WORLD TRADE  
ORGANIZATION  WT/REG230/2 
7 July 2008 
 
 (08-3258) 
Committee on Regional Trade Agreements Original:   English 
  
FREE TRADE AGREEMENT BETWEEN CHILE AND CHINA 
 
Questions and Replies
 
   The following communication, dated 4 July 2008,  is being circulated at the request of the 
delegations of Chile and China. 
  This document reproduces the questions addressed to the Parties and the responses submitted. 
 
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 Questions from the delegation of Chinese Taipei
 
 1. Article 44 of the FTA and paragraph 33 of the Factual Presentation, uses the phrase “… 
as to constitute a substantial cause
 of serious injury”.  We would appreciate some further 
clarification, as follows: 
 (i) What is the reason for choosing to use su ch a phrase in this bilateral safeguard? 
 
 The word "substantial" adds a condition to  the application of a bilateral safeguard. 
  (ii) What is the definition of “substantial cause”, and the criteria used to justify such 
a phrase?  
 
 "Substantial cause" refers to the main or one of the main causes of serious injury; it makes 
more rigorous investigation to the appli cation of bilateral safeguard measures. 
 
 (iii) What is the difference between this phrase and the phrase used in Article 2 of 
the Agreement on Safeguards, “… as to cause
 … a serious injury.”, and what are 
the comparative benefits of using the former?  
 
 The difference is given by the more restric tive use of bilateral safeguard measures and the 
comparative benefits are given by a larger increase in trade between the Parties. 
 
 (iv) Furthermore, what is the rationale for inserting the additional  criterion, “… as 
a result of the reduction or elimination of a duty provided for in the Agreement, 
a product benefiting from prefer ential tariff treatment under this 
Agreement…,” which, in comparison to the Agreement on Safeguards, has the 
effect of limiting the application of a safeguard? In other words, are the investigating authorities of each contracting party required to demonstrate two causal links; one between the increased amount of importation and the concessions of a customs duty, and the ot her between the serious injury and the 
increased level of imports? 
 WT/REG230/2 
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   Bilateral safeguards are applicable to an in jury caused only by imports subject to the 
liberalization program of the FTA.  
2. Article 5 of this FTA states that “ (a) … in respect of like, directly competitive or 
substitutable goods of the Party, …,”.  
 (i) Please could you clarify the meaning of the term “substitutable goods”?  
 
 In economic terms, substitutable goods are those presenting a positive cross elasticity of 
demand.  That means that the goods are or might become competitive in a given territory.  Conversely, directly competitive goods are those that  are actually competing in the territory of the 
importing country. 
 In legal terms, in order to define when a product is “directly competitive or substitutable”, 
matters such as physical characteristics, common  end-uses, tariff classifications, competitive 
conditions in relevant markets, am ong other criteria need to be taken into consideration.  However, 
this needs to be analyzed on a case by case basis.  Th is might be examined in the framework of the 
bilateral FTA entered into force between Chile and China. 
 
 (ii) Are there any special examining crite ria for these “substitutable goods” if they 
are deemed different from “directly competitive goods”? 
 
 The criterion is given by the fact that the good is actually or potentially competing in the 
territory of the importing country. 
 
3. According to Annex 6 “Model of Certificatio n and Verification Networking System on 
Certificate of Origin (CVNSCO)” of this FTA, it appears that both parties have installed the 
CVNSCO.  
We are interested in learning more about th is networking system, therefore could both 
countries please provide us with details of th e system, as well as their experiences in its 
use? 
 The process using an electronic certification of origin system is not as different from the 
current process on paper.  The Electronic Certifica tion should be understood as an equivalent method 
of certification.  There will be no change in the current system and the entities involved will be the 
same.  The new procedure could coexist with the curr ent paper procedure and it is proposed mainly to 
accelerate and make the process more efficient.  The main advantage to implement an electronic 
certification of origin system is the dig ital signature and the high level of security. 
 
Technical Requirements
: 
 - XML Format files; 
- Data transmission by Internet; 
- Standard electronic signature PKI Public Key Infrastructure.  Digital Signature. X 509-X3; 
- VPN; 
- Encryption algorithms (SHA-1, RSA o PEM). 
 
 
     WT/REG230/2 
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  Questions from the delegation of the European Communities  
 4. Import duties and charges, and quantitative restrictions 
 In paragraph 1 of the Factual Presentation it is described that China is the world's third 
exporter and importer while Chile ranks as the world's 40 th top exporter and 47 th top importer 
in 2006 in terms of merchandise trade.  
  Despite these differences in trading potent ial, Chile's liberalization commitments are 
more ambitious in terms of frontloading the lion share's of its tariff phasing out commitments 
whereas China, as stated in paragraph 20 of the Factual Presentation, is eliminating the bulk of 
lines subject to higher MFN duties only 5 to 10 years after the entry into force of the Agreement.  
 
