RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/124
4 November 2003
(03-5680)
Trade Policy Review Body
TRADE POLICY REVIEW
CHILE
Report by the Secretariat
This report, prepared for the third Trade Policy Review of Chile, has been drawn
up by the WTO Secretariat on its own responsibility.  The Secretariat has, as
required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from  the Government of Chile on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Mr. Raymundo Valdés (tel. 739 5346) and Mr. Arne Klau (tel. 739 5706).
Document WT/TPR/G/124 contains the policy statement submitted by the
Government of Chile.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting 
of the Trade Policy Review Body on Chile.Chile WT/TPR/S/124
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) I NTRODUCTION vii
(2) E CONOMIC DEVELOPMENTS vii
(3) I NSTITUTIONAL ENVIRONMENT viii
(4) M ARKET ACCESS FOR GOODS viii
(5) O THER MEASURES AFFECTING TRADE IN GOODS ix
(6) S ECTORIAL POLICIES ix
I. ECONOMIC ENVIRONMENT 1
(1) I NTRODUCTION 1
(2) M AIN ECONOMIC DEVELOPMENTS 1
(i) Output and employment 1(ii) Fiscal policy 3(iii) Monetary and exchange rate policies 5
(iv) Balance-of-payments 6
(3) M
ERCHANDISE TRADE AND INVESTMENT FLOWS 8
(i) Composition of trade 8(ii) Direction of trade 8(iii) Foreign direct investment 11
(4) O
UTLOOK 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 13
(1) I NTRODUCTION 13
(2) T RADE POLICY FORMULATION AND IMPLEMENTATION 13
(i) General legal and institutional framework 13(ii) Trade policy objectives and formulation 14
(iii) Main trade laws and regulations 15
(3) F
OREIGN INVESTMENT REGIME 17
(4) I NTERNATIONAL RELATIONS 19
(i) World Trade Organization 19(ii) Preferential agreements in force 23(iii) Other agreements and arrangements 25
III. TRADE POLICIES AND PRACTICES BY MEASURE 28
(1) O
VERVIEW 28
(2) M EASURES AFFECTING IMPORTS 28
(i) Procedures 28(ii) Customs valuation 29(iii) Rules of origin 30
(iv) Tariffs 31
(v) Price band system 35WT/TPR/S/124 Trade Policy Review
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(vi) Tariff quotas 36
(vii) Other charges affecting imports 36(viii) Import prohibitions, restrictions, and licensing 38(ix) Contingency measures 39(x) Standards and other technical requirements 43
(xi) Other measures 46
(3) M
EASURES AFFECTING EXPORTS 46
(i) Registration and documentation 46(ii) Export taxes, charges, and levies 46(iii) Export prohibitions and other restrictions 47
(iv) Subsidies, free-trade zones, and similar arrangements 47
(v) Export promotion and marketing assistance 48
(vi) Export finance, insurance and guarantees 48
(vii) Trade-related investment measures (TRIMs) 49(viii) Measures applied in foreign markets 50
(4) O
THER MEASURES AFFECTING PRODUCTION AND TRADE 50
(i) Competition policy 50
(ii) Government procurement 51(iii) State-trading companies, state-owned enterprises, and privatization 52(iv) Regional assistance 53(v) Assistance for research and development 55(vi) Electronic commerce 55
(vii) Intellectual property rights 55
IV. TRADE POLICIES BY SECTOR 59
(1) I
NTRODUCTION 59
(2) A GRICULTURE , FORESTRY , AND FISHING 60
(i) Main features 60
(ii) Policy objectives and instruments 61
(iii) Key subsectors 64
(3) M INING 68
(4) E NERGY 71
(5) M ANUFACTURING 72
(6) S ERVICES 74
(i) Principal characteristics 74
(ii) Overall commitments under the GATS and other agreements 75(iii) Financial services 78(iv) Telecommunication 80(v) Transport 82
BIBLIOGRAPHY 85
APPENDIX TABLES 87Chile WT/TPR/S/124
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CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Merchandise trade by product, 1996 and 2001 9
I.2 Merchandise trade by partner, 1996 and 2001 10
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Basic economic indicators, 1996-02 2
I.2 Employment indicators, 1996-02 3I.3 Central Government finances, 1996-02 4I.4 Import-related fiscal revenue, 1996-02 5I.5 Balance-of-payments, 1996-02 7I.6 Foreign direct investment by sector, 1996-02 11
I.7 Foreign direct investment by selected country of origin, 1996-02 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Main domestic laws and regulations relating to foreign trade, June 2003 16
II.2 Chile's notifications under the WTO Agreements, June 2003 19II.3 Dispute-related WTO matters involving Chile, 1997-May 2003 22
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Main characteristics of Chile's preferential rules of origin 31
III.2 Average tariffs under Chile's main preferential agreements, 2003 32
