India-Chile: Strengthening trade ties for LATAM market expansion

India's endeavour to achieve global dominance and emerge as a leading Asian power requires efforts on all fronts, including tapping into the ripe Latin American markets. Chile represents India’s gateway to these markets, having been the first South American country to sign a trade agreement with India in 1956. In 2005, a framework agreement for economic cooperation was established, followed by the signing of the preferential trade agreement (PTA) in 2007, which came into effect thereafter. More than a decade since the signing of the agreement, India finds itself among the top 15 exporting countries to Chile. India has successfully expanded its presence beyond traditional markets such as the US and UK and has made significant inroads in East Asia and the Trans-Pacific region.

India and Chile have signed agreements and MoUs covering various fields of cooperation, including sports, science and technology, Antarctica, defence, air services, agriculture, new and renewable energy, education, outer space, geology and mineral resources, and the gainful employment of spouses and eligible dependents of diplomatic personnel.

The Preferential Trade Agreement (PTA) was expanded on September 6, 2016, adding 2,355 tariff lines to the existing schedule of 474 tariff lines. The current government now aims to further strengthen trade ties between the two countries by negotiating a free trade agreement (FTA). Such an agreement would mark a significant milestone for India in its journey into the Latin American market.

India-Chile trade and textile industry’s contribution

Figure 1: India’s total exports (in $ mn) and textile exports (in %) to Chile

Source: TexPro, UN Comtrade

The above figure depicts India’s total exports to Chile, which include major products such as vehicles, pharmaceutical products, electrical machinery and equipment, machinery and mechanical appliances, textile articles, organic chemicals, articles of leather, apparel and clothing (both knitted and non-knitted), as well as plastics and articles thereof. The latest figures for the calendar year 2023 suggest a slight decrease from calendar year (CY) 2022, with the total trade value in 2023 amounting to $1,343.58 million. The diversified range allows India to strengthen its trade ties by making Chile dependent on various Indian commodities. It also represents the competitiveness of India’s commodities in the global market and its capability to cater to a wider consumer base. Lastly, this indicates India’s increasing export potential to Chile, with 2024 being a crucial year for enabling a free trade agreement.

It's important to note the percentage of textile exports to Chile, given India’s position as a major textile-exporting country worldwide. India’s textile exports have occupied a significant chunk of more than 10 per cent over the last five years. However, the percentage share has declined since post-COVID-19, with textiles decreasing from 16 per cent in CY2020 to 11 per cent in CY2023. The forecast values show increased trade values for both overall trade and textile trade. The lower forecast percentage share of Indian textiles in total trade is concerning and points to the need for improving the export of Indian textiles to Chile.

To address this, India should investigate sub-products in textiles that have the potential to perform well in the Chilean market. Apparel stands out as a market worthy of exploration, especially in the context of Chile and its growing prominence globally.

Sunrise Sector: Indian apparel and its importance in the Chilean market

Table 1: India’s apparel tariff lines covered in the India-Chile PTA

Source: Ministry of Commerce and Industry, India-Chile PTA Agreement

The India-Chile PTA includes the majority of 102 tariff lines under the apparel sector (HSN codes 61 and 62) with a margin of preference (MoP) of 30 per cent. The margin of preference indicates the percentage by which the preferential tariff rate applied to products is lower than the most-favoured-nation (MFN) tariff rate. With the onset of the discussions for the FTA in 2024, one can expect the scenario to change substantially, especially for sub-sectors such as apparel.

Figure 2: India's exports to Chile (inn $ mn)

Source: TexPro

The above figures clearly indicate India’s growing apparel exports to Chile. India’s apparel exports were much higher before COVID-19 ($51.21 million) compared to post-COVID-19 levels. However, it is important to note that India has been able to increase its trade values from 2020 to 2023. With growth percentages increasing from 1.35 per cent in 2021 to 2.35 per cent in 2022, India achieved substantial growth of 10.67 per cent ($36.34 million) in CY2023.

Figure 3: Revealed Comparative Advantage for apparel sub-categories

Source: TexPro, F2F Analysis

India exports a total of 16 sub-categories of apparel to Chile. These sub-categories include major products such as dresses, shirts, babywear, nightwear, skirts, T-shirts, and accessories, among others. Out of these 16 sub-categories, Fibre2fashion has identified the top 7 key apparel products that need to be focused on. Among these, dresses, shirts, and babywear occupy the top three positions. Additionally, sub-categories like nightwear, skirts, T-shirts, and accessories have a Revealed Comparative Advantage (RCA) of more than 1, indicating India’s advantageous position in these major apparel products.

Challenges for textile imports in Chile

Source: World Integrated Trade Solution (WITS)

Apart from tariff measures, Chile has implemented certain non-tariff measures (NTMs) concerning the import of textile goods from other countries. The NTMs that feature prominently include Sanitary and Phytosanitary measures and Technical Barriers to Trade measures. Textile imports to Chile are significantly affected by Technical Barriers to Trade, with a coverage ratio of 98.31 per cent and a frequency ratio of 91.96 per cent. Technical Barriers to Trade aim to ensure that technical regulations, standards, and procedures for assessing conformity are fair and equitable, without unfairly hindering trade. Within Technical Barriers to Trade, labelling requirements hold the highest prominence. This means that Chile places the utmost importance on labels that include specifications in Spanish and require weight and size contents to be in the metric system. It is also crucial to note that textiles are among the commodities subject to specific rules regarding labelling.

Way Forward

Chile’s emphasis on non-tariff measures, such as labelling requirements, underscores the importance for India to focus on the labels applied to textiles, particularly Indian apparel products that are experiencing significant growth in demand among Chilean consumers. A combination of reduced tariffs in the upcoming FTA and a focus on sub-categories within apparel, alongside stringent adherence to labelling requirements, would prove beneficial for the Indian textile industry in the Chilean market.

ALCHEMPro News Desk (NS)