WT/TPR/S/28 Trade Policy Review
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IV. TRADE POLICIES AND PRACTICES BYSECTOR
(1) Overview
1. Inprinciple, Chile'suniform MFN tariffprovides neutral treatment fortraded goods. However,
asnoted atthetimeofthefirstreview, additional import protection isavailable forcertain agricultural
products andtheautomotive industry; production support isalsoprovided fortheforestry sector.
Suchpolicies maycause ashiftintheallocation ofresources away fromother sectors, suchasservices,
albeit onamoderate scale. TheroleoftheStateremains substantial onlyinthemining sector. Foreign
anddomestic capital aregenerally treated inthesame manner inallsectors.
2. Chile relies heavily onexports ofagricultural products, andinrecent years efforts havebeen
made toenhance productivity inthesector. However, adualism seems tohavedeveloped: anefficient
fruitandforestry sector produces mainly forexport, withfewinterventions; onenotable subsidy is
theproduction subsidy forforestry. Alessproductive sector produces mainly importables, some of
which arestillsubject toaprice bandmechanism and,incertain instances, tominimum prices.
3. Inthemanufacturing sector, onlytheautomotive industry issubject toaspecific preferential
regime; linked tolocal content andexport balancing requirements, thisscheme isscheduled tobe
eliminated in1998. Thisisnotamajor activity inChile, itistheonlyremnant oftheearlier import-
substitutionindustrializationregime.Manufacturedexportsseemtobenefitsubstantiallyfromtheexisting
duty-drawback systems, oneofwhich hasanotified subsidy element.
4. Interms ofcontribution toGDP, theservices sector isthemostimportant sector intheeconomy.
Thesector hasnotbeengranted anyspecial incentives, buthasbenefited fromtheeffects ofprivatization,
thegeneral opening-up oftheeconomy andtheincrease offoreign investment, which havepromoted
efficiency inthesector. Thefinancial services andtelecommunications sub-sectors haveundergone
major reforms. There donotappear tobeanysignificant restraints onaccess forforeign capital.
(2) Agriculture, Forestry andFishing
(i) Agriculture
5. TheChilean agricultural andforestry sector isimportant inproduction andtrade.1The
contribution ofthesector toGDPduring 1989-95 amounted tosome 7.2percent,andsome 18percent
ofthetotallabour force isemployed inthissector.2Alongside averyproductive exporting sector,
mainly fruitandforestry, there arestillmany small-holders whohavenotyetmodernized; many of
theseproduce mainly importables andmaynever havethecapacity toadjust tothedemands ofamodern
economy. Thelessdeveloped sector employs 39percentofthetotalagricultural labour force and
accounts fortheproduction of46percentofthevegetables andflowers fordomestic consumption,
30percentofannual crops (66percentofpotatoes, 33percentofsugar beet,33percentofbeans),
29percentofgrapes and15percentoffruit.3
6. Chile ishighly dependent uponprimary exports.1In1995, exports ofagricultural andforestry
products, bothrawandprocessed goods, accounted for36.6percentoftotalexports, amounting to
1Estimates fortheagricultural andtheforestry sector were provided totheWTO Secretariat asanaggregate.
2Iftheprocessing ofagricultural andforestry products were included, thetotalcontribution oftheprimary
sector would amount to17percentoftheGDP.
3ElMercurio (International Edition), 21-27 November 1996.WT/TPR/S/28 Trade Policy Review
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8. Since 1990, thesectoral composition ofproduction hasnotshown important variations, with
theexception ofcrops, whose production value hasdecreased by6percent,andproduction offorestry
products, which hasincreased by4percent(Chart IV.2).8There hasbeenashifttowards more
profitable products, suchasforestry products, andfruitandvegetables forexport.
9. Table IV.1, shows Chile'stenmostimportant agricultural products, which comprise mostly
importables, butalsosome exportables suchastableandwinegrapes, andapples. Themostimportant
product byvalue istablegrapes, which isalsoChile'smost important agricultural andfruitexport,
at2.2percentoftotalexports, followed byapples at1.3percentoftotalexports in1995.9Thevalue
ofproduction ofwine grapes hasincreased because Chile hasmoved intotheproduction ofhigher
qualitywinegrapes.Amongimportables,thevalueofproductionofpoultry,dairyproductsandtomatoes
show thelargest increases. In1996, thedairy sub-sector wasoneofthemost dynamic agricultural
sub-sectors, growing atanaverage rateof8.2percent.10
8Crops include theproduction ofcereals (wheat, oats, barley, rye,maize, andrice); legumes (beans, lentils,
chickpeasandpeas);potatoes;industrialcrops(sunflowerseeds,rapeseedorcolza(brassicanapusvar.oleifera),
sugar beets, lupin (lupinnnus perennis ,usedasanimal feed) andtobacco. Thebreakdown oftheaggregate data
forcrops andvegetables wasnotprovided totheWTO Secretariat.
