Chile and Paraguay signed a free trade agreement (FTA) this month, following four rounds of negotiations that took just 14 months to complete. The Chile Paraguay Free Trade Agreement is the first such bilateral deal signed by Paraguay, highlighting the country’s increasingly international outlook.
For Chile, meanwhile, it is just the latest example of the country’s commitment to global free trade, adding to an extensive portfolio of FTAs providing resident companies with preferential access to key markets across five of the world’s seven continents.
“This agreement includes provisions to increase commercial exchange, favors the working-age generation in our countries, will have a positive impact on post-pandemic economic reactivation, and incorporates subjects such as gender, labor issues and the environment,” said Chile’s Minister of Foreign Relations Andrés Allamand at the signing ceremony in the Chilean capital Santiago.
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The agreement marks the final step in Chile’s establishment of FTAs with each of the four members of the Southern Common Market (Mercosur), having previously signed deals with Uruguay (2017), Argentina (2018), and Brazil (2019).
Once all four deals are enforced, that will effectively place Chile as a gateway between Latin America’s two largest economic associations, Mercosur and the Pacific Alliance – the latter of which is made up of Chile, Colombia, Peru, and Mexico.
The agreement will be welcomed by many in Latin America’s business and investment communities, at a time when both economic associations are forging greater integration with the global economy.
While Mercosur members are due to ratify an FTA signed with the European Union, the Pacific Alliance recently extended its reach into Asia-Pacific by inaugurating Singapore as an associate member.
Chile Paraguay Free Trade Agreement a regional trade milestone
Talks for the Chile Paraguay Free Trade Agreement first began in October 2020, with subsequent rounds of talks held in March, August, and October this year, before the agreement was officially signed on 1 December.
The rapid completion of talks and signing of the agreement is a milestone in itself, highlighting the considerable political will in both countries to get the deal done, as well as being noteworthy because it is Paraguay’s first bilateral FTA and the culmination of Chile’s rapprochement with Mercosur.
For Chile, the talks were led by Felipe Lopeandía, director-general of bilateral economic matters for Chile’s Undersecretariat of International Economic Relations (SUBREI), while Paraguay was represented by the director-general of economic policy at Paraguay’s Ministry of Foreign Affairs – a role occupied by Raúl Cano Ricciardi at the beginning of talks, and subsequently by Enrique Franco.
The first round of talks included technical groups discussing the likes of economic cooperation, global value chains, environmental matters, services, and telecommunications, among others. The second round, meanwhile, covered the likes of e-commerce, good regulatory practice, commercial transparency, and dispute resolution.
The third round then reinforced many of those earlier discussions so that, by the time the fourth round of talks began little more than one year after discussions had opened, the two countries had reached agreement on nine of 20 areas.
With the parties coming to agreements on all outstanding matters in October, the formality of signing the agreement was completed this month, during a meeting between Allamand and his Paraguayan counterpart Euclides Acevedo.
That meeting saw the two ministers also sign five additional agreements that covered reciprocal recognition of drivers licences, defence sector cooperation, human trafficking prevention, cooperation in telecommunications and the digital economy, and diplomatic collaboration.
Chile Paraguay Free Trade Agreement promises to deepen trade
The finalizing of the Chile Paraguay Free Trade Agreement will only serve to make both markets more enticing to forieng investors, as well as boosting trade between the two nations.
According to a SUBREI press release, in 2020 commercial exchange between the two countries reached almost $1.2 billion (all figures in USD), making Paraguay the 19th-largest trading partner of Chile.
That followed average annual growth in trade of around 8% during the preceding 15 years, including an average 3% yearly growth in Chilean exports to Paraguay, and average 8% annual growth in goods traveling in the opposite direction.
By 2020, a total of 505 companies based in Chile were exporting over 1,000 different goods and services to Paraguay, while 305 Paraguayan companies were reportedly involved in sending almost 200 different goods and services to Chile.
The most valuable export from Chile to Paraguay is automobiles, with exports worth a total of $77.9 million being sent in 2019. Meanwhile, beef represents the most significant export from Paraguay to Chile, with the $355 million of the product sent in 2019 representing more than 50% of the value of total Paraguayan exports to the country.
The new Chile Paraguay Free Trade Agreement will seek to increase and diversify that trade, with other important products exported by Chile to Paraguay including medical supplies, cigarettes, materials for the manufacturing industry, copper wire, and red wine. For Paraguay, other important exports to Chile include cereals, recycled metal, paper, and medicines.
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