III.3 Taxes levied on imports and domestic g oods, April 2003 37
III.4 Products subject to administrative formalities 39III.5 C ountervailing, anti-dumping, and safeguard measures classified by category of product, 1997-02 41
III.6 Privatization of state-owned enterprises since 1997 53III.7 Chile's participation in international IPR agreements 55III.8 Overview of IPR protection provided by Chile's domestic legislation, 2003 56
III.9 Registration of Intellectual Property, 1997-02 57
IV. TRADE POLICIES BY SECTORIV.1 GDP shares, 1996-02 59
IV.2 Chile's main agricultural exports, 1996-02 61
IV.3 Changes in the use of farmland, regions III to IX, 1988-02 61
IV.4 Catch of principle species, 1997-01 66IV.5 Main exports of the fisheries sector, 1996-02 66IV.6 Production of selected minerals, 1996-02 68IV.7 Production of copper, 1996-02 69IV.8 Production and sales of CODELCO, 1996-02 69
IV.9 Value-added in the manufacturing sector, 1996-02 73
IV.10 Summary of Chile's commitments under the GATS 75IV.11 Telephone connections in Chile, 1996-02 81IV.12 Major Chilean ports, handled cargo, 1996-01 82WT/TPR/S/124 Trade Policy Review
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APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Exports by groups of products, 1996-01 89
AI.2 Imports by groups of products, 1996-02 91
AI.3 Exports by destination, 1996-01 93AI.4 Imports by origin, 1996-02 95
IV. TRADE POLICIES BY SECTOR
AIV.1 Chile's international air transport agreements 97Chile WT/TPR/S/124
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SUMMARY OBSERVATIONS
(1) INTRODUCTION
1. Since its last Review in 1997, Chile
has continued to reform and liberalize its
already open trade and investment regimes.  Ithas thus unilaterally reduced tariffs,
streamlined customs procedures, ceased to
apply capital controls, and floated the
exchange rate.  Inter-sectoral neutrality has
remained a key feature of Chile's policies, aswitnessed by an almost uniform applied MFN
tariff, the absence of significant programmes
to assist specific activities, and the granting of
national treatment in government procurement
and to foreign investors, in all but a few cases.Nevertheless, distortions might arise from the
use of a price band system to protect a handful
of agricultural products and of export support
schemes.  Sound policies help to explain the
resilience of the economy in the face of
various external shocks, although growth has
been low compared with earlier years.
2. Chile has continued to show a strong
commitment to the multilateral trading system,
while also maintaining vigorous involvement
in free-trade agreements (FTAs).  In addition
to the one FTA in force in 1997, Chile hassigned seven new agreements, and is
negotiating others. The growing number of
FTAs is enhancing market access for some
partners and increasing competition in Chile's
economy.  However, it has reduced the shareof Chilean trade conducted under MFN
conditions, is injecting complexity into its
trade regime, may undermine the neutrality of
economic policies, and may result in trade and
investment diversion.  Any resultinginefficiencies would be reduced if Chile
carries on the unilateral liberalization of its
economy, a strategy that has allowed it to
achieve an enviable development record.
(2) E
CONOMIC DEVELOPMENTS
3. Chile's economy has grown at an
annual average rate of 2.4% since 1997.  In1999, the economy underwent its first
recession since the early 1980s;  growthresumed in 2000 but at lower rates than in
previous years.  A number of external shocks
help to explain the sluggish GDP growth in
recent years, including low copper prices,
high oil prices,  and contagion from financial
crises in East Asia, Argentina, and Brazil;long-run factors may also be at play, including
the slowdown of population growth.  Per
capita GDP stood at some US$4,340 in 2002.
4. A major development since Chile's
previous Review is the adoption of a flexibleexchange rate system in 1999. The Central
Bank has been successful in lowering inflation,
which fell to 2.5% in 2002.  Since 2001,
monetary policy seeks to achieve an annual
inflation target of 2% to 4%, centered on 3%.With a view to reducing Chile's exposure to
short-term capital flows and warding off
appreciating pressure of the exchange rate,
Chile applied controls on inflows of short-term
capital until 1998, when it zero-rated the
deposits to be lodged at the Central Bank.  The
FTA with the United States, signed but not yetin force, contains provisions on the transfer of
capital.
