3. Economic Conditions since the Implementation of the CCFTA

3.1 The Macroeconomic Environment

Canada is the tenth largest economy in the world measured in terms of gross domestic product (GDP) in US dollars, and is one of the wealthiest economies with a per capita GDP of C$49,907 (US$50,435) in 2011. From 1997 to 2011, the Canadian economy showed steady growth expanding at an annual rate of 3.5 percent Footnote 5

Canada is a trading nation receptive to foreign goods, services, and ideas. International trade accounted for 62.5 percent of GDP in 2011. Canada has relatively low barriers to cross-border flows of goods, services and capital. Natural-resource commodities, automobiles, and high-tech equipment represent the bulk of Canadian merchandise exports. Exports of resource-related products have been particularly strong in recent years benefiting from high demand from emerging markets and soaring commodity prices. The U.S. is Canada's major trading partner: 73.7 percent of Canadian merchandise exports were shipped to that country in 2011.

The Canadian dollar has appreciated steeply relative to the US dollar since 2003 and has remained near par with the US dollar since 2007 Footnote 6. This appreciation had a significant effect on the structure of Canada's economy and the performance of firms engaged in trade (Baldwin and Yan, 2010).

Table 1:  Key Economic Indicators for Canada, 1996 and 2011

19962011Annual Growth (%)
Population (Million)29.634.41.0
GDP (Current Price, Billion US$)613.81,736.97.2
GDP per Capita (Current Prices, US$)20,756.850,435.56.1
Inflation [CPI] (Annual % change)1.62.9N/A
Current Account Balance (Billion US$)3.4-48.8N/A
Current Account Balance (% of GDP)0.6-2.8N/A

Source: IMF World Economic Outlook Online Database April 2012

Figure 2: Canada and Chile Nominal GDP, 1990-2011, US$ Billion

See the following figure 2 text alternative for description.

Figure 2 Text Alternative
YearCanada GDPChile GDP
1990582.732.8
1991598.237.8
1992579.546.2
1993563.749.5
1994564.557.3
1995590.574.1
1996613.878.7
1997637.585.9
1998616.882.6
1999661.375.4
2000724.978.7
2001715.471.3
2002734.770.0
2003865.976.1
2004992.299.4
20051133.8123.1
20061278.6154.7
20071424.1172.9
20081502.7179.4
20091337.6172.7
20101577.0216.1
20111736.9248.4

Source: IMF World Economic Outlook Online Database April 2012

Chile is the sixth largest economy in Latin America with a GDP of US$248.4 billion in 2011, which was approximately 14 percent of Canada’s GDP for that year. Over the past decade, Chile experienced impressive economic growth as a result of pro-market economic policies and strong export growth benefiting from increased demand for natural resources and high commodity prices. Its real GDP grew by 3.9 percent annually from 1997 to 2011. Per capita GDP surged strongly from US$5,663 to US$14,403 over this 15-year period. In real growth, Chile outperformed other major Latin American economies including Brazil, Mexico and Argentina. Chile experienced an economic downturn in the late 1990s, brought on by the unfavourable global economic conditions spawned by the Asian financial crisis in 1997. The economy remained sluggish until 2003, and it shifted into high gear and started to grow at an annual rate of more than eight percent since then.

 Chile is widely recognized for its liberal and transparent trade and investment regime. Since 1999, it has unilaterally reduced its tariff by one percent annually. By January 1, 2003, the applied tariff was lowered to six percent. Chile's active promotion of free trade agreements during the last decade has boosted its trade performance significantly. Its merchandise trade with the world quadrupled from US$34.8 billion in 1996 to US$156.3 billion in 2011.  Consequently, the relative importance of trade in Chile's GDP increased from 44.2 percent in 1996 to 62.9 percent in 2011. Unlike Canada, Chile boasts a diverse range of trading partners across the western hemisphere, Europe, and Asia.

Chile’s currency depreciated steeply, along with other developing economy currencies in the post-Asian crisis period before stabilizing around 2002. Footnote 7

Table 2: Key Economic Indicators for Chile, 1996 and 2011

19962011Annual Growth (%)
Population (Million)14.417.41.3
GDP (Current Price, Billion US$)78.7248.48.0
GDP per Capita (Current Prices, US$)5,454.814,277.76.6
Inflation [CPI] (Annual % change)7.43.3N/A
Current Account Balance (Billion US$)-3.1-3.2N/A
Current Account Balance (% of GDP)-3.9-1.3N/A

Source: IMF World Economic Outlook Online Database April 2012

As a result of the divergent movements of their respective currencies in the 1997-2002 period, Canada experienced a steep appreciation against the Chilean peso in nominal terms. Subsequently, the two currencies have moved more or less in line with each other in nominal terms.

