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Chile's new orient express

The disparities between them are vast: China boasts 1.3 billion citizens and a GDP that surpasses $7 trillion, while Chile has just 15 million people and economic output of barely $100 billion.

The disparities between them are vast: China boasts 1.3 billion citizens and a GDP that surpasses $7 trillion, while Chile has just 15 million people and economic output of barely $100 billion. Yet when it comes to one vital commodity they are a perfect match. China is the world's biggest consumer of copper, and Chile is its foremost producer of the metal.

Thus when Chinese President Hu Jintao and Chilean President Ricardo Lagos joined other world leaders at the Asia-Pacific Economic Cooperation meetings in Busan, South Korea, last month, they had something enviable to celebrate: a November 18 free-trade agreement -- Beijing's first with any Western country.

For Chile, an aggressive free trader that is also party to agreements with the U.S., South Korea and the European Union, the Chinese FTA is a big leap forward. Half of the South American nation's exports to China are copper, followed by cellulose and industrialized food products, including fish meal.

"Chile is a natural part of the Pacific Basin. This will give Chile the possibility of being a bridge connecting China and Asia with the southern part of Latin America," Carlos Furche, the country's chief trade negotiator tells Institutional Investor. Chile expects its exports to China, its No. 2 trading partner behind the U.S., to double over the next ten years.

Santiago also hopes that Chile will become a platform for Chinese investment. "This is a sign of China's interest in the region and for institutionalizing relations with Latin America," declares Furche, 55.

The deal commits China to immediately lift all tariffs on 92 percent of Chile's exports once both countries have processed approval of the pact, which is expected by mid-2006. On the other side, Chile will repeal tariffs on 50 percent of Chinese exports, but preserve them for up to ten years on some 150 Chinese goods considered "sensitive" for the Latin American nation, including textiles and shoes. For now the trade balance between the two countries favors Chile, to the tune of $1.4 billion.

Chile is pursuing FTAs elsewhere in Asia, which buys 36 percent of its exports. The day the agreement with China was signed, Lagos and Japanese Prime Minister Junichiro Koizumi announced the launch of negotiations for a deal of their own. Next in the sights of Chile's eager negotiators: Malaysia and Thailand.