5. Since 2001, fiscal policy aims to
ensure medium-term fiscal stability, while
permitting counter-cyclical measures inperiods of slower economic growth.  The
authorities have sought to maintain a
"structural surplus" equivalent to 1% of GDP,
which since Chile's previous Review, has
translated into modest fiscal deficits in 1999,2001 and 2002.
6. Chile's external current account has
posted a deficit in each of the past six years,
except for 1999.  However, the deficit has
come down from its high 1996-98 levels,mainly because the trade balance switched
into surplus in 1999.  The deficit has been
largely financed by FDI inflows, which have
traditionally played an important role in
Chile's economy;  the mining sector has been
the main magnet, although service activities
have become major recipients in recent years.
7. Trade plays an increasingly important
role in Chile's economy:  the share of trade inWT/TPR/S/124 Trade Policy Review
Page viii
goods and services in Chile's GDP increased
from 56% in 1997 to 66% in 2002.  Chile's
exports consist mostly of resource-based
goods, with mining products, mostly copper,
accounting for some 42% of merchandise
exports and agricultural goods (WTOdefinition) for about 37%.  Imports are
dominated by a wide range of manufactured
goods and crude petroleum.
8. Chile's main export market is the
European Union, followed by the UnitedStates and Japan.  Chile's largest supplier is
Argentina, just ahead of the United States and
the European Union.  Brazil and China are
also important suppliers and have both
increased their shares in Chile's imports.
(3) I
NSTITUTIONAL ENVIRONMENT
9. Chile is an original Member of the
GATT and the WTO.  The multilateral
agreements form an integral part of Chile's
legislation, with the status of ordinary law.
Chile has been an active participant in the
multilateral trading system;  it took part in theextended negotiations on telecommunication
and financial services and ratified the Fourth
and Fifth Protocols to the GATS.  Chile has
been involved in eleven cases under the WTO
dispute settlement system.
10. Chile's effort to further integrate into
the world economy is also reflected in its
participation in various regional and bilateral
trade initiatives.  Since 1997, Chile has
entered into FTAs with Canada, Costa Rica,El Salvador, and the European Union, and
expanded its agreement with Mexico.  Further
agreements, with the European Free Trade
Association, Korea, and the United States,
have been negotiated but had not entered intoforce as at mid-2003.  In addition, Chile has
partial scope agreements with all
MERCOSUR countries, Bolivia, Colombia,
Ecuador, Peru, and Venezuela, and
participates in the negotiation groups of the
Free-Trade Area of the Americas.
11. The increased number of Chile's
preferential trade agreements are creating anelaborate system of different tariffs and rules
of origin that could result in economic
distortions.  Applied tariffs vary across
preferential agreements and product groups,
generally as a result of the specific schedules
of tariff reductions and the dates of entry inforce of each agreement.  The cost of these
distortions, however, has not been quantified,
and might be reduced by Chile's relatively lowMFN border protection.
12. The investment regime grants national
treatment to foreigners with only few
exceptions.  Investments made under the
Foreign Investment Statute, a special
voluntary investment regime, requireauthorization.  Due to a long-standing
privatization policy, there are very few state-
owned enterprises left, but these include
CODELCO, the world's largest copper
producer.  Since 1997, a number of seaports
have been given in concession to privateoperators.
13. A draft law on miscellaneous WTO-
related matters, sent to Congress in October1999, was approved in August 2003.  The
bill aims to bring various individual
provisions of Chile's legislation into line with
the WTO Agreements;  it contains provisions
on customs valuation, technical regulations,taxation, and intellectual property.  The bill
also provides for the formal abolition of trade-
related investment measures in the automotivesector.
(4) M
ARKET ACCESS FOR GOODS
14. Tariffs are Chile's main trade policy
instrument. Chile grants at least MFN
treatment to all its trading partners.  Theaverage applied MFN tariff has fallen from
11% at the time of Chile's previous Review,
to 6% in 2003  Tariffs are applied at a
generally uniform rate;  exceptions include
aircraft and vessels, which receive duty-freetreatment, and a handful of agricultural goods
(wheat and wheat flour, edible vegetable oils,
sugar) subject to a price band system.  Since
June 2002, Chile has been applying a customs
valuation system based on the WTO CustomsValuation Agreement.Chile WT/TPR/S/124
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15. In the Uruguay Round, Chile bound
all its tariffs, most at 25%;  a number of
agricultural products are subject to a bound
rate of 31.5% at the end of the implementation
period.  After the conclusion of the Uruguay
Round, Chile pursued Article XXVIIIrenegotiations for sugar, resulting in an
increase of the final bound rate to 98%,
together with the introduction of Chile's single
tariff quota.  Closing the wide gap between
applied and bound tariffs would increase thepredictability of Chile's trade regime.