Figure 3: Canada/Chile Exchange Rate, 1990-2011

See the following figure 3 text alternative for description.

Figure 3 Text Alternative
YearExchange rate
19961.00
19971.00
19981.03
19991.13
20001.20
20011.36
20021.45
20031.63
20041.55
20051.53
20061.55
20071.61
20081.62
20091.62
20101.64
20111.62

3.2 Trade Policy Developments since the CCFTA

Since the signings of the NAFTA and CCFTA, Canada has been working to further improve its economic and commercial performance by securing competitive terms of access to foreign markets, and increasing foreign direct investment in Canada as well as Canadian direct investment around the world.  Since 1997, when both the FTAs with Chile and Israel came into force, Canada has implemented five new free trade agreements with:  Costa Rica, Peru, the European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland), Colombia, and Jordan. With a total of eight preferential trade agreements currently in force, Canada's trade with its preferential trading partners covers 87.6 percent of its total merchandise trade. In addition, Canada continues to pursue an ambitious agenda of free-trade negotiations, both within and outside the hemisphere. In all, 12 negotiations are active including those with the European Union, India, Japan, Korea, as well as the Trans-Pacific Partnership Agreement (TPP).

Since signing its FTA with Canada in 1997, Chile has significantly expanded free trade negotiations with other countries. Bilateral and regional free trade agreements with the following countries and regions have been signed since 1997: Mexico, Central America (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua)Footnote 8, the European Community (an Economic Partnership Agreement), the Republic of Korea, the European Free Trade Association (EFTA) (Iceland, Liechtenstein Norway and Switzerland), the U.S., China, India, Panama, Peru, Colombia, Australia, Japan and Turkey, as well as with New Zealand, Singapore and Brunei Darussalam (TPP) (Trans-Pacific Strategic Economic Partnership Agreement). Chile also has Economic Complementarity Agreements (ECAs) under the Latin American Integration Association (LAIA) with Bolivia, Ecuador Footnote 9, Venezuela and MERCOSUR (Argentina, Brazil, Paraguay and Uruguay), as well as a partial-scope agreement with Cuba.

With a total of 22 current agreements in force, Chile has one of the largest numbers of agreements and preferential partners in the world. As a result, the proportion of Chile's trade with its preferential partners covers more than 90 percent of its total merchandise trade.  Owing to the wide coverage of Chile's trade agreements with its trading partners; Canadian exporters essentially do not have extra preferences in the Chilean market. The CCFTA might have provided the Canadian exporters temporary advantages in the earlier days of the implementation of the agreement, but such advantages were quickly offset by subsequent trade agreements signed by Chile with other trading partners.

Table 3:  List of Bilateral/Regional Trade Agreements in Force in Canada and Chile

CanadaYear
North American Free Trade Agreement (NAFTA)1994
Canada-Chile (CCFTA)1997
Canada-Israel1997
Canada-Costa Rica2002
Canada-Peru2009
EFTA-Canada2009
Canada-Colombia2011
Jordan2012
ChileYear
Protocol on Trade Negotiation (PTN)1973
Latin American Integration Association (LAIA)1981
Global System of Trade Preferences among Developing Countries (GSTP)1989
Canada-Chile1997
Chile-Mexico1999
Chile-Costa Rica (Central America)2002
Chile-El Salvador (Central America)2002
EU-Chile2003
EFTA-Chile2004
Korea, Republic of-Chile2004
U.S.-Chile2004
Chile-China2006
Trans-Pacific Strategic Economic Partnership2006
Chile-India2007
Chile-Japan2007
Chile-Honduras (Central America)2008
Panama-Chile2008
Australia-Chile2009
Chile-Colombia2009
Peru-Chile2009
Chile-Guatemala (Central America)2010
Turkey-Chile2011

Source: World Trade Organization

Footnotes

Footnote 5

Statistics Canada, National Economic and Financial Accounts.

Return to footnote 5 referrer

Footnote 6

International Monetary Fund, Data and Statistics,

Return to footnote 6 referrer

Footnote 7

International Monetary Fund, Data and Statistics.

Return to footnote 7 referrer

Footnote 8

Bilateral protocols signed by Chile with Costa Rica, El Salvador and Honduras were in force in June 2009, within the framework of the Chile Central America FTA. The bilateral protocol with Guatemala had been signed but was not yet in force; and the bilateral protocol with Nicaragua had not yet been signed.

Return to footnote 8 referrer

Footnote 9

Chile and Ecuador signed a new ECA (2008), which had not yet entered into force in mid 2009.

Return to footnote 9 referrer