Canada-Chile Free Trade Agreement

Background
The Canada-Chile Free Trade Agreement (CCFTA) is comprehensive in scope, with provisions covering trade in goods and services, investment and dispute settlement. In keeping with the negotiators' objective of providing a bridge to Chile's NAFTA accession, the CCFTA is broadly consistent with the NAFTA in terms of its structure, its coverage, its customs administration modalities, and in particular the rules of origin. There are, however, significant differences between the CCFTA and the NAFTA. Most importantly, the CCFTA does not contain an energy chapter, it does not deal with sanitary and phytosanitary measures affecting agricultural trade, it does not have a general set of provisions with respect to standards-related measures, and it does not contain chapters on government procurement, financial services or intellectual property.

One area in which CCFTA exceeds the accomplishment of the NAFTA parties to date is in trade remedies. Canada and Chile have agreed on the phased introduction over six years of a mutual exemption from the application of anti-dumping measures.

Trade in Goods
The CCFTA provides for the immediate elimination of tariffs for a broad range of products. Tariffs on some other industrial and resource-based goods are being phased out over a maximum of five years.

Textiles and Apparel
For textiles and apparel, the CCFTA establishes tariff phaseouts extending over a period of up to six years in the case of Canada and five years for Chile. A special safeguard mechanism is intended to deal with import surges during the phaseout period. Footwear tariffs are being eliminated over six years in both countries.

Rules of Origin
The rules of origin in the CCFTA are based principally on changes in tariff classification under the Harmonized System. For certain manufactured products, the rules of original have been made less restrictive than those under the NAFTA. This allows manufacturers to benefit from the preferential terms of access of the CCFTA without requiring major changes to their current sourcing of materials and parts.

Tariffs
Canada retains its over-quota tariffs for diary, poultry and egg products, and Chile retains its tariffs for the same commodities. All other Canadian tariffs on agricultural goods and to be eliminated by January 1, 2003. Some Chilean tariffs in the agricultural sector are, however, being phased out over a longer period.

The CCFTA prohibits the imposition or maintenance of customs user fees and Chile has agreed to eliminate its existing fees. Canada and Chile have, however, agreed to maintain their respective duty drawback programs which allow for the refund of customs duties levied on imported materials and components incorporated into exported goods.

The customs procedures of the CCFTA are designed to facilitate trade, while ensuring effective administration and enforcement of the rules of origin and other customs matters. The CCFTA also contains provisions regarding the temporary duty-free entry of equipment that is necessary for the work of professionals and of tools of the trade for business persons. As well, these rules cover goods imported for sports purposes, display and demonstration, commercial samples and goods that have undergone repair or alteration in the other Party.

Trade Remedies and Safeguards
As previously indicated, the CCFTA contains a mutual exemption from the application of anti-dumping laws. For each good, the exemption takes effect as of the final elimination of import duties in both Parties for that good at the tariff subheading level, or on January 1, 2003, whichever comes first.

The Agreement provides that either Party may request consultations 'regarding exceptional circumstances that may arise with respect to the operation of [the trade remedies] Chapter'. The consultation process is designed to facilitate the prompt restoration of normal trading conditions.

Emergency Action
A Chapter on Emergency Action (or 'safeguard' measures) permits the imposition of border restrictions to provide temporary relief from increases and surges in imports from the other Party that cause or threaten to cause serious injury to domestic producers.

Institutional Arrangements and Dispute Settlement Provisions
The institutional arrangements in the CCFTA are designed to assure joint decision-making and effective dispute resolution.

Trade in Services
The CCFTA represents an important advance in the liberalization of services trade. Its sectoral coverage is broad (encompassing most sectors apart from financial services), and it contains a prohibition of new or more discriminatory measures. In addition, any future liberalization of remaining discriminatory measures will be locked in, and transparency is greatly enhanced by the listing of discriminatory measures in the Annexes of Reservations and Exceptions.

The provisions of Chapter K: Temporary Entry for Business Persons allow for expedited entry for investors, business visitors, intra-company transferees and other business professionals of both Parties.

Investment
With respect to investment, the national treatment and most favoured nation (MFN) provisions of the CCFTA impose discipline on discriminatory treatment. The CCFTA also limits the grounds for expropriation and guarantees investors of both Parties fair and adequate compensation if an expropriation should occur. The CCFTA allows investors to take advantage of investor-state dispute settlement provisions which offer access to expeditious international arbitration procedures.

Competition Policy
The CCFTA commits the Parties to maintain measures proscribing anti-competitive business conduct, and to take appropriate enforcement action. As well, the Agreement requires the Parties to consult on the effectiveness of their competition laws and to cooperate in the enforcement of competition laws in the free trade area. These obligations are, however, not subject to dispute settlement (either investor-state arbitration or state-to-state proceedings).

The CCFTA affirms the right of a Party to 'designate' monopolies and state enterprises (i.e., establish new monopolies and state enterprises in the future). The designation of monopolies is subject to a requirement to provide prior written notification where possible and to establish the monopoly in a manner that minimizes or eliminates any nullification or impairment of benefits under the Agreement, within the meaning of Annex N-04.

Canada and Chile are to have an equal voice in resolving problems and will have access to objective dispute settlement panels providing authoritative interpretations of the Agreement. The ministerial-level Free Trade Commission ('the Commission') is charged with supervising the implementation and any further elaboration of the Agreement, and with resolving any disputes that may arise concerning its interpretation or application. The Secretariat, with an office in each country, supports the Commission, as well as acting as registrar for dispute settlement panels and as the depository for investor-state disputes.

The foregoing comments are of a general nature, and are not intended nor should they be used as a substitute for legal advice or opinions which can be rendered only when related to specific fact situations.

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