Keen as mustard

With strong global trade aspirations and a fresh deal with Australia, Chile’s Treasurer is in Australia drumming up business. But what’s in it for Australia?

Dr Andres Velasco, Chile’s Treasurer, is in Australia this week following our just-announced free-trade agreement. You have to hand it to the Chileans, they’re keen. In fact, Chile (along with Mexico) is the leading forger of trade deals in the global economy.

While the rest of South America ran ill-conceived economic nationalist policies, Chile (the ‘Jaguar’ economy of South America), opened its markets and became a free trade agitator in the global arena. Eventually the rest of the continent followed with the Mercosur trade agreement, of which Chile is an associate.

In fact, Chile’s FTA with New Zealand first signalled its global economic aspirations. According to Manfred Wilhelmy of the Chile Pacific Foundation: “Many Chileans are keen to position themselves as a Pacific nation as well as a Latin American one.” According to Pro-Chile’s Sydney-based trade commissioner, Marcelo Salas, Chile wants an FTA “so we can do more with Australia in terms of energy, mining technology, innovation and R&D, education and financial services – particularly given Chile and Australia’s unique superannuation models.”

But what’s in it for Australia? The first survey of Australian exporters did show a positive response, with 21% of exporters saying an FTA with Chile would be good for their business, with only 2% being negative. Although it is not at the same positive levels as say, China at 43%, ASEAN on 42% or the US on 40%, the approval rate is still in promising territory.

Nigel Warren, Australia’s senior trade commissioner in Santiago, says there are great opportunities for Australian businesses in Chile:

“The key areas are in mining technology and services, where Australian companies are uniquely positioned to provide equipment, technologies and specialised services. Environmental technologies are also booming, in areas such as coal-fired processing plants, LNG and renewable energies such as hydro, wind and geothermal. Chile is also investing in two LNG terminals and the opportunity exists to export LNG to Chile. Other strong areas include aquaculture, viticulture and animal genetics.”

But more importantly, Chile plays a ‘gateway’ role for Australian businesses in South America. According to Austrade research, 425 Australian businesses export to Chile and 50 use Santiago as their regional headquarters. Many miners, including BHP Billiton, Mincom, Surpac, Groundprobe, Ludowici and GRD Minproc, have been in Chile for up to 20 years. But Australia is also moving beyond mining in Chile. Australian companies can be as diverse as SKM, WorleyParsons, GHD and Sedgman in the consulting sector as well as Orica, Energy Sector Pacific Hydro, Hydro Chile, Cedar Creek and NuFarm. On the services side too there’s mass-franchiser Boost Juice and the University of Queensland.

This week’s visit by Dr Velasco paves the way for the visit to Australia of Michele Bachelet, Chile’s first woman president in September at APEC. The last time Dr Bachelet set in foot in Sydney was when she was in exile from the Pinochet regime, so she, like her nation of Chile has certainly come a long way.

*Tim Harcourt is chief economist at Austrade and author of Beyond Our Shores. www.austrade.gov.au/economistscorner

Thanks to Jose Blanco, Sarkis Khoury, Gregory Harvey and Marcelo Salas in Sydney and to Nigel Warren, Ian Frederick, Pablo Correa and Juan Pablo Castro in Santiago for comments and assistance with this article.

Some key facts:

• Australian goods exports to Chile: $A233 million (key sectors: coal, civil engineering & mining equipment,), 2006.
• Australian services exports to Chile: $70 million (key sectors: education, telecommunications, and services to mining).
• Australian-Chile, two-way trade:$$385 million, 2006 (goods).
• Key growth sectors: resources, services to resource sector, agribusiness, education, telecommunications, professional services.
• Number of Australian businesses exporting goods to Chile: 425 exporters.

Source: DFAT, ABS, Austrade.

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