tariff barriers. The liberalization of Chilean market for Canadian agricultural exports was
phased out over several years starting from 1997. Chilean tariffs will be gradually removed
in three years for 1.8 percent of HS6 headings, in six years for 32.7 percent, in eleven years
for 37.9 percent and in sixteen to eighteen years for 4.2 percent. At the same time, 22.1
percent of HS6 headings are not covered by CCFTA, and the 11 percent ad-valorem tariff
will be preserved for those products. On the other hand, the liberalization of the Canadian
agricultural market for Chilean products was scheduled over a substantially shorter period:
import tariffs on 65 percent of all agricultural HS6 categories were completely removed by
2003, while the rest (35 percent) were exempt from tariff elimination provisions. Data on
Chilean tariff preferences for Canada under the trade agreement is taken from Agriculture
and Agri-Food Canada database.
In this section we talk about the several econometric approaches we employ to examine
the effect of CCFTA on Canadian agricultural trade with Chile. We start with the standard
approach proposed in the literature for measuring trade policy effects on trade flows. This
approach is based on a standard gravity-type equation, which explains the natural logarithm
of one country’s imports with the level of income in its trading partner country and the log
of pairwise distance. This specification is augmented with a number of other geographic and
economic variables to account for other possible trade factors. The list includes a binary
variable for a common language to capture cultural proximity, a set of geographic variables
(binary variables for island and landlocked status of a partner country) to control for variation
in trade costs. Since the gravity model was designed for explaining the value of bilateral trade
and is not suited for modelling industry-level trade flows, the economic size of the country