Trade in Financial Services: The Case of Chile
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expected—that is, little effect in the short term and a potential beneficial effect in the longer term from the greater certainty of market access and investor protection provided by the trade agreements. Whether the agreements will attract more U.S. and European financial institutions remains to be seen.
Lessons from the Chilean Experience No two trade negotiations are alike. The circumstances, initial conditions, and goals vary from country to country. Aspects of the Chilean experience will not be reproduced in the future: in particular, Chile had 10 years between the first contacts to negotiate an FTA with the United States and the actual negotiations. Although the decision was exogenous, in some ways Chile was able to choose when to start negotiating. For the United States, negotiating with Chile (and, similarly, Singapore) constituted an opportunity to establish new precedents that were based on the experiences of NAFTA and GATS. At least in Chile’s case, this opportunity permitted some very fruitful discussion regarding the chapter’s text. The Singapore-U.S. and Chile-U.S. financial services texts have been used by the United States as its template in other FTA negotiations. The EU represents a different experience. The EU approach is one of extending GATS to the bilateral level, with minor changes in provisions and the same approach of listing commitments. However, this approach does not mean that there is no room for other economies negotiating with the United States or the EU to accommodate their specific circumstances and objectives. When Chile began negotiating with the EU and the United States, the macroeconomic environment was stable, with small and manageable fiscal and current account deficits, low inflation, and a freely floating exchange rate, all in a context of fully liberalized international capital flows. Thus, unlike Mexico (which faced the Tequila crisis shortly after NAFTA entered into force), Chile’s economy has continued to grow, and no signs of instability in its financial system have arisen since the agreements entered into force. Chile’s financial system showed healthy indicators and had an already significant participation of foreign-owned financial institutions in its domestic market. As in the case of tariff liberalization, where the pain suffered from trade liberalization of a specific industry depends on the initial level of market-access restrictions, the effect of a bilateral (or multilateral) agreement in financial services will depend on how open domestic