Brexit and LatAm: A Chile-focused analysis

By Gerardo Maldonado, manager, strategic prospecting, Ripp Consulting, Chile

Despite the intricate historical and cultural links between the UK and Latin America, the presence of the UK in the sphere of Latin American commerce has been weakening in parallel with long absences of foreign ministers from countries in the region: 50 years for a foreign minister to visit Peru, 25 years for a foreign minister to return to Argentina and the same number of years for Chile. Perhaps, one of the reasons given by Brexit supporters for this absence is that the UK has become more Europe-centric and less instinctively global than before, simply losing the focus on Latin America.

If we want to see the impact of Brexit (whatever the decision the UK parliament adopts) in Latin America, it is necessary to conduct an analysis from the perspective of each country.

Chile

In recent decades, Chile has had one of the fastest growing economies in Latin America. This has allowed a significant reduction in poverty and the country currently exhibits the lowest rates of this scourge. Chile is the most stable country in Latin America and its responsible macroeconomic and fiscal management provides a solid foundation for achieving stable growth for the coming years and generates a high-value country image for foreign investors.

The commercial opening has led to solid growth and has allowed it to sign free trade agreements with practically all regions. This vast network of treaties has given rise to real chains of cooperation and international production. Thus, it offers multiple attractive products and services due to its quality, variety and added value.

In this way, Chile has 26 free trade agreements with 64 nations that comprise 86% of world GDP and markets that represent 63% of the world population (4,676 million people). Chile has the network of free trade agreements with greatest access to world GDP (OECD).

In relation to Brexit, what impact could prolonged political turmoil in the United Kingdom have on the economy of Chile and of Latin America?

If we want to see the impact of Brexit on Latin America, it is necessary to analyze it from the perspective, or economic, cultural, social, and political reality, of each country.

In the case of Chile, the main representatives follow very closely the decision to be adopted by the UK parliament on Brexit. Its ambassador Mr. David Gallagher is very attentive to the details of this important event. For the moment while there is a decision, the Bilateral Economic Affairs Directorate of the Ministry of Foreign Affairs is studying the general guidelines of the plan of action of the Government of Chile in the new scenario, whatever it may be.

Regarding the direct impact, it is important to remember that Chile's exports to the United Kingdom do not imply anything beyond 0.8 to 1% of total sales. 95% of Chile's exports go to countries with free trade agreements: China (27%), the United States (14%), Japan (9%), South Korea (6%), Brazil (5%) ), India (3%), Peru (3%). This does not mean that there is no concern, since there are certain key industries such as wine and fruit that do have important customers in the United Kingdom that could be affected.

About 90.3% of Chilean products that enter the UK market do so without tariffs (Association Agreement between the country and the European Union). Among the main products exported to the United Kingdom are: hass avocados, cranberries, wines (with designation of origin), grapes (variety Crimson Seedless).

The main products imported from the United Kingdom: automobiles, crude oil, whiskey, medicines, laboratory reagents etc. These products imported into Chile do not pay a tariff, therefore, depending on the decision made on the Brexit, these have an effect on the prices of Chile.

Be that as it may, in any of the complex scenarios of Brexit, to have greater clarity about the future of the decisions the experts assure an average of 22 weeks to elucidate any of the routes to take, increasing the uncertainty to levels never seen before.

The directorate of bilateral economic affairs of DIRECON [the foreign ministry's international economic relations department] has been holding meetings with representatives of the United Kingdom for some time to discuss Brexit. The concern is how long a decision will take, given the agreements reached between both nations (given within the framework of the European Union) would be without effect and would be regulated by free trade. There is also latent concern in Chile of the progress or retreat that bilateral talks by nations such as Argentina, Peru, Brazil and the United Kingdom may be having, since these are direct competitors in important or strategic markets for Chile.

Is there an outcome, for example, a no-deal Brexit, that could be particularly beneficial for Chile and Latin America?

The strategies pursued by DIRECON's directorate of bilateral economic affairs, whatever the outcome of Brexit, are to maintain or improve commercial relations with the United Kingdom. In this regard, Chile is well ahead with discussions with British authorities to continue carrying out consultations to ensure that trade relations, whatever the result of Brexit, are the best for both countries.

The good thing for Chile, in these types of circumstances, are the excellent cultural and historical relations, as well as commercial, that throughout the years it has maintained with the United Kingdom. The way Chile is perceived in an international context provides added value by being a model country in Latin America in terms of fiscal and financial balance. The development of Chile in the free trade agreements makes it less vulnerable to various crises, giving it know-how in commercial relationships that allow it to anticipate uncertainty and make the best commercial decisions.

Until the exit of the United Kingdom from the European Union is executed, the commercial relationship will continue under the terms contemplated in the commercial pillar of the Association Agreement with the Common Market. If there is indeed a Brexit, the benefits for Chile are the advances made in more than four meetings in Santiago and in London of multidisciplinary teams to deal with the issue of Brexit in greater depth.

For the rest of Latin America, the benefits of a Brexit, if it happens, will hinge on the different advances that each country has achieved with the authorities of the United Kingdom, this I repeat, depending on the economic, cultural, social and political conditions of the different countries.

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