VZCZCXYZ0004
OO RUEHWEB

DE RUEHSG #0001/01 0021102
ZNR UUUUU ZZH
O 021102Z JAN 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4219
INFO RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS SANTIAGO 000001 
 
STATE PLEASE PASS TO USTR KATE DUCKWORTH 
STATE FOR WHA/EPSC, EEB/TPP/BTA/EWH, EEB/TPP/MTA/IPC 
TREASURY FOR SSENICH 
COMMERCE FOR KMANN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD KIPR EFTA CI
 
SUBJECT:  Fifth Annual Meeting of U.S. - Chile Free Trade 
Commission 
 
¶1. (SBU) SUMMARY:  The fifth annual U.S.-Chile Free Trade Commission 
(FTC) met December 12 in Santiago, Chile.  The FTC discussed:  1) 
the effects of the U.S.-Chile Free Trade Agreement (FTA) on trade 
and investment between the two countries, 2) the FTA institutional 
framework, 3) FTA implementation issues, 4) acceleration of tariff 
elimination, 5) bilateral trade issues, and 6) information on other 
bilateral and multilateral trade negotiations.  The FTC agreed to 
hold a sixth session in December 2009.  DIRECON Director for 
Bilateral Economic Affairs Andres Rebolledo told the Ambassador 
Chile was enthusiastic to take up work on the fourth pillar in 
Pathways.  END SUMMARY. 
 
¶2. (U) Chile's Direccion General de Relaciones Economicas 
Internacionales (DIRECON) hosted the fifth annual FTC at the Chilean 
Ministry of Foreign Affairs (MFA) in Santiago, on December 12. 
DIRECON is formally part of the MFA, but is the equivalent of USTR. 
DIRECON Director for Bilateral Economic Affairs Andres Rebolledo led 
the Chilean delegation.  Other key DIRECON participants included: 
new Director for Multilateral Affairs Rodrigo Contreras, new 
Director for Market Access Paulina Nazal, new Director for North 
America Sandra Ramos, Director for IPR Carolina Belmar, Director for 
Trade and Sustainable Development Edda Rossi, Special Advisor on 
Labor Issues Pablo Lazo, Advisor on Technical Barriers to Trade 
Carolina Ramirez, and Advisor for North America Ana Maria Saldias. 
Other Chilean representatives included:  Economic Counselor at the 
Chilean Embassy in Washington D.C. Rolando Ortega and Director for 
North America at ProChile Claudia Ibanez. 
 
¶3. (U) The U.S. delegation was led by Assistant U.S. Trade 
Representative for the Americas Everett Eissenstat and included the 
Ambassador, USDA Representative Melinda Sallyards, USTR Brazil and 
Southern Cone Director Kate Duckworth, USDOC Chile Desk Officer 
Kristen Mann, Agricultural Attache, Agricultural Specialist, 
Econoff, and Econ Specialist. 
 
FTA Effects on Trade and Investment 
----------------------------------- 
 
¶4. (SBU) Andres Rebolledo opened the FTC with a report on trade 
between Chile and the U.S.  He said the U.S. remained Chile's 
largest trade partner in 2008, although China was the primary export 
destination and the EU was the primary import source.  Trade between 
the U.S. and Chile officially doubled between the entry into force 
of the FTA and 2007. 
 
¶5. (SBU) There were differences in the trade and investment data 
reported by each side, likely due to different methodologies. 
Because the meeting took place in Chile, it was agreed that Chile's 
figures would be used in the joint statement.  Rebolledo reported 
bilateral trade in goods between January and September of 2008 was 
valued at $15.2 billion, up 27% from the same period in 2007. 
However, Chilean exports were down by 3% for the first nine months 
of 2008, for the first time since the FTA went into force.  Both 
sides acknowledged that the decrease is likely due to the worldwide 
economic crisis.  Imports from the U.S. had risen 60% during the 
same period.  Chile had its first trade deficit with the U.S. 
 
¶6. (SBU) Rebolledo stated trade in services between Chile and the 
U.S. had increased by 13% to $2.6 billion in 2007 (latest figures 
available).  U.S. foreign direct investment (FDI) in Chile decreased 
by 21% over 2006, totaling $265.6 million in 2007.  Rebolledo 
expressed Chile's concern regarding the downward trend.  He noted 
the U.S. was the fifth largest destination for FDI from Chile (the 
top four were all in Latin America). 
 
¶7. (SBU) Eissenstat underlined the impact of the global financial 
crisis and the current economic downturn in the U.S.  He noted trade 
could act as an engine of growth and diversification.  Responding to 
Chile's concern about U.S. FDI, both the U.S. and Chile agreed to 
monitor trade and investment trends for the next FTC.  Rebolledo 
said Chile understood the pressures caused by the global crisis. 
One of the GOC's priorities was to maintain its network of FTA's as 
90% of Chile's products fell under the regulations of at least one 
FTA. 
 
