China and Chile will start negotiations for a free trade agreement (FTA) covering service trade and investment next January, the countries said yesterday.

"The talks are expected to be wrapped up by the end of 2008, or earlier than that, maybe the middle of 2008," said Fernando Reyes Matta, Chile's Ambassador to China.

Though the talks have been on the table since late September, they probably won't "enter into a substantive stage until January 2007," said Zhang Bing, an official of the department of international trade and economic affairs with the Ministry of Commerce (MOFCOM).

When asked about expected challenges for the coming talks, both were upbeat about the prospects.

"The agreement on service trade and investment, if signed, will further promote bilateral trade thanks to the bigger role of the service trade in contributing to China's trade volume," Zhang said.

Matta agreed, saying: "The agreement is good for both China and Chile."

For Zhu Hong, deputy director of the department of international trade and economic affairs under the MOFCOM, the success of the talks depends on the compromises the countries are willing to make.

The new round of talks come at a time when a previous China-Chile FTA came into effect on Oct. 1. In 2005, the two countries signed a deal covering trade in commodities.

"I think it was a clever idea to start with commodity trade, and then go on to service trade and investment," said Matta.

"It would be a much more complicated process if we had tried to include (everything) in the first negotiations," he added.

Matta compared the situation to China's ongoing FTA talks with Australia, which includes all sectors. The countries have yet to agree on issues related to opening services, agriculture, and manufacturing sectors.

The China-Chile FTA that has gone into effect stipulates tariffs on 97 percent of products from the two nations will be removed in 10 years, starting from Nov. 1.

From 2001 to 2005, China-Chile trade volume has grown rapidly. In 2000, bi-lateral trade was 2 billion U.S. dollars, but that figure jumped to more than 7 billion dollars.

China has become Chile's second-largest trade partner and Chile is China's third-largest trade partner in Latin America.

By the end of this June, investment from China into Chile was 28 million dollars, and China has attracted foreign direct investment worth 53 million dollars from Chile.