Could China explain the underlying reasons for pursuing a less ambitious 
implementation period than Chile?  
 According to the liberalization commitments of  the parties, 97.2% of Chinese tariff lines and 
98.1% of Chilean tariff lines will be reduced to ze ro within 10 years.  From 1 October 2006, the 
parties started the tariff reduction process.  Till 1 January 2007, 4753 tariff lines of China and 5891 of 
Chile have been reduced to zero.  In terms of bot h tariff and trade volume coverage, the liberalization 
schedules of the agreement are balanced.  Both partie s are satisfied with the results of negotiations, as 
well as the impacts of implementation of the agreement. 
 
 In addition, and as regards China's liberalization commitments, the Factual 
Presentation notes that 214 tariffs covering agric ultural products, chemicals, wood products, 
pulp and paper, and textiles are not liberalized under the Agreement.  In particular, 124 out of 
214 tariff lines correspond to pulp and paper.  
 
Could China elaborate on the reasons for not liberalizing those 124 lines?  
 
 Both China and Chile have their own excepti onal lists, and basically China worked out the 
exception list, including these 124 lines based on the de velopment of relevant domestic industries.  
 5. Export duties and charges, and quantitative restrictions 
 Paragraph 29 of the Factual Presentation indicates that there are no provisions on 
export duties and charges in the Agreement.   
Could the Parties explain the reasons for not having included related provisions?  
 
 China so far has no such provisions in its FTAs with other countries/regions.  Chile does not have any provision on export duties because such duties are not part of the Chilean Trade Policy. 
 
6. Standards 
 Article 67 and Article 58 provide for the establishment of a Committee on Technical 
Barriers to Trade (TBT) and Sanitary and phyt osanitary measures (SPS) matters, respectively. 
 
Could the Parties elaborate on the outcome of most recent Committee on TBT and SPS 
and the measures taken as a result?   WT/REG230/2 
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   In relation to the SPS Committee, the Parties had met in two opportunities, one in 
January 2007 in Beijing, China, and the other in Ja nuary 2008, in Viña del Mar, Chile.  In the first 
meeting, the Parties agreed the terms of reference of the Committee and worked in particular issues.  
During the second meeting, the Parties continued working and exchanging information on SPS related 
issues. 
 
 The TBT Committee had met twice -same da tes and venues with SPS- and worked on 
cooperation and transparency in some specific se ctors.  A technical delegation from Chile was 
received by their counterparts in China (May 2008) as a consequence of the last meeting. 
 
7. Other regulations 
 Chapter IX provides for a range of measures to promote transparency.  
  Could the Parties outline the measures take n to this end and the results obtained to 
date? 
 
 Contacts Points were designated and they have established fluent communication between 
them.  The remaining provisions have not been applied.  
8. Intellectual Property 
 As indicated in paragraph 40 of the Factua l Presentation, Article 111 of the Agreement 
states that the Parties aim to cooperate on matt ers related to Intellectual Property Protection in 
the form of various initiatives.  
Could the Parties describe the measures a nd activities pursued in this context? 
 
 Among others, the Parties have agreed to  cooperate by means of educational and 
dissemination projects on the use of intellectual prope rty as a research and innovation tool; of training 
and specialization courses for public servants on inte llectual property rights and other mechanisms; of 
exchange of information on: (i) implementation of  intellectual property systems, (ii) appropriate 
initiatives to promote awareness of intellectual propert y rights and systems, and (iii) developments on 
intellectual property policy.  
 
In addition, what other initiatives are planned in the near future? 
 
 The Parties do not foresee other initiatives b esides those included in the Agreement. 
 9. Labour and Environment cooperation 
Could the Parties indicate what kind of activities have been implemented in the fields of 
labour cooperation and environmental protectio n under the Framework of the MoU on Labour 
and Social Security and the MoU on Environmental cooperation, respectively? 
 
MoU on Environmental Cooperation
: 
 
 - The Memorandum was signed on 20 Sept ember 2007 and entered into force one 
month later. 
  
 
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   - The same day of the signing of the document, 20 September 2007, the Parties held a 
Technical Meeting co-chaired by the Minister of the National Commission for the Environment (CONAMA) of Chile, Ms. Ana Lya Uriarte, and the Vice Minister of the State Environmental Protection Administration (SEPA) of the PR China, Mr. Zhang Lijun.  Officials and experts from the Ministry of Foreign Affairs -
including the General Economic Directorate for International Economic Relations-, 
from CONAMA, and from other Ministries and Services participated in that session. The meeting was an opportunity for officials to get acquainted with their respective environment regimes and to learn about  each Party’s national environmental 
priorities. 
 
