# Presentation: 420619

## U.S. Commercial Service Chile

**U.S. Commercial Service Chile**

**Chile Briefing**
**Trade Americas Conference**
- Denver, CO
- May 4-5, 2006

- Americo Tadeu
- Senior Commercial Officer
- U.S. Embassy Santiago

## Geography

- 2,600 miles long
- Just 100 miles wide (average)
- Diverse climate and geography
- Opposite seasons from the U.S.
- Isolated by mountains, desert and sea
- 16 million population
- Principal city and capital - Santiago

## Brief History

-  Spanish Colony 1541 – 1810
-  Socialists take power 1970
-  Economy destroyed
-  Military coup 1973
-  3,000 died from both sides
-  “Chicago Boys”  take charge
-  Open economy begins to grow - 1974
-  Structural changes - 1981

**Democratic elections in 1989**

**Notes:**

Rich agricultural land to support main colony in Peru and elsewhere

Discovery of natural resources  - economy based on commodities

Democratic history

1973 coup – 17 years – difficult time.  Silver lining was outsourcing of economics to Chicago Boys

1989 plebiscite – “No” vote wins

## Chile Today

** **President-Elect Michelle Bachelet takes office               	March 11, 2006 (2006-2010)
-  “Concertacion” Coalition
-  Christian Democrats
-  Party for Democracy
-  Socialists
-  Broad Consensus – No Change
-  Open Economy – Free Market
-  Democratic Institutions

**Notes:**
Two broad middle of the road coalitions
Center right
Center left – governing

Bachelet will be sworn in as Chile’s first female president on March 11, 2006

## Sustained Economic Growth

## Unemployment Level 

**Source: Banco Central de Chile**

## Price StabilityAnnual Inflation (%)

## Declining Poverty Rates(as a percent of population)

- Source: Mideplan, Biannual CASEN Study, 2003

- Note: Indigence is defined as having income inadequate for a basket of goods sufficient to support a family of 4.  Poverty is defined as income less than 2x the value of the same basket.

**Notes:**
Chile, with around nine per cent of its population living on less than US$ 2 a day, ranks second to Uruguay as the Latin American country with the lowest levels of poverty. Joachim Bamrud, the editor of Latin Business Chronicle, says Chile has experienced the most balanced growth in recent years and has registered the largest gains in poverty reduction.(Source:Santiago Times)

## Business - Why Chile?

- Free Trade Agreements
- Steady 6% growth
- Prudent fiscal policies
- Stable democratic government
- Solid business practices
- Rule of law

**Notes:**
FTA with US 
Also with Canada ’97, Mexico ’98, Central America ’99, Europe ’03, South Korea ’04
Working on Asians

Good Governance according to World Bank report – lumped together with US, Europe, Australia rather than its neighbors

Business style like U.S.  Based in contracts.  Courts respect contracts.

Transparent – low level of corruption – institutions like courts, ministries, police force work  #20, US #17

Instead of ranking countries, the report places them into percentage categories according to a point system (on a scale of -2.5 to 2.5 points). Chile fell into the top percentage range of 75 to 100 percent, as did the United States, Canada, Western Europe, Australia and several other countries. Chile received 1.62 points in the most recent study, titled “Governance Matters IV: New Data, New Challenge,” up from 1.22 points in 1998.

In Transparency International's 2004 Corruption Perceptions Index (CPI), Chile stands out as Latin America's most transparent country. Internationally, Chile took 20th position out of a total of 146 economies, ranking ahead of Japan, Spain, Italy and China, among other countries. This latest report was published in October 2004.

## Investment Welcome

- “A” credit rating (S&P and Fitch Ratings)
- $7.2 billion in new foreign investment in 2004 (173% increase)
- Since 1974, total FDI in Chile has topped $41 billion.  Top investors:  Spain, the U.S., Canada and the U.K.
- Santiago selected as “Best City for Business’’ in Latin America
- A springboard to other markets

**Notes:**
Sovereign credit rating A

In January 2004, Standard & Poor's raised its long-term foreign-currency sovereign credit rating for Chile from 'A-' to 'A', putting it on a par with Cyprus, Malta, and Saudi Arabia and in a better position than the Czech Republic, Hungary, South Korea, and Israel. Similarly, in March 2005, Fitch Ratings upgraded Chile's long-term foreign currency sovereign rating from 'A-' to "A", reflecting improvements in growth prospects and ongoing reductions in government debt underpinned by fiscal surpluses. Fitch gives Chile the same rating as Greece and South Korea. 
In 2002, Chile reformed its tax legislation in a bid to facilitate the country's use as a platform from which to manage investments in other markets and to encourage partnerships between foreign investors and local firms. In line with Chile's policy of minimizing tax barriers to investment, the reform means that foreign investors will no longer be liable for Chilean taxation on the earnings they derive from assets in other countries. 

