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Free Trade Agreement and Governance- a Comparative study between Chile and Brazil

There are lot of discussions and arguments being given on the issue of creating Latin American free

trade bloc similar to ASEAN and European Union. There is no denial about the cultural similarities, Latin

American nations enjoy compared to their counterparts in Europe. However, except Mercouser, there

has not been any initiative taken on Governmental level to allow greater trading participation among

nations. With some countries in Latin America experiencing heavy growth, they have decided to follow

the routes of other nations in path of becoming more Globalized economies.

With Mercouser being enjoyed only by few nations and cracks started to appear within these five

member nations itself, it was apparent for pro-export and pro-trade nations to look beyond Latin

America. Chile and Mexico topped the list of Free Trade Agreements from Latin America. With other

countries still refraining form Free Trade pact and even imposing restrictions to protect home industries

like Brazil, it will be apparent to investigate how the countries with free trade agreement have benefited

in certain areas. I have tried to examine some of the following areas comparing Brazil and Chile to

conclude how FTA has changed the face of Chile and opened up the fortune for its people. The pro

trade environment requires every country to undergo structural changes to get FDI inflows and cash rich

big firms to come and invest.

Such structural changes also help local business market and make them more competitive. I like to

compare some of those changes in Chile and Brazil in the context of how globalization of economy can

speed up reforms.

1. Business Environment*

Brazil Chile

Ease of doing business ranking (World Bank) 126 39

Corruption Perception Index (Freedom House) 69 21

Global Competitiveness Report (World Economic Forum) 58 30

Global Enabling Trade Report (World Economic Forum) 87 18

Days required to register a firm 119 7

Time required to prepare different types of taxes(hours per year) 2600 316

Effective corporate tax on new investment 35% 7%

*data based on 2012 reports

2. Internet penetration: According to a report, Internet penetration is 56% of the total population

in Chile compared to 48% of the total population in Brazil. There is no study conducted, which

provides evidence of trade agreements having positive influence on rising internet users. But

E-mail: ankit.chemical@gmail.com | About me: http://slidesha.re/17Ye930 | LinkedIn: www.in.linkedin.com/in/satyasampurna

the rising internet users every years does showcase that people of the country are engaging in

Global talks and started to think more like a global citizen. Recent uprising in the Brazil indicate

this trend. To reach 100% population becoming internet users, heavy investments are required.

Most of the governments are not willing to put such high investments. A trade agreement can

help other countries in Latin America to tap this potential by allowing others to take this

opportunity.

3. Investment in creating innovative product and world class talent pool

Due to lack of available data, it is not possible to comment on this issue. But investment in

education is certainly the need of time in all Latin American countries. As sighted by the

instructor in the discussion forum, ‘we have some of the best universities in the world and some

of the worst also’. The rising internet penetration can be an answer to the people who are

inaccessible to good education so far. Living in globalized environment also put pressures on the

government to make their work force more competitive and increasing their expenditure on

education.

Conclusion:

The above small examples can show that Free Trade Agreement can indeed be good for the

economy if executed well. With Chile being ranked as one of the most globalized economy

according to Ernest and Young Index in 2011, other Latin American countries take inspiration to

realize the positive effect of trade agreement. My view point is not necessarily to create FTA

with other big nations but to create smooth trade flows in between Latin American nations.

References:

1. Latin American Culture, Course – Lecture Notes and Discussion Forum

2. http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S071904332011000200001&lng=es&nr

m=iso

3. http://www.gfmag.com/archives/148-march-2012/11655-regional-focus-latin-

america.html#axzz2RbO6g56w

4. http://www.slideshare.net/fnbox/2013-latin-america-internet-market-research-outlook-

16980476

5. http://en.wikipedia.org/wiki/Economy_of_Peru

6. http://en.wikipedia.org/wiki/Mercosur