 - In October 2007, Chile and China started to exchange information on environmental 
management of copper mining and refining companies.  Topics such as waste gas and waste water emission standards being developed by CONAMA, procedures and techniques adopted by those companies to co mply with them, treatment of solid waste 
and procedures to recovering vegetation of the mining sites, have been discussed. 
  - Chile is in the process of designating a Coordinator -Article 5 of the MoU-, to 
facilitate its implementation. 
 
 Regarding Labour Cooperation, since th e Memorandum of Understanding on Labour 
Cooperation was signed on November 2
nd, 2005, there has been one activity undertaken under its 
Framework:   Visit of Vice Minister of Labour and Social Se curity of China between 31 July and 3 August  
2006.  This activity was focused on the Chilean Social Security system.  
 Evaluation made by both Parties noted that the MoU text has produced positive impact on 
bilateral relations.  
10. Institutional provisions of the Agreement 
 Negotiations on trade in services and investment were launched in January 2007.  The 
Services Agreement was recently signed.  
 
Could the Parties indicate when this  Agreement has entered into force?  
 
When do Parties plan to noti fy this Agreement to WTO?  
 
 The Supplementary Agreement on Services is still subject to the legislative process before its 
entry into force.  It will be notified promptly. 
 
 Could the Parties briefly describe the coverage and implementation period of this Agreement? 
  The Agreement applies, in a positive list approach, to the four modes of supply, at all level of 
government (central, regional and local).  The Parties also include in the scope of the Agreement commitments on air transport services.  
 This Supplementary Agreement shall enter in to force 60 days after the date on which the 
Parties receive written notification that such procedures have been completed.   WT/REG230/2 
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   Moreover, according to Article 9, three years af ter the entry into force, the Parties may review 
the Agreement. 
 
Questions from the delegation of Japan
 
 
11. Safeguard mechanisms 
 With reference to III.C.2 of the Factual P resentation (WT/REG230/1), has either Party 
applied any safeguard measures to the other Part y after the entry into force of the Agreement? 
Regarding global safeguards, were there any measures applied between Parties before the entry 
into force of the Agreement?  
 No bilateral safeguards have been applied betw een the Parties.  Both Parties have applied 
global safeguard measures which have  been notified to the Safeguard s Committee and are available in 
the WTO. 
 
12. Dispute Settlement 
 With reference to IV. D.4 of the Factual Presentation i.e. Chapter 10 of the Agreement, 
have any measures or steps from the Chapter, such as consultations, been implemented?  
 
 Since the entry into force of the FTA Chile-China on 1 October 2006, no disputes have emerged.  Therefore no measures or st eps from the Chapter have been used. 
 13. Trade in Services 
 Are there any ongoing discussions regarding the FTA on Trade in Services between 
Parties?  
 
 The Supplementary Agreement on Services is still subject to the legislative process before its 
entry into force.  It will be notified promptly.  Question from the delegation of Turkey
 
 14. Could the Parties explain the reasons why th ere are no provisions on export duties and 
charges, and quantitative restrictions in the Free Trade Agreement between Chile and China 
(Goods)?  
 
 China So far has no such provisions in its FTAs with other countries/regions.  Chile does not 
have any provision on export duties because such duties are not part of the Chilean Trade Policy. 
 
Questions from the delegation of the United States  
 
15. Could the Parties please provide the average tariff rate by HS section of the lines that 
remain dutiable?  For example, in China’s schedule, what is the average duty for the 124 pulp and paper products that are not subject to tariff elimination? 
 When the Agreement was signed, in China’s sch edule, the average tariff rate for the lines 
remain dutiable is 16.7%, and 6. 8% for 124 pulp and pape r products.  In 2008, these two rates are 
15.7% and 6.7%. 
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  In the case of Chile, the average Tariff Ra tes by HS Section are the following:  
The Average Tariff Rate by HS Section 
HS Section Tariff HS Section Tariff 
II 0.26 XI 4.0 
IV 1.68 XIII 3.78 
V 0.15 XV 0.97 
VII 1.74 XVI 0.24 
 
 Section 111 of the FTA, on intellectual property rights, notes: 
 “1. The aim of cooperation on intellectual property rights will be: … 
  (e) to encourage the rejection of practices or conditions pertaining to intellectual 
property rights which constitute abuse of rights, restrain competition or may 
impede transfer and disseminat ion of new developments;”  
 
 Could the Parties please clarify what this means in practice?  
 
 This means that Parties will, among others, take into account the principles in TRIPs. Article 8 stating that “appropriate measures, provided that they are consistent with the provisions of 
this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or 
the resort to practices which unreasonably restrain trad e or adversely affect the international transfer 
of technology”, and also TRIPS Article 40 on c ontrol of anti-competitive practices in contractual 
licenses.  Therefore areas of cooperation could cons ider, among others, exchange of information on 
practices related to implement the above mentioned principles.  
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