7. Concluding Remarks

The analyses presented above confirm that the CCFTA is working as intended, encouraging greater trade between the two countries. Since the CCFTA came into force in 1997, total bilateral merchandise trade between Canada and Chile more than tripled to reach $2.7 billion in 2011 from only $718 million in 1997; of this amount, Canadian exports to Chile doubled to reach $819 million and imports from Chile grew six fold to reach $1.9 billion in 2011. Overall, on average, bilateral trade flows between the two countries grew 12.2 percent faster than would have been the case in the absence of the CCFTA. Canada's overall economic welfare gains from the CCFTA were around $250 million (or a quarter of a billion) annually.

It is noteworthy that the majority of trade gains achieved under the CCFTA came directly from new trade-products that were not traded prior to the CCFTA. There were 1,178 new Canadian products that were not exported before the CCFTA added to the product portfolio of Canadian exports to Chile in 2011. These new products contributed to 90 percent of the net increase in the value of Canadian exports to Chile. Similarly, there was a net increase of 922 new products imported from Chile that accounted for 76 percent of the net increase in the value of imports from Chile in 2011. The increase in new trade under the CCFTA means that consumers in both countries highly appreciated the new products and new varieties introduced under the CCFTA; at the same time, the CCFTA accommodated the new consumer demand by reducing entry thresholds.

It is also noteworthy that the numerous FTAs signed by Chile with third countries following the CCFTA reduced Canada's preference advantages in the Chilean market, particularly for the existing products, but they had only little inhibition on the introduction of new Canadian products to Chile. However, the size of gains from new Canadian exports to Chile was constrained by the relatively small size of the Chilean market and increased competitive pressures from third countries.

Furthermore, the CCFTA generated benefits beyond those associated with tariff elimination, as a substantial portion of new exports and new trade came from duty-free categories of products, not from the liberalized products. Measures to liberalize investment and services, which are common in today's new generation of free trade agreements, along with the improved certainty under the CCFTA, appear to have had a significant effect on two-way trade in goods over and beyond the effect induced by lower tariffs.

The agreement continues to evolve. The amendment of the CCFTA to include chapter on financial services and update chapters on government procurement, dispute settlement and customs procedures in 2012 will open new markets for exporters in both countries. In particular, an additional chapter on financial services that allows access to markets for cross-border provision of financial services and for investment in financial institutions would be a critical step to further enhance Canada's trade and direct investment in Chile. Similarly, ongoing work to update the rules of origin in the Agreement and the agreement to explore the possibility of further broadening the CCFTA will offer new opportunities for years to come.