Chile euphoric over U.S. trade deal

Reuters, 06.05.03, 11:53 AM ET By Louise Egan

SANTIAGO, Chile (Reuters) - The Chilean government is as euphoric as proud parents of a newborn baby -- after a long and tortuous labor it is about to give birth to a bilateral free trade agreement with the United States.

Chile's Foreign Minister Soledad Alvear and U.S. Trade Representative Robert Zoellick will sign the treaty Friday in Miami, sealing 11 years of negotiations that ended last December. Both Congresses are likely to approve it this year. An oasis of calm in a continent swirling in economic and political turmoil, Chile is the only country in Latin America, apart from Mexico, to win Washington's blessing as a preferred trade partner.

For U.S. President Bush, the deal has mostly symbolic value -- it is a potent message he is serious about jump-starting talks for a wider hemispheric free trade zone.

But for Chile's socialist President Ricardo Lagos, the deal with his biggest export market and foreign investor is a giant stamp of approval for over a decade of free market, export-oriented policies and political stability.

"We have our own internal problems but we're way better off than other (Latin American) countries," said Jaime Lean, a gas-mask manufacturer whose exports to the United States skyrocketed after the Sept. 11 attacks there.

The deal will set Chile further apart from much of Latin America, where countries like Argentina have defaulted on their debt, Peru and Venezuela are rocked by violent street protests and Colombia is gripped by a leftist guerrilla war.

Visitors to Santiago are amazed by its ultra-modern airport and highways and orderly traffic. Unlike neighboring countries, police hand out fines in disgust if someone attempts a bribe. One in five Chileans has a home computer, over half use mobile phones and 75 percent own their homes.

Washington's dismay at Lagos' opposition to the Iraq war cost only a minor delay in the signing of the deal.

"Being in a bad neighborhood right now actually helps Chile," said Patricio Navia, a political scientist. "Because it's the best behaved country in the continent, the U.S. rewards that. The U.S. wants to show other countries the way."

But Chile hopes its closeness with Washington won't hurt relations in the region. Foreign Minister Soledad Alvear said in Argentina that Chile is committed to integration with its neighbors as an associate member of the Mercosur trade bloc. Surprisingly, it is small players like Lean, the gas-mask maker in search of niche markets, who will benefit most with the trade deal, which cuts import duties on 85 percent of industrial goods traded between the two countries.

U.S. consumers will not see a flood of copper, salmon, wine and grapes -- Chile's top exports to the United States. In fact, traditional trade is expected to climb only marginally because most goods already are traded duty-free.

Critics say Chile's zeal for globalization has not bridged the income distribution gap, the worst in Latin America after Brazil. Others fear an invasion of U.S. fast-food chains and cheap products could bulldoze local culture.

The National Chamber of Commerce estimates, however, that trade deals with Washington and the European Union alone will boost economic growth by 2 percent a year.