The Miami Herald / October 27, 1997
By Larry Luxner
SANTIAGO, Chile -- In the copper-mining town of Antofagasta, California-based Fluor Daniel Chile is importing $13 million in construction equipment from Canada instead of the United States not because Canadian bulldozers are better but because it makes more economic sense. Likewise, because of zero import duties, John Deere imports tractors from Brazil, even though Chileans think American products are more reliable.
Alex Fernandez, president of the Chilean-American Chamber of Commerce, can cite at least half a dozen other examples of U.S. multinationals from Coca-Cola to Clorox to J.C. Penney sourcing products from Canada, Mexico or the Far East rather than the United States.
"IBM is now buying all its PCs from Mexico. This means a loss of business and American jobs," he told a group of U.S. executives this week. "This is the reason we're here knocking on doors, and telling people how important this issue is."
Fernandez -- an insurance executive by profession -- is leading what appears to be an uphill, last-minute effort this week and next to persuade Congress to give President Clinton fast-track authority to negotiate trade deals which would then be considered without amendment. Two weeks ago -- after much wrangling on Capitol Hill -- the House Ways and Means Trade Subcommittee voted to support Clinton, though whether the full House will approve fast-track is another story. Many lawmakers, both Democrat and Republican, are wary over the effects of extending the North American Free Trade Agreement to Chile or other countries.
Yet according to AmCham, U.S. manufacturers lost $480 million last year to competitors around the world because of the absence of a free-trade agreement between the United States and Chile. That's because of the 11% across-the-board tariff assessed against U.S. products coming into Chile -- making those products too expensive for the local market. The differential is even more pronounced now that Chile, which saw 7.5% economic growth last year, has signed separate trade agreements with Washington's two NAFTA partners, Canada and Mexico.
"Right now, the U.S. has a positive trade balance with Chile, but you are losing market share," Fernandez warned the executives as they lunched on Chilean Atlantic salmon. ""In 1995, your business grew 44%. But in 1996, it grew only 8%, and in the first half of 1997, it grew less than 1%. It's because the duty rates on U.S. products are making those products less competitive. The percentage of imports coming from the U.S. is shrinking, even though the market has always favored U.S. goods."
Of the 50 states, Florida is by far the largest exporter to Chile, shipping $483.5 million worth of goods out of a total $4.1 billion in 1996 exports, according to the U.S. Commerce Department. Iin second place was California, with $352.2 million, followed by Washington state, with $338.8 million.
John Biehl, Chile's ambassador to the United States, says it's hard to tell whether his country will end the year with a firm U.S. commitment to a free-trade agreement -- particularly with opposition groups like the AFL-CIO spending $1 million to sabotage the effort.
"Politics is not always about rational things. It is much easier to convey the setbacks of NAFTA to the American people than the benefits," he said in an interview. "In this country, congressmen have to respond directly to the feelings of the people. This system makes our battle much more difficult than it should be."
Meanwhile, executives working for U.S. multinationals in Chile say the impact of Chilean membership in NAFTA would boost their company's bottom lines immediately.
"If Chile were in NAFTA, a new Chevy Malibu or S-10 pickup would be more competitive than it is today," says Osvaldo Rivas, marketing manager at GM Chile. "A Lumina today costs close to $35,000 retail. With NAFTA, it would cost $32,000. Normally, the elasticity rate is three to one, meaning that you gain a 3% market share for every 1% in price reduction."
Rivas says this is especially true with U.S. cars, which normally have bigger engines than their Japanese and Korean competitors, and are therefore more expensive. Agrees Jaime Sepúlveda, parts and services zone manager for Ford Chile: "Bringing a Lincoln here is practically impossible with all the tariffs and luxury taxes. With NAFTA, our market position would improve to the benefit of the consumer."
Barbara Urzua, director of AmCham's Free Trade Office in Santiago, says "most Chileans don't view this as a life-or-death thing, but U.S. companies are the ones to gain from this. When we bring products into Chile, we're paying 11% duties, whereas Chilean products pay an average of only 4% to get into the U.S. market."
In the telecom world, the effects are starting to be felt. Santiago-based VTR, which is 49% owned by Texas-based SBC (formerly Southwestern Bell), recently placed a $200 million order with Canada's Northern Telecom for its Cornerstone Voice product. This allows a cable TV company -- after significant upgrades -- to provide voice, data and two-way telephony services over its network. Although Motorola, Lucent Technologies and Scientific Atlanta, all U.S. firms, manufacture similar equipment, VTR chose to go with Nortel for various reasons.
"It is not fair to say that, absent the 11% price advantage Nortel enjoyed we would have bought from a U.S. manufacturer," said Wayne S. Alexander, president of SBC Chile. "It was simply one of the factors we considered, albeit an important one."
Hugo Silva, country executive for General Electric Chile, which makes everything from light bulbs to home appliances, says bringing Chile into NAFTA would boost GE's business there by $80 million to $100 million.
"The lack of NAFTA has not hurt us directly because our major competition is European and Asian," he explained. "It's a level playing field because we all pay the same tariffs. However, Chile will have a trade expansion agreement with the EU in two to three years. This will put us at a disadvantage with European competition like Siemens."
Esso Chile, a division of Exxon Corp., says that because Chile isn't in NAFTA, the company sources $12 million worth of raw materials for its lubricants factory annually from Argentina and Venezuela. "With NAFTA in place," says company president Armando Perez, "we would definitely switch this business to the United States."
It's not only the Chilean subsidiaries of U.S. multinationals that support entry into NAFTA. Jaime Estevez Valencia, the socialist president of Chile's Chamber of Deputies, says his country needs market access just as much as the U.S. multinationals do.
"We can't continue expanding without free-trade agreements that break protectionism," said Estevez, who recently visited Washington as part of a pro-NAFTA lobbying effort. "We want fewer obstacles to sell to the United States."
In recent years, Chile has scored points with connoisseurs for its outstanding varietal wines, abundant winter fruits and tasty salmon. In fact, it has been so successful in exporting fish to the United States that salmon farmers in Maine and Washington have filed lawsuits accusing Chile of dumping fish at subsidized prices -- a charge Chile denies.
Asked if the Commerce Department probe could jeopardize bilateral relations, Ambassador Biehl says: "I hope not. Obviously, we're not the home team in this dispute. But I want to point out that we buy more from the United States than does India." He adds that "Chile has never been an immigration or drug threat to the United States, and we are among the least corrupt countries in the world. More Chileans are now returning to Chile than ever before, so the immigration argument [against admitting us into NAFTA] is purely emotional."
While Robert Matus, No. 2 official at the government promotion agency Pro-Chile, would be good for NAFTA, he points to the fact that Chile also has separate accords with Canada, Mercosur and the European Union. In addition, the country is an associate member of Mercosur, a powerful and growing trade bloc that also includes Argentina, Brazil, Paraguay and Uruguay.
"Nobody's waiting to make investment decisions because we're not in NAFTA. Our trade relations are flourishing, and they have been for a long time." Even so, says Matus, Pro-Chile supports the country's entry into NAFTA, arguing that "it's a way of locking in today's good economic environment for the long term."