16. Tariff reductions under preferential
agreements have also contributed to improved
access to the Chilean market for partners.
Duty-free access is offered to most importsfrom Canada, Costa Rica, El Salvador,
Mexico, and the European Union.
Preferential market access is also offered
within the framework of partial scope
agreements.
17. Irrespective of their origin and in
accordance with the national treatmentprinciple, imports are subject to domestic
taxes, most notably a 18% value-added tax
applicable on the c.i.f. value of imported
goods.  In addition, various goods, such as
alcoholic beverages, jewellery, and vehicles,are subject to specific consumption taxes.
18. The use of non-tariff barriers appears
limited.  No import licensing system exists.
Chile maintains various import restrictions
and prohibitions, which apply equally to alltrading partners, for reasons of health and
environmental protection.  It makes modest
use of contingency measures;  currently it
imposes no anti-dumping or countervailing
duties.  Chile adopted domestic safeguardlegislation in 1999 and has imposed seven
measures since, some of which led to requests
for consultation in the WTO.
(5) O
THER MEASURES AFFECTING
TRADE IN GOODS
19. Chile has notified six support schemes
involving subsidies.  Since 1997, three of theseschemes have been modified in order to bringthem into line with the WTO Agreement on
Subsidies and Countervailing Measures;  the
other three involve regional measures focusing
on Chile's extreme northern and southern
provinces.  Two public export finance
programmes are also in place.  Since its lastReview, Chile has streamlined export
procedures, most notably by introducing a
single export form.  It does not apply export
taxes or agricultural export subsidies.
20. As part of a broader project to
reform and modernize the State, the Chilean
Government has made efforts to increase
transparency in public procurement, notably
through the adoption of new legislation
in July 2003 and the introduction ofelectronic tendering.  Under this Law,
national treatment is accorded to foreign
suppliers.  A new competition law is before
Congress (mid 2003).
21. The WTO Agreement on Trade-
Related Aspects of Intellectual Property
Rights (TRIPS) became part of Chile'slegislation through its ratification of the
Marrakesh Agreement.  Chile has undertaken
legal and administrative reforms to facilitate
the protection of intellectual property rights.
New legislation on industrial property andcopyrights is before Congress.
(6) S
ECTORAL POLICIES
22. As noted, economic policy is largely
sector-neutral, notwithstanding special border
protection for some agricultural goodsprovided through the price band system.
Agriculture, fisheries and forestry remain
crucial for employment and the generation of
foreign exchange, Chile being one of the
world's largest exporters of fruit, fish andfishmeal, and forestry products.  Over the last
few years, a certain diversification in
agricultural production has taken place,
including a shift from annual crops to fruit
and vegetable production and stock-breeding.
23. Chile's highly productive mining sector
generates more than 42% of merchandiseexport revenues, copper being its mostWT/TPR/S/124 Trade Policy Review
Page x
important single export product.  Mining is also
the most important reci pient of foreign direct
investment.  Profits from CODELCO are an
important part of government revenue.
24. The contribution of manufacturing to
GDP has declined in recent years, to about16% in 2002.  Manufacturing pr oduction and
exports are based largely on the processing of
natural resources.  Chile is a net importer of
all major categories of manufactured goods.
Trade-related investment measures in theautomotive sector were in place until their use
was terminated with the entry in force of the
FTA with the European Union in February
2003.
25. Services is the most important sector
in the economy in terms of contribution toGDP and employment.  Chile's foreign
investment regime grants national treatment
to foreign investment in services with only few
exceptions, such as maritime transport.
Foreign participation in Chile's services
sector is substantial, most notably in financialservices and telecommunications.  Major
legal reforms since 1997 include a new
Bank Law, new legislation on capital markets,
and the conclusion of a multilateral air
transport agreement.  Conditions for foreignparticipation in Chilean services sector are far
more liberal than those implied by its GATS
commitments;  enhanci ng these commitments
would thus increase the predictability of
Chile's trade regime.