Trade and Development: The rising importance of sustainable development in the trade agenda of Chile

Since the early 1970s, Chile has embarked on a markedly liberal trade policy, including the elimination of price and credit controls, the reduction of barriers to trade and the liberalization of capital flows. Since then, Chile has continued with this approach, supporting exports through the signature of more than twenty free trade agreements with different countries and economic associations from diverse regions of the world. Unlike other countries of the region, such as Brazil and Argentina, Chile has actively incorporated environmental and labor issues into its trade agenda. The purpose of this work is to identify the channels through which issues of sustainable development are incorporated into the trade agenda of Chile, including the trade agreements and the policy for foreign direct investment (FDI). As well, it tries to examine some emergent issues and tendencies associated with sustainable development that are likely to impact the future agenda of Chilean trade negotiators.

This country report is part of a joint TKN-CINDES research project comprising of four national case studies - in addition to Chile, Argentina, Brazil, and Peru were also studied - undertaken to identify, within the thematic areas of environmental and labor regulation, the most important issues for each country in terms of opportunity and/or vulnerability, as well as the forces that prompted the introduction of sustainable development topics into the country's trade and investment agendas. The other individual country studies, as well as a synthesis report summarizing the main findings for the region as a whole, are also available through the Trade Knowledge Network website.

Key points:

• Of the 19 trade agreements in effect signed by Chile, 12 contain environmental commitments and 8 labor clauses. In spite of this, public policy for regulating FDI does not incorporate any environmental, labor or climate change clauses, nor sustainable development ones.

• Diverse factors have influenced the active incorporation of environmental and labor aspects into Chile's trade negotiations. One of them is the need to maintain coherence with the foreign policy stance, in which the subscription to the majority of the multilateral environmental agreements stands out. Another factor has been the demand of important trade partners for the inclusion of environmental and labor elements in FTAs. From a more domestic perspective, the inclusion of these elements into FTAs is considered to reinforce national environmental and labor legislation. Another factor that has motivated the inclusion of elements of sustainable development in the Chilean trade agenda corresponds to the necessity to improve the competitiveness of the country in international markets. In this sense, the Chilean perception stresses the need of incorporating the environmental dimension in the process of economic internationalization, as it is a crucial element to compete in international markets.

• During last the 15 years, Chile has progressively incorporated environmental and labor concerns in its trade agenda. Nevertheless, this has not happened in the case of climate change, an element that is just beginning to be considered an important factor in the trade of Chile by the public and private sector.

• In environmental matters diverse deficiencies persist that prevent the full compliance of the relevant dispositions present in the trade agreements. In the case of labor, the main challenges are the high degree of labor informality and the low levels of unionization.

Key recommendations:

• Much of the environmental and social dimension of Chile's trade and FDI policies lack a comprehensive vision of sustainable development. It is therefore necessary to embark on a research agenda which will treat these subjects in an integrated way, analyzing its relations, synergies and divergences.

• The lack of complete fulfillment of the contained environmental and labor dispositions in the FTAs has not been met with sanctions, and it is improbable it will do so in the near future. The main way to approach these weaknesses would seem to be to include in the FTAs specific initiatives of cooperation between signatories in the matter of labor informality and unionization, as well as the transfer of clean technology.

• The need by developed countries to reduce to their gas emissions may imply the transfer of their carbon-intensive industries to countries without such restrictions, like Chile. Considering that the imposition of restrictions to carbon-intensive FDI is something improbable, a system of economic incentives that allows to direct FDI towards prioritized sectors must be designed.

• The increase of the climate change related standards in the international markets means that the Chilean manufacturing industry should put a greater emphasis in developing an industry with greater valued-added and less based on natural resources with low levels of transformation.