November 2002 Law.  A company that is set up exclusively as a platform for investments abroad and in Chile, is exempt from Chilean earnings tax on the profits that overseas shareholders derive from its investments outside Chile. These platform companies can be either public or private companies but, in the latter case, must submit to the same regulation as public companies. 

## Our Free Trade Agreement

- 95% + of bilateral trade in goods duty-free
- 75% + of U.S. farm goods duty-free by 2008
- Stronger protection of intellectual property rights (IPR)
- Open and fair government procurement (_[www.chilecompras.cl](http://www.chilecompras.cl/)__)_
- Commitments on labor rights and environmental protection

- Visit our *U.S. Exporters Guide to the US – Chile FTA* at http://www.buyusa.gov/chile/en/ftaguide.html

- Effective January 2004

## Certificates of Origin

- Certificates of Origin may be provided by the importer, exporter or producer.
- Remain valid for four years from date of issue.
- Can cover multiple shipments of identical merchandise.
- Importers have up to one year to claim a refund for excess duties paid.

**Notes:**
Sample certificate of origin on our web site

## Certificates of Origin

- Documents supporting claims of origin must be maintained for at least five years.
- Supporting documents can include:
- Bills and/or receipts for materials used
- Commercial invoices
- Letter or affidavit from producer
- Certificate of origin for components used

## Slide 14

## U.S.-Chile Trade in Merchandise/Goods (In US$ Billions)

**U.S. Department of Commerce, Bureau of the Census (**_[www.census.gov](http://www.census.gov/)__)_

**Notes:**
The US is Chile’s largest trading partner.  Chile buys as much from the US as India does (with 1 billion people).  On a per capita basis, Chileans import 3X what Brazilians import from the US.  We represent Chile’s number one export market and, currently, her number two source of imports – 15% of all her imports. You can see from the chart that the US has traditionally had a trade surplus with Chile.  That ended a couple of years ago.  Many many reasons, 1) Chile’s long term development, 2) a strong US dollar meant our exports were more expensive, 3) and other countries signed FTAs with Chile making their exports relatively cheaper and more competitive.   I should also point out that this chart does not include trade in services, and area where we have a bilateral trade surplus and more or less balances things out.  
U.S. imports from Chile grew from US$3.71 billion in 2003 to US$4.73 billion in 2004, an increase of nearly 28%.
U.S. exports to Chile grew nearly 34% from US$2.72 billion in 2003 to US$3.63 billion in 2004.  Gaining back market share.

## Main U.S. Exports to Chile

**HS Chapter (2 digits) ****	****	****	****             ****	****	****	****	****US$ Millions CIF **
** **
**	****	****	****	****	****	****	****	****	****	****	****	****	****     ****2004****	****	****  2005**
**Total Exports:  ****	****	****	****	****   ****	****     ****	****	****	****     **(HS)**    3,605.9      5,197.7**
- 84--INDUSTRIAL MACHINERY & PARTS 	       84       1,090.0   1,294.6
- 27--MINERAL FUEL, OIL ETC.					85	  	324.4       867.4
- 87--VEHICLES, NOT RAILWAY					27	  	308.5       535.0
- 85--ELECTRIC MACHINERY/TELECOM EQUIP.	87	  	356.1       435.7
- 88--AIRCRAFT, SPACECRAFT					39	    	  59.3       334.6
- 90--OPTIC, MEDICAL, SURGICAL INSTRUM.		90	       167.0       203.7
- 39--PLASTICS AND ARTICLES THEREOF		29	       192.4       195.0
- 98--SPECIAL OTHER	   						38	       145.7       190.9
- 29--ORGANIC CHEMICALS						28	         92.7         97.0
- 38--CHEMICAL PRODUCTS						98            77.4         81.6

- Source: Bureau of Census

**Notes:**
88 – Aircraft, Spacecraft
Industrial machinery including construction machinery, mining equipment, power plant equipment

Electical machinery/telecom – computers and information technology

Fuel/oil

Cars and parts

Platics

Medical equipment

Chemicals

## Main Chilean Exports to the U.S.

- Source: Bureau of Census

**HS Chapter (2 digits) ****	****	****	****      ****	****	****	****	****US$ Million CIF**
**	**** **
**	****	****	****	****	****	****	****	****	****	****	****	****  ****2004****	****	****   2005**
**Total Exports: ****	****	****	****	****	****	****	****  (HS)   4,732.2****          ****6,665.7**** **
- 74--COPPER AND ARTICLES THEREOF	    08	  731.8 	  	  1,699.0
- 08--EDIBLE FRUIT & NUTS				    44	  925.2	         1,059.0
- 44--WOOD AND ARTICLES OF WOOD	    74	  914.4	            881.8
- 03--FISH & CRUSTACEANS				    03	  635.2	  	     717.9
- 26--ORES, SLAG AND ASH				    22        117.7	  	     366.6
- 27--MINERAL FUEL, OIL ETC.			    71	  136.8	  	     363.4
- 71--PRECIOUS STONES & METALS		    27	  147.8	  	     260.1
- 28--INORGANIC CHEMICALS			    26	  113.9	  	     184.3
- 22--BEVERAGES, SPIRITS AND VINEGAR 28	  152.6	  	     166.6
- 20--PRESERVED FOOD            			    29	    94.8	  	     102.6

