Thank you very much.
I want to thank the chair of the standing committee, Mr. Leon Benoit, and the members for the kind invitation to appear before you today.
This meeting is very important for us. It marks the ten years since the entry into force of the free trade agreement between Canada and Chile. We are organizing the celebration of this event, because it's the first time that we celebrate one between an emerging country and a G-8 country. I think it's very important for Canada and also for Chile, especially for Chile.
I would like to thank the committee chair, Mr. Leon Benoit, and all the committee members for giving me an opportunity to provide you with some information about our economic and social situation. Your invitation is very important to us.
I think my country has benefited greatly from the free trade treaty. We also feel that it is a gesture toward our country and our president, Michelle Bachelet.
This year marks the 10th anniversary of the free trade agreement between Canada and Chile, and we are ready to celebrate this event.
First of all, with regard to some basic data, Chile is located in the southern hemisphere of the world, on a long and narrow strip of land, from the Atacama Desert in the north to Antarctica in the south and, in the west including Easter Island, to Polynesia in the Pacific .
I'll give you some basic data. We have an area of 750,000 square kilometres; we have a longitude of 4,290 kilometres, a similar longitude between Vancouver and Ottawa. Our population is 15.7 million, our GDP is $115 billion U.S. Our income per capita is $7,430 U.S., but our purchasing power parity is $12,000.
In terms of our economic policy, Chile modified its development model which was based on the past where the state played a prominent role with imports geared toward the internal market. The principal reforms: the economic reforms were liberalization of prices and markets, privatization of many public enterprises, consensus on the key role of the private sector in the productive process, openness to foreign investment, and low external tariffs.
In terms of government policies, we focus on strengthening the regulatory role of the state to ensure fair competition and transparency; maintaining stable, clear, and non-discriminatory rules; reducing poverty; promoting equal opportunity; and preserving macroeconomic stability.
We have had sound and consistent macroeconomic policies for an extended period of time. Monetary policy is based on an inflation targeting framework aimed at keeping inflation within a 2% to 4% range as defined by an independent Central bank, a flexible exchange rate, and a state policy of strict fiscal discipline. There has been a rule of structural fiscal surplus of 1% of GDP since 2000.
Public policy is geared toward strengthening capacity to innovate and undertake ventures, especially in the small and medium enterprise sector. Foreign investment is an engine of growth. Since we have an open foreign investment economy, we have acknowledged the importance of foreign policy as an engine of growth. We need to ensure transparency and fair play in global markets and for that reason we require equal rules for all countries.
Chile welcomes foreign investment. Chile needs to bring in investment to increase the accumulation of capital, expand economic activities, generate employment, and transfer new technologies. Political and economic stability as well as liberal foreign investment regimes have attracted a large influx of foreign direct investment, FDI, since 1990. To date Chile has received $61 billion in foreign direct investment, nearly 87% of the total of 1990 when the democratic model emerged.
In terms of foreign direct investments, you can see in the graph that mining is the dominant sector with 33%, followed by electricity, gas, and water with 19.2%, and the chemical industry with 14.9%.
With regard to foreign direct investment in Chile by countries of origin, you can see that Canada is the country of origin with the third highest level of our foreign direct investment. But I want to note that if we include 2006, the total for Canada is more than $9 billion U.S.
In terms of Canadian financial returns in the period of the free trade agreement, since the agreement has been in effect, the financial return of Canadian investment in Chile has amounted to $5 billion U.S.
Regarding Canadian foreign investment materialized by year and sector, you can see that in 2006 the total of Canadian foreign investment was more than $9 billion.
In Chile there are almost 100 Canadian enterprises working in different sectors, not only in mining.
With regard to our trade policy, more than three decades ago Chile opted for a model of open economy geared toward foreign trade. Chile is highly dependent on foreign trade. Exports plus imports represent approximately 55% of our GDP. Foreign trade is an important component on our strategy of economic and social development, economic growth, employment, reduction of poverty, and equal opportunity.
In terms of Chile's trade policy, we have an active policy of trade liberalization through three different channels. On unilateral liberalization, we have a flat tariff of 6%, but the real average tariff reaches 1.7% on goods and services due to several free trade agreements signed by Chile.
At the multilateral level, we are very active in the World Trade Organization. As well, we have bilateral and regional agreements.
We have two different types of trade agreements: complementary agreements and free trade agreements. Complementary agreements are restricted to certain goods and services. Decreases in tariffs under the free trade agreement are achieved during an established period of time. These agreements are binding and involve a set of complementary norms such as labour agreements, environmental agreements, double taxation agreements, and public acquisition agreements, among others.
You can see we have a target population of almost four billion people and world GDP potential of nearly $31 billion for our products through our free trade agreements.
