SANTIAGO, Chile/WASHINGTON (Reuters) - Chile and the United States reached a wide-ranging bilateral free trade agreement on Wednesday after two years of negotiations.

The deal, which must be approved by legislatures in both countries, adds Chile to a short but growing list of U.S. free trade partners and is expected to help energize efforts to craft a 34-country Western Hemisphere free trade pact by 2005.

"This is an excellent agreement that cuts tariffs and opens markets for American workers, farmers, investors and consumers," U.S. Trade Representative Robert Zoellick said at a press conference to announce completion of the pact.

Chilean Foreign Minister Soledad Alvear said the agreement would help Chile, already one of the strongest economies in Latin American, attract more foreign investment and expand its exports to the United States.

"Without a doubt, this will strengthen economic development and our growth strategy," Alvear said.

The agreement would eliminate tariffs on about 75 percent of the agricultural goods traded between the two countries within four years, but phase out duties and quotas on the most sensitive farm products over a period of 12 years.

Tariffs on manufactured goods would be cut more quickly, with 85 percent eliminated upon implementation of the agreement and most remaining tariffs phased out over four years.

Chilean President Ricardo Lagos lauded the trade pact, which comes at time of economic difficulty for many countries in Latin America, including regional giant Brazil.

"If there hadn't been an agreement with Chile, it would have been a very bad sign for the region and I think that was a very important element, at the political level, in the final rounds of negotiations," Lagos said in Santiago.

COPPER POWERHOUSE

Chile, the world's biggest copper producer, has one of the most open economies in Latin America and has been a stable democracy since 1990. It signed a free trade deal with the 15-member European Union earlier this year.

Because many U.S tariffs are already low, many Chilean business groups do not expect a dramatic increase in sales to the United States.

However, Chilean manufacturers and exporters of value-added products like wine and wooden furniture, will see a more noticeable drop in tariffs, helping them to gain a stronger footing in the competitive U.S. market.

Chilean farmers were lukewarm on the deal, saying several products would remain virtually shut out of the U.S. market for 12 years.

Frank Vargo, vice president of the National Association of Manufacturers, called the agreement a "big deal" for American manufacturers and workers.

"It is important both in its own right, as well as an incentive and a precident for moving forward with a broader Free Trade Area of the Americas," Vargo said.

Chile was first invited to discuss free trade with the United States by former President George Bush in the early 1990s, following the conclusion of the North American Free Trade Agreement between Mexico, Canada and the United States.

However, it was Lagos and former U.S. President Bill Clinton who almost exactly two years initiated the negotiations leading to the agreement announced on Wednesday.

In the final round of talks in Washington over the past nine days, negotiators left politically sensitive issues, including farm trade and financial controls, until last.

Chilean Finance Minister Nicolas Eyzaguirre said Chile had agreed to ease restrictions on foreign capital leaving the country without eliminating its controls altogether.

COPYRIGHT PROTECTIONS

Chile will also provide increased protection against the illegal copying of U.S. copyrighted and patented materials, like movies, music and pharmaceuticals.

And the two countries agreed on a system of monetary penalties to enforce labor and environmental provisions of the pact, as well as commercial provisions.

Democrats in Congress have pressed the Bush administration to make sure enforcement mechanisms for labor and the environment are as strong as other sections of the pact.

Zoellick said he expected to formally notify Congress in January of the Bush administration's intention to sign the free trade pact with Chile sometime in spring.

The Bush administration has largely concluded another free-trade agreement with Singapore, which also must be approved by Congress. The United States currently has free trade pacts with just four countries -- Mexico, Canada, Jordan and Israel.

The Bush administration plans to negotiate additional free trade agreements with Australia, Morocco, Central American countries and members of the Southern African Customs Union.

Source: Reuters