On Dec. 11, 2002, the United States concluded negotiations on a free trade agreement (FTA) with Chile, the first such arrangement with a South American country. The U.S. – Chile Free Trade Agreement entered into force on January 1, 2004. This agreement provides America’s farmers, ranchers, food processors, and the businesses they support with improved, and in many cases, new access to Chile’s market of 15 million consumers. This comprehensive agreement calls for duty-free access on all products and addresses other trade measures for both countries.

Before the agreement … U.S. dairy products faced a 6-percent tariff.  Without preferential access, U.S. dairy products were at a disadvantage to those from Argentina and Uruguay. These neighboring countries had advantages due to lower transportation costs and existing trade agreements with Chile. The major dairy products Chile has imported in recent years are nonfat dry milk, whole milk powder, cheese, and whey powder. Argentina and Uruguay generally supplied half to two-thirds of Chile’s dairy product imports. In 2001, Chile’s imports of these products from all countries totaled just over 20,000 metric tons valued at $36 million. A major supplier of cheese and whey, the U.S. share of Chile’s total dairy product import market averaged just under 5 percent from 1999-2001. U.S. dairy products were further restricted due to differences in inspection regulations and grading standards.

With the agreement… U.S. dairy products gained preferential access as the 6-percent- tariff was eliminated in 4-8 years depending on the product. Chile phased-out its tariffs over 4 years on cheese (HTS code 0406), butter and butterfat (HTS code 0405), whey products (HTS code 0404), and yogurts (HTS code 0403). Chile will phase-out its tariffs over 8 years on liquid milk and cream (HTS code 0401), and condensed and evaporated milk (HTS code 0402) which include both whole milk powder and nonfat dry milk. Chile recognizes the authority of the Food and Drug Administration (FDA) to approve plants eligible to export to Chile.

Before the agreement … The United States applied tariff-rate quotas (TRQs) on imports of most dairy products from all sources. These TRQs were then further refined in terms of specific products and specific countries. For example, Chile was permitted to ship 220 tons of cheddar cheese and 80 ton of blue-mold cheese to the United States. For cheddar, in 2001 the in-quota tariff was equal to $0.35/kg. and the out-of-quota rate was $1.23/kg. During the 1999-2001 period, Chile’s major dairy exports to the United States were evaporated and condensed (canned) milk. From 1999-2001, average annual U.S. imports of dairy products from Chile averaged 4,300 metric tons valued at just over $4 million. Total U.S. dairy imports from all countries were $1.5 billion. The Food and Drug Administration is responsible for the safety of imported goods.

With the agreement… Initial duty-free quotas were established for dairy products, which increased 7-percent annually until all quotas are eliminated after 12 years. During the first year of the agreement, the following duty-free quotas were established on Chilean dairy products entering the United States: 1,432 metric tons for all chesses; 300 metric tons for butter and butterfat; 828 metric tons for milk powders; 489 metric tons for condensed and evaporated milk; and 452 metric tons for other dairy products including some chocolates and food preparations. Under the agreement, the FDA continues to have authority to test and approve imports from Chile similar to what it does for other countries.