FTA Institutional Framework 
--------------------------- 
 
¶8. (SBU) Eissenstat highlighted that 2008 had been one of the most 
active years to date under the U.S.-Chile FTA.  The Working Group on 
Agricultural Trade, Environment Affairs Council, Committee on Trade 
in Goods, Committee on Sanitary and Phytosanitary Issues, Committee 
 
on Government Procurement, and Committee on Technical Barriers to 
Trade (TBT) had all met during the year.  Eissenstat stressed the 
cooperation between both countries at a technical level was 
extremely valuable.  Rebolledo congratulated both countries on 
successful resolution of the issue regarding table grapes (see para 
21), and acceleration of tariff elimination (see paras 18 and 19). 
The FTC agreed all committees should continue to meet in 2009 and a 
sixth FTC should meet in December 2009. 
 
¶9. (SBU) Pablo Lazo outlined progress under the Labor Chapter of the 
FTA.  He noted the U.S. and Chilean representatives to the Labor 
Committee enjoyed excellent cooperation (including in other fora, 
such as APEC).  Rebolledo and Eissenstat noted that representatives 
from the U.S. Department of Labor and Chile's Foreign Affairs 
Ministry met in Geneva in June 2008 where both parties agreed to 
defer consideration of another Labor Affairs Council meeting until 
¶2009.  The FTC agreed that a Secretary/Minister level meeting should 
take place in 2009 (after the new U.S. Labor Secretary is in place). 
 
 
¶10. (SBU) Edda Rossi provided a readout of progress made in the 
Environmental Chapter of the FTA.  The Environmental Affairs Council 
met in April 2008.  Both sides agreed:  1) to change the list of 
joint-projects from those stipulated in the FTA, 2) to postpone a 
third meeting of the Council until April 2009, and 3) to emphasize 
the success of the Environmental Chapter as a model for other FTAs. 
Eissenstat lauded the cooperation shown by the U.S. and Chile in the 
work of the Environmental Affairs Council. 
 
FTA Implementation: Advanced Rulings 
------------------------------------ 
 
¶11. (SBU) Rebolledo stated Chile planned to implement advanced 
rulings in March 2009.  Eissenstat expressed U.S. appreciation for 
Chile's move to fully implement its FTA obligation.  He said the 
U.S. Trade Development Agency could continue to act as a resource if 
needed. 
 
FTA Implementation:  Government Procurement 
------------------------------------------- 
 
¶12. (SBU) On Government Procurement, Rebolledo noted Chile's desire 
to move forward as soon as possible (in part because Chile's FTA 
with Australia made reference to its obligations under the 
U.S.-Chile FTA).  The GOC had updated existing mechanisms and 
created new ones to implement its FTA obligation.  Eissenstat 
explained the U.S. was also interested in seeing Chile accede to the 
WTO Agreement on Government Procurement and would present a 
non-paper in the future with some ideas.  If it decided to accede, 
Chile would be the first country in Latin America to do so. 
Rebolledo responded that Chile would wait to see China's decision on 
the issue.  The GOC had already concluded agreements with 37 of the 
40 existing members of WTO Agreement. 
 
¶13. (U) At the end of the FTC, the U.S. and Chile agreed to several 
modifications and rectifications of the Government Procurement Annex 
(Annex 9.1) of the U.S. - Chile FTA, as provided for in Article 9.14 
of the Government Procurement Chapter.  The modifications and 
rectifications reflect: 1) for Chile, changes in the political and 
administrative structures of Chile's central and sub-central 
government entities; and 2) for the United States, a change in the 
name of the entity listed for the State of Oklahoma. 
 
¶14. (U) The U.S. and Chile also executed an exchange of letters to 
modify Section G of Annex 9.1 clarifying the threshold adjustment 
process.  Chile expressed interest in cooperation to assist its 
private and public sector in understanding the U.S. government 
procurement system and proposed holding a seminar in Santiago in 
¶2009. 
 
FTA Implementation:  Intellectual Property 
------------------------------------------ 
 
¶15. (SBU) Eissenstat raised the issue of Chile's implementation of 
its intellectual property rights (IPR) obligations under the FTA. 
During the last five years, Chile had made progress on some of its 
commitments, such as the recent passage of the Patent Cooperation 
Treaty.  However, much more is required, and both sides noted that 
the Special 301 process was due to start in the near future.  The 
U.S. was particularly concerned about better enforcement of data 
protection and linkage as well as swift passage of pending 
legislation on copyrights and IPR enforcement.  Eissenstat proposed 
 
an IPR Working Group to review implementation of FTA obligations. 
 
¶16. (SBU) Rebolledo argued IPR was a sensitive issue in Chile, but 
the GOC had made significant progress since it signed the FTA five 
years ago.  It was a priority for Chile, however, many more actors 
were now involved, which was slowing down progress on 
implementation.  Rebolledo said three laws were pending before 
Congress which would bring Chile closer to fulfilling its 
commitments (a Copyright Law, an Illegal Commerce and Piracy Law, 
and a Plant Variety Law).  In addition, USTR and DIRECON maintained 
good communication, conducting a number of video conferences on the 
issue.  Rebolledo said a Working Group was unnecessary.  The 
existing channel of communication was sufficient and the GOC did not 
want to create more pressure over the issue than was necessary. 
 
