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What you should know about the Chile-Brazil Free Trade Agreement (FTA)

Sidera Consult | 10 March 2022

What you should know about the Chile-Brazil Free Trade Agreement (FTA)

By Lucas Ricardo

The Free Trade Agreement between Brazil and Chile went into effect on January 25. The Economic Complementation Agreement No. 35, signed in November 2018, is an additional protocol to Chile’s Free Trade Agreement with Mercosur (ACE No 35), the first to be signed between Mercosur and a non-member country. Even though the agreement only applies to trade between Brazil and Chile, all Mercosur members were required to approve it.

A free trade agreement seeks to eliminate tariffs and increase the trade flow between the countries that sign it. According to the World Trade Organization (WTO), there were 350 Regional Trade Agreements (RTAs) in force by October 2021, corresponding to 568 notifications from WTO members.

WTO members are required to act in a non-discriminatory manner, treating all equally. Regional Trade Agreements (RTAs), on the other hand, are an exception to the Most-Favoured-Nation (MFN) Principle. Members recognise RTAs legitimacy to increase trade flows because of their purpose to expand trade, even if only partially. As a result, members are protected from being party to RTAs.

The trade flow between Brazil and Chile broke the previous record in 2021, reaching a total of US$11.4 billion. In this equation, Brazil has a positive balance of 2.5 billion dollars. In total, sales to Chile accounted for 2.49% of Brazilian exports, while imports from the Latin American country accounted for around 2.02% of Brazilian imports. Crude oil and beef are the two most significant export products, accounting for 28% (U$1.94 billion) and 8% (U$563 million) of total exports, respectively.

Manufactured goods account for a significant portion of this trade, with cargo transport vehicles (4.5%) and automobiles (4%) standing out. In the opposite direction, copper is Chile’s most important export product, accounting for 44% (U$1.95 billion) of Brazilian imports. Fish comes in second, with 14% (U$600 million).

It is worth noting that zero tariffs have been applied to bilateral trade between Brazil and Chile since 2014, implying that the protocol has extended the benefits of this trade relationship. The protocol, which is divided into 24 chapters, addresses a variety of issues, with the goal of facilitating and increasing trade between the two countries. We can highlight a few of the topics that have been discussed.

  • Trade Facilitation
  • Sanitary and Phytosanitary Measures
  • Technical Barriers to Trade
  • Government Procurement
  • Cross-Border Trade in Services
  • Investment Cooperation and Facilitation
  • Electronic Commerce
  • Regional and Global Value Chains
  • Dispute settlement

We would like to highlight Government Procurement as one of the most prominent points. Companies from Brazil will be able to compete in Chilean public tenders, and vice versa. According to the Special Secretariat of Foreign Trade and International Affairs (SECINT), the agreement allows Brazilian companies to present bids in Chilean public purchases in a variety of economic sectors, such as pharmaceuticals, automotive, electrical and electronic materials, and construction services. In this sense, the Protocol is a significant step toward Brazil’s integration with Chile.

It is worth noting that Brazil continues to hold bilateral talks with Indonesia and Vietnam. It also takes part in Mercosur talks with Canada, South Korea, Lebanon, and Singapore.

Sidera has offices in Brazil and Chile, entirely capable of helping you make business in any of those countries. Or both ! Reach out to us if you want to go global.

 source: Sidera Consult