**Notes:**
Commodities based

Copper, salmon, fruit, wood/pulp and wine, of course

## Main Destinations for Chilean Exports

- Source: SOFOFA

**Notes:**
Main 12 products exported in 2005 (thousand of US$):
Salmon & Trout:  1,733,434
Refined from Oil & Bunkering (fuel for ships): 1,400,267
Cellulose: 1,201,489
Wine & Must: 882,517
Fish: 768,331
Serrated wood: 715,397
Methanol: 610,889
Meat & Cold Cuts: 572,813
Boards & Molds: 511,850
Fish Flour: 458,276

## Best Prospects for U.S. Exports

**Construction****	**
**Electric Power Equipment **
**Medical Equipment & Healthcare**
**Computer Hardware / Software & Services **
**Financial Services**
**Franchising**
**Food Processing & Packaging Equipment**

**Notes:**
Construction - +8.4% economy booming.  Public infrastructure alone $15 billion next two years – concessioned – bridge, airports, roads, power generation plants, paper mills

Power Equipment – shortage – demand growing 8% - northern grid all thermal (Argentine gas), southern hydroelectic and thermal  Need to diversify
$400 million LNG regasification plant
Clean coal technology

IT.  Chile relatively high tech.  Internet/PC usage.  US players dominate.  No duties.

Financial services.  Fairly advanced.  Previous capital market reforms.  Healthy stock market.  Forced savings in privately operated social security with assets of $50 billion.  Mutual funds growing 20% per year - $6.5 billion.  New opportunities under FTA.  

Franchising popular.  Need to look beyond fast food.

Food processing.  To get value added – major food exporter.  Strong competition.

## Best Prospects (cont.)

**Environmental Technologies & Services**
**Mining Equipment**
**Plastics Machinery & Materials**
**Security Equipment & Safety**
**Telecommunications Equipment & Services**
**Travel & Tourism**

**Notes:**
Environment – OECD report big problems with air pollution and overuse of pesticides.  All waste water to be treated by end 2010.  Investment of $1.2 billion.  Major investment.  US-Chile FTA cooperative programs.  Next week AguayAmbiente show.

Mining simply booming.  Copper 10% of GDP and 53% of exports.  Marginal mines and expansions underway.  $10 billion in new projects.  Copper at $1.50/lb vs 60 cents.  New equipment and know how for expansion projects.

Plastics – 16-18% market share should improve with FTA.

Safety and security.  US largest market share.  Home, commercial etc.  Prisons expanding.  Trade related – container security.

Telecom.  One of the most advanced markets in Latin America.  
Chile’s fixed telephony density reached 20.5 lines per 100 inhabitants.  Installation of new telephone lines decreased 3.6 percent from June 2003 to June 2004, while cellular subscribers increased 19.7 percent, reaching 42.8 subscribers per 100 inhabitants.   SUBTEL reports 8.4 million cell phones in use in Chile as of June 2004, an increase of 1.4 million subscribers in one year. 
Merger trends . . . 
Opportunities in rural telephony – getting the hinterlands connected.

Chilean imports of medical equipment in 2004 amounted to $18.6 million and U.S. suppliers accounted for 37.8% of the market followed by Germany with 14.3%.   Plan AUGE  The plan guarantees government-funded healthcare coverage for select illnesses regardless of the person’s ability to pay.

The U.S. remains the second biggest destination for Chilean travelers, totaling 248,947 in 2004 and representing 15 percent of total travel compared to a 12 percent share for Europe. 

## Mining Equipment and Services

**	****Industry Profile**

## 
1. Market Overview
2. U.S. Position
3. Competitors
4. Principal Sub Sectors
5. Commercial Opportunities
6. Other Resources

- 1. Market Overview
- 2. U.S. Position
- 3. Competitors
- 4. Principal Sub Sectors
- 5. Commercial Opportunities
- 6. Other Resources

**	****Contents**

## Market Overview

- In 2005, the local mining equipment and services market exceeded $1 billion and is expected to grow at an annual minimum average of 10% for the next 5 to 8 years.
- Over $18 billion in identifiable projects are scheduled to break ground by 2013.

