RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG125/M/1
18 June 2003
(03-3248)
Committee on Regional Trade Agreements
EXAMINATION OF THE FREE TRADE AGREEMENT
BETWEEN CHILE AND MEXICO
Note on the Meeting of 3 April 2003
Chairman: Dr. V. Notis (Greece)
1. The meeting was convened in document WTO/AIR/2056/Rev.1.
2. Under Agenda Item C.III, the Committee on Regional Trade Agreements (CRTA or
Committee) took up the examination of the goods and services aspects of the Free Trade Agreementbetween Chile and Mexico.  The following topics were discussed:
A. General Remarks
Goods Aspects
B. Section I – Background Information on the Agreement
C. Section II – Trade ProvisionsD. Section IV – Other
Services Aspects
E. Section I – Background Information on the Agreement
F. Section II – Provisions Affecting Trade in Services
3. The Chairman noted that the Committee would be carrying out the first round of examination
of the goods and services aspects of the Free Trade Agreement between Chile and Mexico.  He
proposed that general comments be provided on both the goods and services aspects of the
Agreement, after what the specifics of the goods and services aspects of the Agreement would be
examined on the basis of the relevant Sta ndard Formats, documents WT/REG125/3 and
WT/REG125/4, respectively.
A. GENERAL REMARKS
4. The representative of Chile, speaking also on behalf of Mexico, welcomed the opportunity to
present aspects related to trade in both goods and services of the Free Trade Agreement (FTA)
between the two countries.  Negotiations for a FT A had been launched at the end of 1997 and the
Agreement itself had been signed in April 1998, ratified in August 1999 and notified to the Councilfor Trade in Goods and the Council for Trade in Services on 7 February and 14 March 2001,
respectively.  It was important to note that in 1991 the governments of Chile and Mexico had signed
an Economic Complementarity Agreement (ECA) with  a view to establishing a free-trade area for
goods.  The FTA incorporated the tariff commitments undertaken in this Agreement.  The FTA
between Chile and Mexico was proof of how the political will of governments effectively mademarket opening possible: bilateral trade in goods had increased more than sevenfold between 1992
and 2002, and investment and services flows, in particular tourism, had also intensified.  The signing
of the ECA in 1992 and of the FTA in 1998 had meant that over 99 per cent of bilateral trade was nowWT/REG125/M/1
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free of duty.  The FTA had been negotiated after Chile signed an FTA with Canada and in the
knowledge that Chile would not accede to the North American Free Trade Agreement (NAFTA).  In
this context, a decision had been taken to modernize and extend the existing ECA, using the texts of
the NAFTA and Chile-Canada FTA as a basis for negotiation.  The existing Agreement had been
modernized by adding disciplines to the goods section and improving the dispute settlementprovisions;  it was also extended to incorporate areas such as services, investment and intellectual
property.  As a result, the FTA between Chile and Mexico was a modern one, similar to others signed
by the two countries with third parties, which had already been reviewed by this Committee.  The
FTA had benefited both countries by, inter alia , eliminating barriers to trade, facilitating cross-border
movement of goods and services, increasing investment opportunities in both countries, creating
effective procedures for the implementation and administration of the Agreement and establishing a
framework for bilateral, regional and multilateral cooperation.
5. The representative of Chile continued highlighting certain aspects of the Agreement
considered particularly relevant and which proved  its consistency with Article XXIV of the GATT
and Article V of the GATS.  As far as goods were concerned, the FTA incorporated the ECA's tariff
commitments; it excluded around 60 tariff lines (at the eight-digit level) from trade liberalization,
which represent less than two per cent of bilateral trade between Chile and Mexico.  Services andinvestment had been negotiated in the form of negative lists, with no a priori  exclusion of any sector.
The Chile-Mexico Bilateral Air Transport Agreem ent was incorporated, subject to a "ratcheting"
obligation and the FTA dispute settlement mechanism – a proof of "WTO-plus".  In the sector of
financial services, commitments for future market access negotiations had been undertaken;
preliminary exchanges had already taken place to assess progress in these negotiations.  The negativelist approach afforded a high degree of transparency, as services and investment restrictions from
Chile and Mexico were set forth in the Annexes of Reservations.  The liberalization of services had
been established on the basis of the principles of national treatment, most-favoured nation (MFN)
treatment and the right to provide services without establishing local presence.  A broad definition of
investment was provided and, in addition to national and MFN treatment obligations, a prohibitionhad been introduced on both performance requirements and nationality requirements for senior
management.  Furthermore, rules had been established in relation to transfers, expropriation and the
possibility of dispute settlement not merely at St ate-State level, but also at State-investor level.
