chile would more likely be the start of a patchwork of overlapping trade accords, each with different rules and procedures, rather than the next building block in a single hemispheric market. Moreover, the Chilean government, as the Mexican government did earlier, may find the added requirements unacceptable and abandon for the time its efforts to gain a free-trade accord with the US. Or it may turn out that other countries will not be willing or able to meet these requirements. The result in each case would be the same: A hemisphere linked by capital, goods, and services would be blocked or long postponed.
The best approach for the US is to seek Chile's entry into NAFTA - basically requiring Chile to accept the obligations of the agreement already negotiated by Canada, the US, and Mexico. NAFTA will, in essence, become a free-trade ``club'' that can take in new members willing and able to abide by its rules or merge with other free-trade clubs in the hemisphere such as Mercosur, which consists of Argentina, Uruguay, Brazil, and Paraguay.
No one should expect all this to be resolved in conversations between Presidents Clinton and Frei next week. The visit will be significant if it succeeds in conveying to the Chileans and to the rest of Latin America and the Caribbean that the White House continues to assign high priority to building free-trade relations in the hemisphere. It would take on added significance if Clinton were to make it clear that regional free trade will be the main goal of the upcoming summit meeting of hemispheric leaders in Miami this December. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.