CHILE-PERU FTA: MORE THAN JUST TRADE

C O N F I D E N T I A L SANTIAGO 001827

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/24/2016
TAGS: ECON EFIN ETRD CI PE
SUBJECT: CHILE-PERU FTA: MORE THAN JUST TRADE



1. (C) SUMMARY: Chile and Peru signed August 22 a Free Trade
Agreement that expands their current Economic Complementation
Agreement (ACE 38). The FTA adds three new chapters to ACE 38 and
the promise of further chapters as well. For Chile, the FTA with
Peru is part of an effort to create a block of like-minded
export-oriented economies that will trade increasingly with Asia and
promote the concept of "open regionalism." We have urged Chile for
some time to use its Asia ties to encourage greater support for free
trade in Latin America. A/S Shannon's Asia trip allowed us to
reinforce the message. Foreign Minister Foxley in particular is
proving keen to construct a Pacific Rim strategy for Chile. End
Summary.


2. (U) Chilean FM Foxley and Peruvian FM Belaunde signed August 22 a
Chile-Peru Free Trade Agreement that expands an existing trade
accord, the Economic Complementation Agreement (ACE 38) that was
signed in 1998. The FTA adds three new chapters covering
investments, trade in services and dispute settlement. Both sides
also agreed to begin negotiations on financial services, duty free
zones, rules of origin, government procurements, new tariff reduction
schedules and mutual recognition of professional services and
degrees. Chile's lead trade negotiator, Ambassador Carlos Furche, is
currently in Lima holding additional talks on these issues.

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Comment
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3. (C) Chile's "open regionalism" is more the brainchild of FM Foxley
than of President Bachelet. While Foxley is pushing the envelope by
setting up mechanisms to encourage Peru to follow the Chilean model,
Bachelet seems compelled to reassure others, especially Mercosur,
that Chile is not setting up a competing block. We have been quietly
encouraging Chile for some time to use mechanisms like APEC and
Pacific Rim ties to bolster pragmatic, free trade policies in South
America. More recently, we have keyed off A/S Shannon's Asia trip to
reinforce the message.


4. (C) According to public statements by Foxley, this FTA (the first
between two South American countries) is the starting point for
creating a region geared towards the Asian market. The Chilean goal
in signing the FTA goes beyond just trade, as Chile hopes the new
deal will help the two neighbors collaborate as much as anything
else. It could prove to be a significant step in realizing President
Bachelet's vision of Chile's "open regionalism," with the country
deepening economic integration and political cooperation in its
neighborhood while continuing to open itself up to overseas markets.


5. (C) Chile's economic model generates respect as well as envy among
its neighbors, but it has long been hesitant to promote itself
explicitly. Garcia's election in Peru has presented Chile with a
potentially golden opportunity to replicate its own success in a
neighbor. Garcia publicly referring to Chile as a "model" has also
made reaching out easier for Chile. Chile's traditional hesitancy to
lead regionally may be subtly changing, as the Chile-Peru FTA is as
much a political move as it is economic. The speed with which Chile
moved to sign an agreement and its intent to negotiate further
chapters are clear signs this is not a one-time gesture towards
Garcia's Peru. Chile may have just taken the first concrete step in
helping develop a swath of countries along the western spine of the
South America that shares its economic vision.
KELLY