6. The representative of Chile also noted that, as regards the trade in goods aspects, Chile and
Mexico undertook to only adopt or maintain those import and export restrictions which were
consistent with Article XI of the GATT 1994, subject to some exceptions set forth in the FTA.  As far
as rules were concerned, both countries confirmed the rights and obligations under the WTOAgreements.  With regard to technical barriers to  trade, the FTA represented an advance over the
WTO Agreement, since cross-border services was included in its scope.  With respect to sanitary and
phytosanitary measures, the Parties undertook to establish harmonization systems for sampling,
diagnosis, inspection and certification, and to recognize pest- or disease-free areas when objective
evidence of such status was provided.  The Agreement provided for the possibility of applyingbilateral safeguard measures during the transition period and the obligation to provide compensation.
Reciprocal imports were exempted from multilateral safeguards, provided that the imports of the other
party did not account for a substantial share of total imports and did not contribute significantly to the
serious injury or threat thereof.  With regard to  subsidies, Parties were governed by WTO rules and
undertook to eliminate all export subsidies on agricultural products as from January 2003.  Besidesfinancial services, commitments had also been made  to conduct future negotiations aiming at the
reciprocal elimination of the application of anti-dumping measures;  and provisions to liberalize and
ensure reciprocal access to government procurement.
7. The representative of Chile added that both the government and the private sector had
provided a very positive review of the operation of the FTA. Bilateral trade had expanded by around
660 per cent between 1991 and 2002:  Chilean exports to Mexico had increased more than sevenfoldWT/REG125/M/1
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and Mexican exports to Chile had risen over 240 per cent. More than 99 per cent of bilateral trade was
free of duty.  Chile had invested over US$156 million in Mexico, being the second largest Latin
American investor in this country, and   Mexican investments in Chile totaled US$142 million to date.
The Free Trade Commission of the Agreement had managed, by means of a fluid dialogue between
the governments, to find positive solutions to problems and further progress with bilateral relations.The Governments of Chile and Mexico were fully committed to the multilateral trading system and to
agreements such as this, which, built on the basis of WTO disciplines, promoted economic growth,
economic efficiency of the parties and, multilateral trade liberalization.  Finally, she wished to draw
attention to a systemic point. In spite of the fact that this Agreement was between two developing
countries, the Parties had decided to notify it under Article XXIV, unlike the ECA which had been
notified under the Enabling Clause;  it was the Parties' belief that this FTA had a number of aspects
which warranted analysis under that Article and were confident that it complied with the rulesestablished therein.  The Parties remained at the disposal of the Committee to resolve any doubts
which might arise with a view to concluding th is review and adopting the related report.  The
representative of Mexico endorsed the statement made by Chile.
8. The representative of the United States thanked the Parties for having notified the Agreement
in that form, even if not in a timely manner, and requested the Parties to circulate the statement made.
She noted that it would seem that the trade liberalization under the Agreement had outstanding effects
on trade and growth.
Goods aspects
9. The Chairman stated that the FTA between Chile and Mexico had been signed on 18 April
1998 and has entered into force on 1st August 1999.  The Agreement had been notified in March 2001
(document WT/REG125/N/1), and its text could be  found in document WT/REG125/1.  He recalled
the terms of reference for this examination, which had been adopted on 14 March 2001 by the Council
for Trade in Goods, as contained in document WT/REG125/2.
B. SECTION I – BACKGROUND INFORMATION ON THE AGREEMENT
10. The representative of Australia complimented the Parties for the Agreement that appeared to
be comprehensive in its treatment of both goods and services and to provide for the liberalisation of
trade in goods in all sectors.
11. The representative of the United States sought clarification of which products listed on
Annexes 3-04(3) and 3-04(4) were exempted from liberalization, and whether these amounted to the
sixty tariff lines that the representative of Chile had alluded to during her statement.  She alsorequested the Parties to indicate the percentage of tariff lines covered by these exemptions.  The
representative of Chile replied that Annex 3-04 covered around 60 items, some at the eight-digit level;
in many instances, the same products were included in the lists of exemptions of Chile and Mexico.They were basically shellfish, lobster, flour, grapes, wheat, oil, sugar, tobacco, petroleum and
petroleum products and, for Mexico, some textiles.  Many of these products were not completely
excluded and benefitted from tariff preferences.  The representative of the United States asked
whether the tariffs for those products would eventually be eliminated or whether they would benefit
from preferences on a perpetual basis;  she noted that her delegation had objections to that latter case.
The representative of Chile replied that the Parties to the Agreement had undertaken a commitment to
review these exemptions at meetings of the Commission to discuss whether these products could besubject to further liberalization.  Up to now, no liberalization had taken place above and beyond what
existed, but a commitment existed to gradually do so.WT/REG125/M/1
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C. SECTION II – TRADE PROVISIONS
12. Given that the Agreement called for the elimination of export subsidies on agricultural
products by 1 January 2003, the representative of the United States asked whether that had occurred.
The representative of Chile replied that this was the case for her country.  The representative of
Mexico replied that, subject to confirmation, this was also the case for her country.
