Research On The Welfare Effects Of Free Trade Agreement Between China And Chile

With the development of globalization, WTO has failed to meet the needs of today’s international economic cooperation and development. Countries all over the world actively participated in the wave of economic globalization, promoted and established various regional economic cooperation. In order to comply with the economic globalization, China is also developing FTA actively. Chile is rich in mineral resources. The strategic objective of China’s opening up and economic cooperation is to take full advantage of the two markets and two resources for national economic construction. The FTA between China and China fully embodies the Chinese foreign economic strategic objectives. In addition, the establishment of FTA between China and Chile has a profound meaning for China about developing economic relations in Latin America.Currently, China and Chile have signed the "China-Chile Free Trade Agreement," "China-Chile FTA Supplementary Agreement on Trade in Services" and "Direct Investment in FTA Agreement." In June 2012, China and Chile announced to establish a strategic partnership.This FTA is a high-quality and high-level bilateral trade agreements. The implementation of the agreement has brought significant results. The program of tariff reduction will be completed by 2015. And the complementarity of resources and markets bring economic benefits to both countries. However, how many welfare effects have Free Trade Agreement between China and Chile created that needs to be carefully studied.This paper describes the main contents and characteristics of Free Trade Agreement between China and Chile.Secondly, this paper introduced the development and structure about this FTA. The characteristics are including high combination, high complementary and weak competition. Inter-industry trade plays an important role in China and Chile. Under the framework of the Free Trade Agreements, the scale of bilateral trade is highly expanded.Thirdly, the empirical studies are using to estimate the trade creation effects and trade diversion effects. The results of empirical studies show that FTA gives a positive trade creation and trade diversion effects to China. Trade creation effect is greater than trade diversion effects. FTA brings a net benefit to China. In addition, the author took another model to test the economic growth effects brought by FTA. The empirical results showed that the FTA plays a positive role in China’s economic growth.Finally, the problems of the development in FTA are showed out. Then the author gave policy proposals from three different angles which includes the perspective of development of FTA, improvement of the welfare effects and China’s foreign trade development.