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Chile: Better of Joining NAFTA or MERCOSUR?

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Introduction

Chile: Better of Joining NAFTA or MERCOSUR? For many, Chile represents a natural first step in expanding hemispheric trade. Although Chile is a relatively small market, its political stability, growing export-oriented economy, and pro-market reforms over the past decade and a half positioned the country as a prime candidate for integration with NAFTA of MERCOSUR. In 1996 Chile's population was roughly 15 million. GDP was $56.4 billion and per capita income was $ 3,848.Chile's total trade in goods was #33.2 billion, with exports of $15.4 billion and imports of $17.8 billion. (World bank, World Development Report, Washington, DC: The world Bank, 1997). Traditional products such as minerals (cooper), fishmeal, and wood pulp account for most of Chile's export revenues; however, the share of trade earnings from export of wood manufactures, basic metal products, fruits, and wine is increasing. Chile imports oil, chemicals, industrial and transportation equipment, share parts and food products, including wheat, live animals and meat, and tropical commodities such as coffee. Chile's trade is well distributed among Western Hemisphere countries, the nations of Western Europe, and Asia (see appendix, Table 1). In 1996, the United States, Canada, and Mexico (NAFTA) accounted for 25.0% of Chile's trade, while the European Union represented 18.6%, the Asia-Pacific countries 22.8%, and MERCOSUR 18.7%. The United States is Chile's principal trading partner, receiving 16.7% of Chile's exports and accounting for 30.5% of its imports. ...read more.

Middle

General Pinochet relinquished control of the government while remaining chief of the army after Patricio Aylwin was elected president in 1990. Today, Chile faces the change of consolidating and expanding its export markets, and attracting long-term foreign investment in order to carry its "new" domestic development strategy based on an open economy, export promotion and the discipline of competition. Accordingly, Chile has created an expanding network of bilateral free trade agreements, having signed over 12, and maintained an overall 11% tariff rate (low by Latin American Standards). At the end of 1944, Chile joined the Asian-Pacific Economic Cooperation Forum (APEC) as the only non-Asian member of the organization besides the NAFTA countries. In June 1996, Chile became associated with MERCOSUR and the Europe Union (but not as fully fledged member). In 1997, Chile finalized a bilateral agreement with Canada and initiated bilateral discussion with Mexico. Chile has been waiting to begin formal negotiation for membership in NAFTA since 1994. Would Chile be better off joining NAFTA or MERCOSUR? Conventional trade theory holds that if the comparative advantage held by a country's industries in world trade is increased of preserved by membership in a particular trading bloc, said membership can lead to trade creation and enhanced country welfare (that is, higher GDP, jobs, and income)(Salvatore, Dominick, International Economics, Upper Saddle River, N.J.: Prentice-Hall, Inc.1995, pp.30-36). ...read more.

Conclusion

887 5.8 282 1.6 1169 3.5 ASIA-PACIFIC 4959 32.3 2601 14.5 7560 22.8 JAPAN 2496 16.3 950 5.3 3446 10.4 SOUTH COREA 864 5.6 557 3.1 1421 4.3 ANDEAN CM 1009 6.6 914 5.1 1923 5.8 Table 2. Chile's exports to the World, NAFTA and MERCOSUR (Average 1990-94) bi Commodity Type, Value (million US$), and % Share Commodity Type World NAFTA MERCOSUR US $ % US $ % US $ % All 9.6000.8 100.0 1.608.4 16.8 1.041.9 10.9 Non-manufactures 4.809.1 100.0 876.9 18.2 453.4 9.4 Manufactures 4.346.7 100.0 728.8 16.8 584.1 13.4 Not Classified 445.0 100.0 2.7 4.3 4.4 8.7 Table 3. Chile's Exports (Average 1990-94) to NAFTA and MERCOSUR by Commodity Type, Value (US$), and % Share Commodity Type NAFTA+MERCOSUR NAFTA MERCOSUR US $ % US $ % US $ % All 2.650.3 100.0 1.608.4 60.7 1.041.9 39.3 Non-manufactures 1.330.3 100.0 876.9 65.9 453.4 34.1 Manufactures 1.312.9 100.0 728.8 55.5 584.1 44.5 Not Classified 7.1 100.0 2.7 38.0 4.4 62.0 Table 4. Spearman Rank Correlation Coefficients for Chile's Exports to NAFTA and MERCOSUR by Commodity Type, Against Chile's Exports to the World Commodity Type Chile-NAFTA Chile-MERCOSUR All 0.94 0.77 Non-manufactures 0.90 0.78 Manufactures 0.94 0.76 POLI 307 Dr. Leila Atraqchi CLASS PRESENTATION "CHILE: NAFTA OR MERCOSUR?" Student: Svetlana Avdeeva ID #: 4457188 March 30, 2004 1 ...read more.

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