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Chile, despite intense lobbying, unlikely to join NAFTA anytime soon
The Miami Herald / November 23, 1995

By Larry Luxner

WASHINGTON -- Chile won't get into the North American Free Trade Agreement this year, and probably won't next year for that matter -- despite a last-ditch lobbying effort by two Washington law firms and the Chilean-American Chamber of Commerce. In fact, Latin America's strongest economy is unlikely to see any progress toward NAFTA membership for a long time, concedes even the movement's strongest backers.

Barbara Urzua, director of AmCham's Free Trade Agreement Office, says she sees only a 20% chance of Congress granting President Clinton fast-track authority between now and Christmas recess to negotiate the terms of a free-trade agreement with Chile. With 1996 being an election year, it's doubtful the Democrats will want to make NAFTA a campaign issue -- so the whole thing may very well be put off until 1997.

"Most Chileans don't view this as a life-or-death thing, but U.S. companies are the ones to gain from this," said Urzua during a recent lobbying visit to Washington. "When we bring in Caterpillar or IBM products, we're paying 11% duties, whereas Chilean products pay an average of only 4% to get into the U.S. market."

Chile's joining NAFTA could also help the U.S. auto industry, which currently has less than 2% of the Chilean passenger vehicle market, since it would force Chile to abolish a luxury tax based on horsepower and engine size. That tends to discriminate against larger U.S. cars while favoring the Koreans and Japanese, which together have 42% of the car market. For this reason, according to Urzua, General Motors is actively lobbying to get Chile into NAFTA.

Yet Republicans and Democrats disagree over whether to extend NAFTA to other countries, particularly in light of the Mexican peso collapse and the U.S. government's bailout of the Mexican banking industry. Both sides generally agree that letting Chile into NAFTA won't hurt the U.S. economy, though a few groups -- notably the California wine industry -- oppose the move on the grounds it would make Chilean wine more competitive at California's expense.

"Chile itself is not a detriment," said Luisa Cerar, AT&T country director for Argentina. "This is a significantly different environment than the one we had a few years ago [when Mexico was admitted to NAFTA]. This is now a Republican-controlled House. The expansion of free trade is a campaign issue, and the Democrats need the labor unions, while the Republicans don't want labor and environment to be part of the final agreement."

Chilean President Eduardo Frei, who's pushing hard for membership in NAFTA, said recently that "the delay represents an internal political dispute in the United States, within which the Chilean government does not play any role."

Nevertheless, in late September the Chilean Embassy hired two well-connected Washington lobby firms to help Chile gain the support of key members of Congress. The first company, O'Neill & Athy, is run by Christopher O'Neill -- son of former House Speaker Tip O'Neill -- and is pushing Chilean interests on the Democratic side. The second, O'Brien Calio, is lobbying GOP lawmakers. The two firms are receiving a combined $25,000 a month for the duration of their three-month contracts, according to embassy spokeswoman Odette Magnet.

The decision to hire Washington lobbyists to promote Chile's entry into NAFTA appears to have been backed by all of the country's major political parties.

Jaime Estevez Valencia, president of Chile's Chamber of Deputies, said during a recent visit to Washington that admitting Chile into the exclusive NAFTA club would give his small country stability and prestige while costing the United States, Canada and Mexico nothing.

"This is a referendum on free trade," said Estevez, a socialist. "What is at stake is strategic vision. Chilean products are not going to compete with the United States, but our joining NAFTA would have a big ideological and political impact in Latin America, and would show that the U.S. is committed to free trade. Our people don't have a detailed understanding of international commerce. They just want better jobs and better wages."

Yet with the NAFTA talks bogged down in Washington, Chile has set its sights elsewhere for the time being. President Eduardo Frei recently signed a 61-point declaration with Mexican President Ernesto Zedillo which, among other things, calls for a bilateral air transportation accord, a social security agreement to benefit Chileans living in Mexico, and the opening of a Chilean consulate in Cancun. Earlier this year, Chile also joined the Asia-Pacific Economic Cooperation bloc.

APEC member countries -- led by Japan, South Korea, Malaysia and Indonesia -- plan to create a free-trade zone in the Asia-Pacific region by the year 2020. As an example of its expanding Asian ties, Chile agreed several weeks ago to develop a computerized tactical training system for the Malaysian Army.

Meanwhile, the Frei administration is pursuing trade deals with the Southern Common Market (Mercosur), which comprises Argentina, Brazil, Uruguay and Paraguay. It is also negotiating a free-trade agreement with the European Union, and expects to have a deal signed by December.

If that happens before Chile gains access into NAFTA, warns Urzua, it would be "terrible" for U.S. businesses, adding that "we would lose our leadership and credibility in the region."

Adds AT&T's Cerar: "If Chile were in NAFTA, we could ship telephone sets made in Guadalajara, Mexico, to Chile without paying duties, and from Chile to the Mercosur countries. If not, European companies like Alcatel and Siemens -- because they have factories in Brazil and Argentina -- would be able to outbid us in price, because we'd need to bring our equipment from the States."

Yet a U.S. Commerce Department official who asked not to be named said he doesn't buy that argument at all. He predicted that the EU is extremely unlikely to abolish tariffs on meat, wine and other European products in the name of free trade with Chile.

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