A new free trade agreement is next to be sign up between Chile and Japan. Up to know, Chile has a lot of such free agreement, each one with its own significance. This one means something like a quality certification :Japan is well known because of his tight, some how close internal market for foreign products. Japanese themselves, are quite conscious about what the quality products means. On the other hand ,they have advanced the consumption technology far enough to make the selection between different products, a very sophisticated process .-
With its more than 120 million high income consumers, Japan markets represent a very interesting alternative for more value intensive products, which Chilean economy exports currently lacks, because more than 60% of its exporting sector is concentrated on mineral resources, (2006) while industrial export is no more than 30% .-
The agriculture sector is the one which gets the highest benefit form this agreement , because 53% of its export to Japan will be freed from tariffs immediately , while the 35% will have privilege access to Japanese markets . By the same token, 90% of japans export to Chile will have privilege access to Chilean markets.-
But this agreement do also have geo strategic importance, because it allows to have a business platform for trade flows to Asian markets , transforming Chile in a place of new investment opportunities.
Investment behaviour in Chile , has been rather weak in the last couple of years , reaching close to 25% of GDP, a little below what it is needed if the purpose is to have stronger economic growth, than the current level (4% in the year 2006).-
Beyond the good faith inspiration of all of these agreement, very much of its impact depends upon complementary policies to support new sector to move on board, specially in the case for medium and small size firms . Chilean economic authorities are working about it, trying to implement new set of policy recommendation related to improve competitiveness. Therefore, this agreement comes along in the proper time to take the most advantage from it, which by the way will positively aggregate the accumulative effect of previously free trade agreement ,because of economic of scale.-
The key question now ,is whether the Chilean economy by signing these trade agreement ,has reached a point such that any additional one will have a decreasing marginal effect on trade . This means that due to the marginal decreasing return principle, with the current productive structure, each new agreement will imply a decreasing impact on trade. Each one add up less to trade than the previous one ,so the overall impact might be below expectation.. It follows that the dynamic of these trade agreement, requires new economic incentives(for example more decentralized decisions) for productive purposes, to keep its trade gains moving steadily upward.-.