India-Chile PTA: An opportunity to raise the stakes

• The high income economy in the South American region is known for its copper and lithium reserves, deep trade liberalisation policies and fundamentally strong political and financial systems.
• Chilean economy with a population of 18.73 million (2018) is dominated by the service sector followed by manufacturing sector, which makes it an important market for India’s goods and services alike.
• The average MFN tariff in Chile is 5.98% (2017) while for India it is 13.8% (2017).
• In another expansion of India-Chile PTA, Chile has the motivation to ask for more and higher concessions compared to the existing version. India can look to expand the ambit to cover services trade.

Chile is one of the fastest growing and high income economies in the South American region. The economy is characterised by a high level of foreign trade which forms 28% of its GDP and is dominated by Copper exports (CIA World Factbook). Apart from copper, Chile is rich in gold and lithium, both of which are of interest for India.

Total trade between India and Chile crossed the US$ 1 billion mark in 2016. As per data from ITC Trade Map, the average annual growth rate of India’s exports to Chile between 2014 and 2018 has been 10% p.a. while imports witnessed a degrowth of 14% p.a. Trade flow from Chile to India has been dominated by a few products like copper ores, Molybdenum ores, fresh fruits like apples, pears, etc.. In terms of India’s exports to Chile, it is diversified and covers sectors like automobiles, iron and steel, pharma, chemicals, leather, apparel and textiles etc.

The first India-Chile trade agreement that came into force was in 2007. The PTA was a limited agreement to offer tariff concessions on a limited number of products. While India has offered to provide fixed tariff preferences ranging from 10-50% on 178 tariff lines at the 8-digit level to Chile, the latter have offered tariff preferences on 296 tariff lines at the 8-digit level with margin of preference ranging from 10-100%.

The products on which India had offered tariff concessions relate to meat and fish products, rock salt, iodine, copper ore, chemical, leather products, newsprint and paper, wood and plywood articles, some industrial products etc. Chile’s offer covered some agriculture products, chemicals and pharmaceuticals, dyes and resins, plastic, rubber, leather products, textiles and clothing, footwear etc (DoC, GOI). Between 2007 and 2018, India’s exports to Chile have increased by 300% while imports from Chile have decreased by 10%. Leaving aside the side effects of the global recession of 2008 and slowdown in 2013, bilateral trade has been following the upward trend. Following the implementation of PTA in 2007, India’s exports to Chile increased by 29% between 2006 and 2007 and by 81% between 2007 and 2008.  On the other hand, imports from Chile increased by 22% between 2006 and 2007 and decreased marginally by 7% between 2007 and 2008 (ITC Trade Map).

This PTA was expanded in 2017 when India offered concessions on 1,031 products and Chile expanded its list of products to 1,798 tariff lines (which is now 1,034 tariff lines in Indian schedule and 2,099 in Chilean schedule as per HS 2017). The major product groups covered in India’s offer are meat & meat products, fish & fishery products, vegetable oils, iron ore & coppers ores & concentrates, organic & inorganic chemicals, pharmaceuticals, washing preparations, plastic & rubber articles, articles of iron & steel and articles of wood & paper. The major product sectors covered in the Chile’s offer are agricultural products, organic & inorganic chemicals, pharmaceuticals, plastic & rubber articles, textiles, apparel, articles of iron/steel & copper, machinery & equipment (DoC, GOI).

Following the implementation of the expanded PTA, India’s exports increased by 14% between 2016 and 2017, while imports increased by almost 40% during the same period. In 2018, India’s exports grew by 24% while imports fell by 0.3%.

At the HS code level of 6 digit, top products from the PTA where the value of trade is significant are as follows:

(* indicates that there are multiple tariff lines at the corresponding HS code in the PTA schedules and hence we have taken the range of the MOP – margin of preference offered on the HS CODE).

# (Subject to a quota of maximum 5,000 MTs per annum and above this at MFN rates.)

Source: ITC Trade Map

Recently, it has been decided to review the PTA and expand it further to widen its product coverage. This seems to be in interest of both countries because India’s concessions to Chile are narrower than Chile’s concessions. Chile gives tariff concessions to India on around 1,800 tariff lines while India’s list of products is nearly half of that, limited to 1,000 products only.

A few products in the table below have been identified that can be included in the expansion of Chile’s concession list to India and result in increase in India’s exports to Chile. These products, as per the trade data, are being exported by India to the world and LAC region and Chile also imports on these lines.

(Methodology: HS codes where India’s exports to world are greater than US$ 30 million, to LAC region greater than US$ 10 million and Chile’s imports from world are greater than US$ 3 million, Source: ITC Trade Map)

However, given that Chile’s tariffs are lower and it has given more concessions, the Chilean side would expect more concessions on Chilean exports. Alternatively and/or simultaneously, the expansion could seek to cover other important areas of bilateral trade i.e. services and non-tariff barriers that were not included in previous expansion.

The service sector being India’s strength in global market, enhanced service trade via the PTA should be an area of deliberation in the expansion of the PTA. In 2018, Chile had a services trade deficit of US$ 3.7 billion against India’s services trade surplus of US$ 28.5 billion (ITC Trade map).  

Lastly, as per the non-tariff measures data available on WITS, Chile has more products affected by NTMs than India in sectors like machinery, chemicals, plastic and rubber etc. On the other hand, India has more products affected by NTMs than Chile in sectors like textiles, food products, metals etc. It may turn out to be beneficial for both the countries if attention is given to such hurdles in trade.

It is also found that in around 1,800 HS Codes which are not a part of the existing PTA, India faces non-tariff barriers while on around 3,000 HS Codes not in PTA, the average tariff faced by India in Chile is 6%. Any opportunity for mutual gains should be seized, with sustained efforts to overcome the presence of distance barriers, language barriers and huge transportation costs between the two countries.