¶17. (SBU) Both sides agreed to continue constructive dialogue on 
intellectual property.  They resolved that in the first quarter of 
2009, experts from both sides will meet to perform a thorough 
technical review of the status of implementation of Chapter 17 on 
IPR. 
 
Accelerated Tariff Elimination 
------------------------------ 
 
¶18. (SBU) During the FTC, the U.S. and Chile agreed to accelerate 
elimination of tariffs on goods covering approximately $35 million 
in annual trade.  The tariff cuts will be implemented January 1, 
¶2009.  The items identified for accelerated tariff elimination were 
selected based on requests by producers, consumers, and traders 
eager to take advantage of the benefits of the FTA.  The U.S. will 
eliminate tariffs on products including spinach, sweet corn, 
preserved artichokes and frozen vegetables.  Chile will eliminate 
tariffs on products including rice, peas, safety headgear, and 
certain chemicals. 
 
¶19. (SBU) Rebolledo underlined Chile would be interested in finding 
other eligible products for future tariff elimination.  The U.S. 
said it would be open to hearing a proposal on future products and 
suggested that the Committee on Trade in Goods explore the topic 
further. 
 
Rules of Origin 
--------------- 
 
¶20. (SBU) Eissenstat noted the U.S. had received the report from the 
U.S. International Trade Commission on the probable economic effects 
of the proposed changes to the rules of origin on October 31, 2007 
and the next step would be a submission of the proposed changes to 
the U.S. Congress for a 60-day layover period.  He said there is an 
ongoing discussion between industries in both countries over some 
concerns related to chocolate candy.  Rebolledo said the GOC was 
willing to move forward without a resolution on chocolate. 
 
Bilateral Trade:  Grapes and Citrus 
----------------------------------- 
 
¶21. (SBU) After thorough consultations under Article 3.17 of the 
Agreement, the U.S. and Chile reached an agreement in November 2008 
with respect to trade in table grapes. 
Chile expressed its gratitude for the cooperative and mutually 
beneficial trade relationship relating to the export of fresh fruit 
to the United States, most recently the initiation of proposed rules 
for systems approaches to address phytosanitary treatment of 
oranges, grapefruit, and table grapes. On the latter, Chile asked 
for the status of these proposed rules which appear to be on 
schedule for finalization.  USDA Representative Sallyards thought 
rules might be ready by mid-2009 on table grapes, to be followed by 
rules on citrus fruits. 
 
Bilateral Trade:  Beef 
---------------------- 
 
¶22. (SBU) The U.S. renewed its longstanding request for market 
access for all ages of U.S. beef, beef products, and live cattle in 
line with the World Organization for Animal Health (OIE) guidelines. 
 Chile explained that it is currently receiving public comment on 
its internal rulemaking and expected to have news for the U.S. in 
March 2009. 
 
¶23. (SBU) The FTC agreed the competent USG and GOC authorities will 
exchange letters regarding the mutual recognition of grading 
programs for the purpose of marketing beef.  Rebolledo proposed they 
 
be signed at the ministerial level, which the U.S. delegation 
accepted.  The U.S. offered to send draft letters as quickly as 
possible and Chile agreed. 
 
Bilateral Trade:  Raspberries 
----------------------------- 
 
¶24. (SBU) Rebolledo noted the GOC was interested in forming a 
committee in the U.S. to discuss expanding sales of raspberries. 
Eissenstat promised to relay this request to Washington. 
 
Bilateral Trade:  Nitrates 
-------------------------- 
 
¶25. (U) The Chilean delegation raised concerns regarding the new 
regulation of the Department of Homeland Security affecting Chilean 
nitrates (potassium and sodium) and reiterated its desire to be 
excluded from Appendix A of this regulation.  The U.S. took note of 
Chile's concerns and expressed that in this case both sides will 
continue to discuss at the Committee level and exchange 
information. 
 
Bilateral Trade:  Customs Valuation 
----------------------------------- 
 
¶26. (SBU) Eissenstat raised U.S. concerns about systemic problems 
with Chile's customs valuation obligations under the FTA.  Rebolledo 
suggested discussing the issue in detail in the Committee on Trade 
in Goods in the first quarter of 2009.  [Note.  In a courtesy call 
with Eissenstat before the FTC, Multilateral Director Contreras had 
suggested this possible compromise to address U.S. concerns.]  The 
U.S. side could use this forum to provide Chile with information on 
the U.S. container screening process.  The U.S. delegation accepted 
Chile's proposal. 
 
Other Trade Negotiations 
------------------------ 
 
¶27. (SBU) Both parties exchanged information about their respective 
bilateral negotiations, and their positions in the WTO, APEC, 
Trans-Pacific Partnership and OECD. 
 
Pathways to Prosperity 
---------------------- 
 
¶28. (SBU) In an aside with the Ambassador, Rebolledo stressed Chile 
was enthusiastic about working on the trade pillar of Pathways.  He 
said it still required more definition as Chile was working through 
similar issues in the Arco del Pacifico. 
 
¶29. (U) This cable was cleared by USTR. 
URBAN