1. Introduction

The Canada-Chile Free Trade Agreement (CCFTA) that entered into force on July 5, 1997 was path-breaking in many respects for both Canada and Chile. For Canada, it was the first free trade agreement concluded with a major South American country and the most economically significant trade agreement since the North America Free Trade Agreement (NAFTA). For Chile, it was the first comprehensive free trade agreement concluded with a leading industrialized country.

The year 2012 marks the 15th anniversary of the implementation of the CCFTA; therefore, enough experience has been gained to allow a valid assessment of what the agreement has achieved, and the extent to which the agreement has delivered what it promised when the agreement was inaugurated more than a decade ago. This study takes up these questions.

An assessment of any preferential trade agreement (PTA) entered into prior to the wave of PTAs that have since been signed is always challenging because of the progressive erosion of preferences that were mutually accorded at the time of signing as preferences created under new trade agreements would likely overlap with preferences created under agreements with third parties. This is an important issue in assessing Canada's PTAs since Canada, like the vast majority of industrialized and developing economies, is actively pursuing new bilateral/regional trade liberalization negotiations in response to the impasse of the multilateral trade negotiations under the WTO's Doha Development Agenda.

This is a particularly important issue in the case of Chile because, since the signing of the CCFTA, it has signed PTAs with almost all of its major trading partners. These PTAs overlap extensively in terms of the preferences offered, thereby eroding the value of the concessions initially accorded to Canada and its other PTA partners (although preferences against other potential trading partners remain in place). The CCFTA thus provides a natural experiment to answer questions regarding the size and sources of gains in a world where PTAs are proliferating and swiftly reshaping the global trading system.

This study is organized as follows. The next section proposes a methodology for the CCFTA assessment based on recent literature on PTAs, which sets the stage for the quantitative evaluation on the economic impact of the CCFTA in the subsequent sections. This is followed by a brief summary of changes in the macroeconomic environments for both Canada and Chile during the period in which the implementation of the agreement took place. Then, we apply the proposed methodology to the data and present the results of the quantitative assessment. The last section summarizes the results.