Chile’s 10% tariff rate is low compared to the rates of most countries and, more importantly, with the possible exception of four agricultural products, it is applied equally to all imports. But Chile isn’t resting on past success. Two months ago Chilean Finance Minister Eduardo Aninat proposed–and lawmakers approved–a bill that will cut the tariff automatically by one percentage point per year, bringing it down to a flat 6% by 2003. From there to zero should be a small step for Chile but a historic leap for free trade.
The mere possibility of zero import tariffs is stunning in an economy that in the 1960s was one of the most protectionist in the world. In those days, Chile was a devoted follower of the misguided import‐substitution proposals of the Santiago‐based United Nations Economic Commission for Latin America. But in the mid 1970s, the country’s trade policy turned around. Not only did Chile completely dismantle the system of quotas and other trade barriers, but under the courageous leadership of Finance Ministers Jorge Cauas and Sergio De Castro, the uniform tariff policy was adopted; by 1979 that tariff was down to 10%. Unfortunately, Latin America’s 1982–83 economic crisis prompted a retreat, and by 1990 the rate was 15%. Still, lessons had been learned and free trade had momentum.
While the nation was consolidating its free‐trade strategy, it was also establishing a revolutionary system of individual private retirement accounts. The connection between the two is important. In most of the world, trade liberalization is cast as a battle between capitalists and employees, between “global elites” and the “common man.” In Chile, however, market‐invested retirement funds mean that every employee is a capitalist and has a visible stake in an internationally competitive economy.
A vast majority of Chileans benefit from free trade not just as consumers but also as owners of the productive assets of the economy through their retirement accounts. Free trade is good for the economy, and what’s good for the economy is good for investors. Thus there is a virtuous cycle of trade liberalization that has so far thrived regardless of the political party in power. For 13 years, under three different governments, economic growth has averaged 7% per year.