Chile is characterized by having a balanced foreign trade policy in different regions throughout the world. The main regional markets are Latin America and Asia, both at 28% in terms of total trade, followed by Europe, with 22%, and North America, with 18%.
In terms of Chile's merchandise trade by main market, the first market is U.S.A., then China, Japan, Brazil, Argentina, Korea, Mexico, Germany, and Canada. The Canada-Chile Free Trade Agreement was signed in 1996. That year, total trade amounted to $757 million Canadian. In 2006 commercial trade more than tripled, to $2.1 billion Canadian. Between this period of 1996 to 2005, Canadian imports for Chile increased from $342 million to $1.7 billion in Canadian dollars. During the same period, Canadian exports have increased 10% . Under the current framework Canadian companies have developed strong ties with Chile. They have confidence in Chilean norms and institutions.
Throughout the years, it has not been necessary to apply the agreement for the solution of controversies because we had no controversies in this period.
In your information package, you will find the summary of the top ten Canadian imports from Chile between the year 2001 and 2005. You will also find the summary of the top ten Canadian exports to Chile from Canada between 2001 and 2005. We distributed this to all of you before I began this power-point presentation. You have also in the package the summary of the amount of imports from Chile by province.
I think it's very important to observe the evolution of the gross domestic product in terms of the economic and social results it caused during this period.
In the period from 1990 to 2005, which means the democratic period, the GDP more than doubled according to the independent Central Bank of Chile, and the consumer price index decreased to 2.5% in 2006. We have in this period a good index.
In terms of the poverty and indigence index, poverty decreased from 38.6% to 18.8% in 2003. We don't have any other figure--for instance, the one for 2006--because we did the research for this report three years ago now.
We also have a positive environment for business and international standing. Chile is ranked fourteenth on the index of economic freedom, according to the Heritage Foundation.
The University of Göttingen and Transparency International rank Chile twentieth in the lack of corruption perception index ranking, the same as the United States.
On the global competitive index of the World Economic Forum, Chile is 27th in the global competitiveness ranking.
In terms of risk ranking in emerging countries, Chile is second, after Singapore.
We are first in Latin America in the global competitiveness index, according to the World Economic Forum.
We share our challenges. First of all, in terms of export diversification, we want to reduce the economy's vulnerability to commodity markets and have more value-added exports. In Chile, we now face a new stage in our development. We require the development of national public policy in different areas, like export diversification.
In innovation, we have to increase expenditures on research and development, currently at 0.6% of the GDP. The goal is to spend more than 1% of the GDP by 2010. We are absolutely aware that this figure remains very low. Only the province of Quebec is going to 3% of its GDP.
We are looking at the creation of a competitiveness innovation fund. We will create this with the resources coming from a mining royalty tax.
We also have a big challenge with educational standards. This is one of the most important goals in this government. The challenge is to develop reform plans that should improve the quality of education. Both elementary and secondary schooling have universal coverage.
Another challenge that we have is in income distribution. We need better jobs, and also better wages. Although the poverty rate has been reduced significantly, income distribution remains unequal. This is not only a problem on an ethical and political scale, it is also a barrier to long-term growth.
On our social security reform, even though a private pension fund system was established in the 1980s, it is necessary to improve some aspects of the system to ensure a better level of pension after retirement. The reforms seek to improve the following issues: coverage, density, pension yield, and efficient competition in the system. A solidarity fund provides access to benefits by the less protected. A reform bill was sent to the National Congress before the end of 2006.
Chile imports 72% of the energy that it consumes. This is a vulnerability in Chile's economy due to the volatile nature of international prices and the possibility of supply interruption. As of 2004, Argentina has reduced the provision of natural gas to Chile due to its insufficient capacity to cover internal demand.
We have an energy security plan. We have four objectives: to diversify the matrix in terms of inputs and providers; to reach a higher level of autonomy; to promote the efficient use of energy; and to increase the use of non-traditional renewable energy.
We have invested in liquid natural gas projects, and the plan is to begin to operate in 2008. As well, new legislation provides incentive for private investment in electricity projects.
In closing, Chile is a country that faces its challenges and sets its objectives with political consensus, as well as with the state, political parties, the business community, and labour organizations. Chile is a country that actively searches for solutions at a global level with social cohesion and modern, efficient institutions that are at the service of its citizens.
Please enjoy the following photographs of our country. One photo is our church in the south of Chile, built by the Jesuits in the 18th century. Another is one of the best and most important preoccupations, glaciers. I told the chair that we are working in this area with Canada because we have Antarctica and you have the Arctic. We have the best centre of glaciology in the southern hemisphere and we want to work with Canadian glaciologists.
That's it. Thank you very much, Mr. Chair.
