Chile pursues a strategy of import substitution industrialization. Trade is heavily regulated. Many quantitative restrictions apply, including outright import prohibitions. Import tariffs average 105 percent and are highly dispersed. Chile's major export is primarily copper.
Under Pinochet, Chile changes its development strategy and adopts an open-trade regime. Tariffs are slashed, then replaced by a uniform tariff of 11 percent. Quantitative restrictions, licenses, and prohibitions disappear. Exports of fruit, timber, and fish products grow to equal exports of copper in value.
After a brief rise to 15 percent in 1982-83, the uniform tariff falls back to 11 percent. The liberalization of international trade lowers the cost of imported agricultural inputs and capital goods, allowing the sector to become more competitive. An exchange rate policy aimed at encouraging exports contributes to positive terms of trade.
President Aylwin maintains Pinochet's foreign trade policy. Chile enters bilateral free-trade agreements with Mexico and Canada, then focuses on trade accords with Colombia, Ecuador, and Venezuela. In 1997 Chile becomes an associate member of the Southern Cone Common Market (Mercosur). Chile also enters into negotiations with the European Union on a framework agreement.
The Congress approves a bill that lowers Chile's across-the-board import tariff (for countries with which it has no trade agreement) by a percentage point each year until 2003. Chile and the U.S. agree to remove 85 percent of mutual trade tariffs; less extensive deals are signed with the European Union and Argentina. Chile and Peru battle over rights to the name of the alcoholic beverage Pisco.
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