## Chile is the world’s largest producer and exporter of 
potassium nitrate, 
sodium nitrate, 
copper, and
lithium
Chile is the world’s second largest producer of 
rhenium, 
iodine, and
molybdenum
Chile produces substantial amounts of
gold and
silver

- potassium nitrate,
- sodium nitrate,
- copper, and
- lithium
- Chile is the world’s second largest producer of
- rhenium,
- iodine, and
- molybdenum
- Chile produces substantial amounts of
- gold and
- silver

**Market Overview**

**Market Overview**

- The Chilean Mining industry is made up of...
-   over 70 private mining companies that own 120 mining operations, with Chilean and multinational ownership
-   one state-owned mining corporation, CODELCO, one of the largest copper producers and exporters in the world
-  over 270 supplying companies, most of which represent the U.S. as well as other brands of imported products, 38 of which are members of APRIMIN

## Copper prices increased from US$0.65/lb in 1998 to US$3.14/lb in April 24, 2006, creating strong incentives for new mines and mining projects.  

Between 2003 and early 2006, the number of active mines jumped from 70 to 220.

The launch of new mining projects and the US -Chile Free Trade Agreement (2004) are the driving forces for the demand that reached a peak of US$1.6 billion/year in 2005.

- Between 2003 and early 2006, the number of active mines jumped from 70 to 220.
- The launch of new mining projects and the US -Chile Free Trade Agreement (2004) are the driving forces for the demand that reached a peak of US$1.6 billion/year in 2005.

**Market Overview**** **

## Mining Equipment & Supplies and Services

- Source: These figures are unofficial estimates and were elaborated based on Chilean Customs Statistics and mining industry experts’ estimates.

**Market Overview**

## U.S. Position

- Historically, 50-55% of all mining equipment imports come from the U.S.
- This high market share is supported by excellent quality, after-sales service, and compliance with delivery dates.
- However, with explosive market growth and the entrance of new suppliers, the U.S. market share has decreased from 52% in 2003 to 40% in 2005.

-    During 2005, manufacturers of mining equipment from Brazil, Canada, Germany, Japan and Sweden were the most aggressive competitors for the U.S. suppliers in the Chilean market..
- The U.S. plus the five traditional suppliers, provided 80% of Chilean imports.
-    The mix of mining equipment suppliers has changed by the increased participation of smaller suppliers from the rest of the world, particularly from Asia.

**Competitors**

## Principal Sub Sectors

**Copper mining**
**Silver mining**
**Other metals and minerals include:**
- Gold				 - Boron
- Rhenium				 - Selenium
- Lithium				 - Calcium Carbonate
- Iodine				 - Sodium Chloride (rock salt)
- Molybdenum			 - Diatomite
- Manganese
- Iron ore

## Commercial Opportunities

**Many opportunities currently exist for U.S. firms and exporters, in the following areas:**
**New mines and modernization of existing facilities**
**Mining Equipment**
**Crushers**
**Grinders**
**Off-road vehicles**
**Cabbed chassis**
**Rock cutters and necessary parts**
**360 degree revolving excavators**
**Cranes and screening machines**

## Production technology
Biotech applications to copper processing
Innovative companies to provide solutions to cut costs
Robotics, automation, continuous mining
Environmental services
Codelco is currently obtaining ISO certification and must meet higher environmental standards

- Biotech applications to copper processing
- Innovative companies to provide solutions to cut costs
- Robotics, automation, continuous mining
- Environmental services
- Codelco is currently obtaining ISO certification and must meet higher environmental standards

**Commercial Opportunities**** **

## Other Resources

- Chilean Mining Ministry: www.minmineria.cl
- Chilean Geology & Mining Service: www.sernageomin.cl
- Chilean Mining Metallurgic Center of Research: www.cimm.cl
- National Mining Society: www.sonami.cl
- Chilean Mining Council: www.consejominero.cl
- Large Mining Suppliers Association: www.aprimin.cl
- Minería Chilena (Mining Magazine): www.mch.cl
- Supplying CODELCO: www.codelco.com/english/areas_negocio/fr_abastecimiento.html

## Contact Us

- Interested in more information on this sector or in obtaining assistance from the U.S. Commercial Service in Chile?
- Please visit
- http://www.buyusa.gov/chile/en
- or contact
- Carlos Capurro at: Carlos.Capurro@mail.doc.gov

## We Can Help!

- Counseling and Advocacy
- Finding International Partners
- Customized Market Research
- Trade Events

*Visit www.buyusa.gov to locate your nearest U.S. Export Assistance Center and get information on our services.*

##         U.S. Embassy / Department of Commerce

**Santiago, Chile **
**www.buyusa.gov/chile**
**E-mail: carlos.capurro@mail.doc.gov**
**Tel: (56-2) 330-3316         Fax: (56-2) 330-3172**

**Thank you!**