New world calls as trade talks start with Chile

PUBLISHED : Sunday, 30 October, 2011, 12:00am
UPDATED : Sunday, 30 October, 2011, 12:00am

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Hong Kong is poised to begin negotiating a free trade agreement with Chile which would be its first with any country in the Americas.

The deal is expected to be high on the agenda at a meeting between Chief Executive Donald Tsang Yam-kuen and Chilean President Sebastian Pinera at next month's Asia-Pacific Economic Co-operation (APEC) summit in Hawaii. This follows Tsang's announcement in his policy address this month that the government was 'exploring the possibility of a free trade agreement with Chile'.

It would be a match between what the 2011 Index of Economic Freedom deemed Latin America's freest economy and the world's freest. Both countries are members of the World Trade Organisation and APEC, and bilateral trade between them was worth US$581 million in the first seven months of 2011. Trade last year amounted to US$780 million, with Hong Kong importing mostly fruit, fish and meat and exporting mostly telecommunications equipment and clothing.

Feasibility studies in 2009 concluded an agreement would boost imports to Chile from Hong Kong by 14 per cent, or US$4.5 million, while Chilean exports to Hong Kong would grow 26 per cent, or US$29.3 million.

'The negotiation process at this point in time does not look so distant,' Mario Artaza, Chile's consul general in Hong Kong, said. 'Hong Kong fits very naturally into the equation we have right now with our interaction with Asia.'

Chile, a country of 17 million people, has traded with Hong Kong since the 1820s, bringing silver, wool and food to these shores. Nowadays more than 75 per cent of its GDP comes from global bartering. Since the early 1990s 21 free trade agreements (FTAs) have been signed with countries including Korea, Japan and Singapore, with business in Asia-Pacific accounting for 45 per cent of Chile's overall trade. China is Chile's number one trading partner and the two signed an FTA in 2005.

Compared to the deal with China, however, Artaza does not see the swapping of goods as the most important part of this agreement. 'The key here for Chile is the flow of investment and the provision of services,' he said. Education, health, the environment, transportation, telecommunications, architecture and engineering were sectors he highlighted.

As the agreement would be a foothold for Hong Kong in Latin America generally, Chile would also be allowed access to investment from China via Hong Kong. 'We have to tap in through Hong Kong in order to attract investment from China into Chile. That is at a very low level,' Artaza said. The FTA would ensure that Hong Kongers had the same rights as Chileans when investing in Chile.

Hong Kong has been increasing efforts to seal trade links around the world, with its first free trade agreement outside China signed with New Zealand in March last year. That was followed by deals with Iceland, Liechtenstein, Norway and Switzerland in June this year. In May InvestHK signed an agreement with Chile's Foreign Investment Committee in a bid to promote investment between the two economies.

According to William Case, who teaches international political economy at City University, an FTA with Chile would give the Hong Kong government a greater boost to its image than a trade flow in goods. 'These are already very open economies, exchanges can already take place very easily and I can't see how an FTA can add very much to that,' he said. 'It is to show that Hong Kong can engage with a new part of the world; that it is able to diversify and be the global city it says it is. What this enables Donald Tsang to say is Hong Kong is diversifying its potential trade partners.'