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Email this citationCIAO DATE: 7/00
Trade Policy Options for Chile: A Quantitative Evaluation
Glenn W. Harrison, Thomas F. Rutherford,
David G. Tarr
North South Center
University of Miami
May, 1997
Abstract
This paper examines the net economic benefits and government revenue implications for Chile of 1) forming a free trade area with MERCOSUR as an associate member, 2) forming a free trade area with NAFTA, and 3) reducing its external tariff multilaterally and unilaterally. The research shows that NAFTA would benefit Chile, but Chile must obtain improved access in non-grain crops, one of its key export sectors, or NAFTA will result in losses for Chile. Chile will lose from the MERCOSUR agreement as presently constituted but can gain from participation in MERCOSUR by reducing its external tariff to between 6 percent and 8 percent. Such a lowering of the external tariff would lead to a reduction of costly, trade-diverting imports (on which Chile does not collect tariffs) from high-priced partner country suppliers. The paper indicates that Chile should continue to push for NAFTA membership, while moving toward broader multilateral trade liberalization. Additionally, collecting the value added tax at more uniform rates in Chile would reduce domestic distortions and enhance the effectiveness of trade policy reforms.
