The Mexico-Chile Free Trade Agreement: Benefits and Challenges
Mexico and Chile established a free trade agreement (FTA) in 1999, making it one of the earliest FTAs in the Latin American region. The agreement eliminated tariffs on a wide range of goods and services, promoted investment and competition, and established mechanisms for resolving disputes.
The Mexico-Chile FTA has been beneficial for both countries. Mexico is one of the largest economies in the region and the world, with a diverse export-oriented manufacturing sector. Chile has a dynamic and innovative economy, with a strong focus on natural resources, agriculture, and services. Both countries have complementary economic structures, making them natural trading partners.
The FTA has boosted bilateral trade between Mexico and Chile. In 2019, trade between the two countries reached $2.5 billion, with Mexican exports to Chile accounting for $1.5 billion and Chilean exports to Mexico accounting for $1 billion. The main products traded include vehicles, machinery, electronics, chemicals, food and beverages, and tourism services.
The FTA has also helped attract foreign investment to both countries. Mexico has become a hub for manufacturing and exporting to the US and other markets, while Chile has attracted investment in mining, energy, and infrastructure projects. The FTA has provided a stable and predictable framework for investors, reducing risks and transaction costs.
However, the Mexico-Chile FTA also faces challenges. One of the main challenges is the asymmetry between the two countries. Mexico is a much larger economy than Chile, with a population of over 130 million and a GDP of over $1 trillion, while Chile has a population of about 19 million and a GDP of about $300 billion. This asymmetry creates some imbalances in trade and investment flows, and may lead to some trade diversion or displacement effects for some sectors.
Another challenge is the competition from other FTAs and trade agreements in the region. Mexico has several FTAs with other countries, such as the US, Canada, the European Union, Japan, and the Pacific Alliance. Chile has FTAs with over 65 countries, including China, Korea, and the Trans-Pacific Partnership. These agreements provide opportunities for different markets and products, but also pose challenges for negotiating and implementing consistent and compatible rules and standards.
The Mexico-Chile FTA has been effective in promoting trade and investment between two of the most dynamic economies in Latin America. The FTA has created opportunities for businesses and consumers, and has helped diversify and integrate the regional economy. However, the FTA also needs to adapt to changing economic and geopolitical conditions, and to address some of the challenges and risks that arise from its implementation.