D. SECTION IV – OTHER
13. Noting that Chapter 14 of the Agreement provided  that the Parties might establish or maintain
State-owned enterprises, the representative of the United States wondered whether the Agreement
made reference to WTO rules os State-trade enterprises in this regard.  She also requested whetherany progress had been made in a negotiating government procurement provisions.  The representative
of Chile replied that issues referring to State enterprises were dealt with only in Article 14-04, along
three main lines: a recognition of the Parties' right to establish or maintain these enterprises;  a
reference to the obligations assumed under Chapter 9 on Investment;  and the assurance that any such
enterprise would not grant discriminatory treatment to investors or investment from the other Party
and to the sale of its goods or services.  All of that was fully compatible with the WTO but she would
request further information from her capital if necessary.  As to government procurement, exchanges
had taken place on how to proceed with the negotiations but no outcome had been reached yet.
14. The Chairman stated that the first round of examination of the goods aspects of the Free Trade
Agreement between Chile and Mexico had allowed the Committee to clarify a number of questions,
but some others were pending.  He invited those delegations wishing to ask questions to forward them
in writing to the Secretariat by the end of July and Parties to submit replies  in writing by the end of
October.
Services aspects
15. The Chairman noted that the Agreement had been notified in March 2001 in document
S/C/N/142;  he recalled that the decision to refer this Agreement for examination to the CRTA had
been taken on 23 March 2001 by the Council for Trade in Services, as contained in documentS/C/M/52.  Pursuant to paragraph 7(a) of Article V of the GATS, the CRTA should examine the
services aspects of the Free Trade Agreement between Chile and Mexico and report to the Council for
Trade in Services on its consistency.
E. 
SECTION I – BACKGROUND INFORMATION ON THE AGREEMENT
16. The representative of Australia noted that this Agreement had adopted a comprehensive
approach to liberalization of trade in services through a negative list approach and that the
liberalization of trade in financial services was the subject of ongoing negotiations.  She asked theParties to provide information on the progress of such negotiations and whether any timeframe had
been set for their completion.  The representative of Chile replied that while the Agreement still
excluded market access for financial services, it had obligations with regards to disciplines  relating toexpropriation, transfers, and other such matters.  Two meetings had already taken place on market
access for financial services, but no framework had yet been established on how to proceed on that.
17. The representative of the United States noted that she had questions relating to the scope and
coverage of the Agreement, in particular because it appeared that the Annexes had not been supplied
electronically to the WTO.  She recalled that her delegation had requested, in the context of the
Negotiating Group on Rules, that all parts of an agreement be supplied electronically.  The questions
dealt with issues such as the identification of all sectors included, all sectors excluded and why; andthe identification of all provisions that provided for the absence or elimination of discrimination in theWT/REG125/M/1
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sense of Article XVII. They would be submitted to the Parties in writing.  The representative of Chile
noted that the Parties would reply in writing to th e questions;  she also stated that the Agreement,
including the Annexes, had been sent electronically to the Secretariat and were available on the
Internet.  A representative of the Secretariat clarified that document WT/REG125/1, which included
the text of the Agreement, contained a footnote indicating that the Annexes could be consulted at the
Secretariat and also on the web site of the Department of Economic Affairs of Mexico.  She noted that
the establishment of a single web site where all these addresses could be provided would simplify
these matters for everybody, in the future.
18. The representative of the United States requested the Parties to provide information on  the
volume of trade affected by this Agreement. The representative of Chile replied that the Parties had
provided information on Mode 3, namely direct investment, though the information related to global
investment and also included investment in the manufacturing sector.  While the Parties had tried toprovide some data on cross-border, that had proved difficult as Chile maintained information only at
the global level and not on a country-by-country basis.  Her country was in the process of improving
its statistical basis and once that was done additional information would be provided.
F. 
SECTION II – PROVISIONS AFFECTING TRADE IN SERVICES
19. The representative of the United States requested the Parties to identify all sectors and sub-
sectors within the Agreement, in respect of any Member outside the Agreement, which raised the
level of barriers to trade in services compared to the level applicable prior to such Agreement.  She
also requested the Parties to explain how the overall level of barriers in respect to all sectors and sub-
sectors had not been raised. The representative of Chile replied that neither Mexico nor Chile had
raised any existing barriers with respect to third markets.
20. The representative of the United States requested clarification of Article 9-03.4(a), on the
definition by the Parties of "nominal qualifying shares", as well as Articles 9-14 and 10-13, on the
criteria that Parties would determine if an establishment had no substantial business activities or was
owned or controlled by persons of a non-party.  The representative of Chile requested that the
questions be submitted in writing.
21. The Chairman stated that the first round of examination of the services aspects of the Free
Trade Agreement between Chile and Mexico had allowed the Committee to clarify a number of
questions, but others were pending.  He invited those delegations wishing to ask questions to forward
them in writing to the Secretariat by the end of July and Parties to submit replies  in writing by the end
of October.
22. The Committee took note of the comments made.
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