Analyzing the Agricultural Trade Impacts of the Canada-Chile Free Trade Agreement



of growth for Canadian exporters in the Chilean market after the signing of the CCFTA.
However, even very substantial increases (from 1000 percent to more than 8000 percent) in
exports of products such as oil seeds, medicinal plants (HS12), preparations of cereals, bread
and pastry (HS19), and products of the milling industry (HS11) could not compensate for
the overall decline ( Table 2).

The exporters of edible vegetables benefit the most from the agreement, both in terms
of growth and in absolute terms, which may be the outcome of speedy tariff reductions
completed by 2001. At the same time, exporters of other products that received wide tariff
preferences under the agreement, such as manufacturers of cereal, tobacco products, edible
fruits, prepared vegetables, and miscellaneous edible products did not seem to benefit.

2 Related Literature

Many studies have looked at the trade impact of FTAs on member countries. The ma jority
of empirical research analyzes trade effects of FTAs using the gravity model.9 Frankel
and Wei (1993, 1995), Bayoumi and Eichengreen (1995), Frankel, Stein and Wei (1995),
Malhotra (2007), Freund (2000), Gilbert, Scollay and Bora (2001) analyzed trade creation
and diversion effects for different FTAs using gravity models. The majority of previous
studies found both trade creation and trade diversion for most major FTAs (EU, NAFTA,
MERCOSUR, AFTA, EFTA, CER). However, the magnitude of trade creation and diversion

9 These studies use the concept of trade creation and trade diversion as conceptualized by Viner (1950).
The trade creation effect is a result of removal of trade barriers, in case the member of PTAs were natural
partners - the removal of trade barriers generally lead to trade creation within the block. The trade diversion
effect would arise if the countries within the trading block (PTA) replace trade from countries outside the
trading block. This generally happens because the lowering of trade barriers gives member countries a chance
to sell their goods cheaper than the non- member countries purely due to the removal of trade barriers, trade
is diverted away from non-member countries that had the natural comparative advantage.



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