45th Anniversary and a decade of ‘Free Trade’ drives China – Chile relations

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45th Anniversary and a decade of ‘Free Trade’ drives China – Chile relations

Minister Heraldo Muñoz is the current Minister of Foreign Affairs of Chile under President Michelle Bachelet. He is also the former Chilean Ambassador to the United Nations, to Brazil, and to the Organization of American States, the former Assistant Secretary General, Assistant Administrator, and Regional Director for Latin America and the Caribbean of the United Nations Development Programme.

Synergy Media Specialists asked Minister Muñoz about Chile’s relations with China and the country’s role in strengthening China’s relationship with South America.

How would you characterize Chile – China relations today?

Relations between Chile and China today are among the most solid our country has worldwide and, certainly, in the Asia Pacific region. Chile was the first Latin American country to sign a free trade agreement (FTA) with China, as well as the first South American nation to establish diplomatic relations with China and grant market economy status to China. Another “first” was achieved during Chinese Premier Li Keqiang’s official visit in May, when Chile took steps to become a financial platform for the internationalization of the Renminbi in Latin America.

Throughout the last decade, Chile furthered its already positive relationship with China in both the political and economic fields. In political terms, in 2012, both countries agreed to elevate their bilateral relationship to the status of “strategic association”, implementing high level cooperation mechanisms in the political and economic areas.

In the economic sphere, the entry into force of the Chile–China FTA has brought about an important increase in bilateral trade. Since then, our countries have negotiated supplementary agreements in services (in force since 2010) and investment (in force since 2014), with the objective of deepening trade and investment ties.

Chile - Heraldo Muñoz Minister of Foreign Affairs of Chile3

Chile – The Honorable Minister Heraldo Muñoz is the current Minister of Foreign Affairs of Chile under President Michelle Bachelet. He is also the former Chilean Ambassador to the United Nations, to Brazil, and to the Organization of American States, the former Assistant Secretary General, Assistant Administrator, and Regional Director for Latin America and the Caribbean of the United Nations Development Programme.

We also share a common understanding regarding the absolute need for further work to bring both countries closer together in areas such as cooperation in science and technology, research and development, biotechnology and innovation.

How strong is the current state of bilateral trade between Chile and China today?

Today, China is Chile´s first trading partner in the world. Moreover, during the visit of Prime Minister Li Keqiang, we were able to make important progress beyond the area of trade in goods, with the signing of significant cooperation agreements promoting reciprocal investment and cooperation in new sectors.

For Chile, one of the main objectives of the FTA with China is to diversify our exports to China and progressively include new goods and services.

During 2014, trade between Chile and China reached US$ 32,671 million, representing 24% of the Chilean foreign trade. Chilean exports reached US$18,437 million. Moreover, China is our second partner on non-copper shipments, with US$ 4,215 million in 2014, and a 6% more than the previous year. Trade increased last year due to the growth of agricultural and forest industry goods, which increased in US$ 245 million and US$ 169 million respectively.

The trade balance has been favorable for Chile since 2002 and in 2014 the surplus reached US$ 4,204 million. Also, between 2002 and 2014, trade grew at an average annual rate of 24% while exports to China increased at a 25% yearly.

From China’s point of view, in 2014 Chile was ranked 24th among exporters to China and 33rd as purchaser of Chinese goods.

What sectors will benefit the most from a closer relationship?

Chile is focusing its effort in diversifying its export basket to the world, including China. In this context, during the next few years, Chile will promote trade opportunities in the areas of agricultural and manufactured products.

The Free Trade Agreement between Chile and China went into effect 9 years ago this October. Since January 1st of this year, all Chilean exports to China enter tariff free. This means that 1,611 additional Chilean products were added to the 5,725 that already had this benefit. Among the main Chilean goods benefited are fresh grapes, wine, fish flour, frozen trout, salmon, olive oil, and iron manufacturing.

To mention just a few examples, in 2004 less than 0.2% of fresh fruits shipments from Chile had China as their destination; nowadays, 16.6% goes to that market. Food products also increased their participation going from 1.4% to 7.9%. The same happened with the wine macro-sector that increased from 2% to 8% and the forest industry from 11% to 24%, all of them on the same period of time.

On the other hand, imports coming from China have also shown a constant increase, with an annual increase rate of 19% during the 2005-2014 period. On composition grade, we can mention consumption goods, followed by intermediate goods and capital goods. However, there is a stronger rate of expansion in intermediate goods purchasing.

What role do you feel Chile has within South America with regard to China relations?

Chile is a middle income country, with a foreign policy based on the promotion of democracy, the rule of law, the peaceful settlement of disputes and an open economy. Latin America and the fostering of regional integration are key for us to stimulate economic growth and development.

In that context, we aspire to be a bridge, a platform, for increased interaction between South America and the Asia Pacific. Certainly China is central in our strategy today, as it has been for the last decades. Our present government, as those before it, seeks to increase trade in goods and services, as well as investment, between the two sides of the Pacific. The Alliance of the Pacific, integrated by Chile, Peru, Colombia and Mexico is an important economic integration instrument in this regard.

Since 1994, when we joined APEC we have negotiated a number of free trade agreements with the principal countries in the region: South Korea (2004), China (2006), Japan (2007), New Zealand (2006)and Australia (2009). In the last few years, we have focused our efforts in a closer relation with the ASEAN countries, reaching agreements with Singapore (2006), Brunei (2006), Malaysia (2012), Thailand (2013), Vietnam (2014) y Hong Kong, China (2014).

Chile has also promoted closer political relations between the Community of Latin American States (CELAC in Spanish) and China, welcoming the establishment of a China – CELAC Forum, which had its first meeting in Beijing in January this year. Chile will host the second meeting of the Forum in Santiago in January 2018.

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