9UNSTAT, Comtrade database.
10ElMercurio (International Edition), 8-12 February 1997.Chile WT/TPR/S/28
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Table IV.1
Value ofproduction ofthetenmost important agricultural products, 1990-95a
(US$ million)
Average
Product 1990 1991 1992 1993 1994 1995 90-95 94-95
Table grapesb389 526 507 552 545 603 520 574
Cattle 345 424 414 406 414 492 416 453
Poultry 174 220 287 315 376 430 300 403
Wheat 288 291 296 242 250 296 277 273
Tomatoes 182 245 260 233 296 380 266 338
Applesb183 260 327 179 230 303 247 266
Milk 154 165 210 231 268 318 224 293
Pigs 130 160 191 183 172 217 175 194
Wine grapesb80 149 202 180 177 227 169 202
Sugar beets 121 117 191 180 184 195 165 190
a Provisional dataduetochanges inmethodology.
b Exportables.
Source: Government ofChile.
10. MFN ratesformost agricultural products were bound at25percent, withtheexception of
sugar, wheat andwheat flour, vegetable oilsanddairy products which werebound at31.5percent.
However,theuniformtariffof11percentappliestomostagriculturalimports,otherthanthoseimported
under preferential agreements. Themain exceptions arisefrom theapplication of(i)theprice band
mechanism towheat, wheat flour, edible oilsandsugar, and(ii)minimum import prices, which have
beenusedfromtimetotimesince1990, forpowdered milk(HS0402.1000 andHS0402.2100), sugar
(HS1701.91 and1701.99), rice(HS1006.10, 1006.20, 1006.30 and1006.40), wheat flour(HS1101.00
and1101) andmaize (HS1005.90), buthavenotbeenapplied since 1995 (Chapter III(1)). Within
theframework ofthePreferential Agreement withBolivia, seasonal tariffs apply tooleaginous products
imported from Bolivia, these areapplied ataratebelow theapplied MFN rate.
11. Although thenominal 11percenttariff isalsoapplicable tobeef, maize, milk, sugar beet,
wheat, apples andgrapes, thedomestic prices forthese products arenotpriced uptotheworld price
plusthetariff, i.e.there is"water inthetariff". Indeed, redandgreen apples andgrapes havebeen
essentially priced atworld prices onthedomestic market since1985.11During thesameperiod, effective
rates ofprotection (EPRs) forthese fourexportables, taking account oftariffs andnon-tariff
protection/assistance oninputs aswellasonthefinalgoods, haveconsistently beennegative andhave
varied between zeroand3percent; while thesame measure forimportables hasvaried bothinsign
andlevel, according toproduct, asshown inTable IV.2.12
11Valdés (1995). Valdés defines theNominal Protection Rate(NPR) asthedifference between theprevailing
domestic price andtheappropriate adjusted border price intheabsence ofintervention.
12When theERP isabove average, thesector isattracting resources from therestoftheeconomy. When
theERPisbelow average ornegative, itisceding resources toother sectors asaconsequence ofgovernment
policy.WT/TPR/S/28 Trade Policy Review
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Table IV.2
Summary ofprotection indicators forselected products, 1989-93
(Percent)
1989 1990 1991 1992 1993
Exportables
Apples, red NPR 0.0 0.0 0.0 0.0 0.0
EPR <0 -1.5 -0.6 -0.3 <0
PSE 143.8 -0.9 -0.4 0.0
ERA 221.9 -1.0 -0.4 -0.1
Apples, green NPR 0.0 0.0 0.0 0.0 0.0
EPR <0 -0.9 -1.1 -0.3 <0
PSE 138.0 -0.6 -0.7 0.0
ERA 200.0 -0.7 -0.8 0.0
Grapes, Thompson NPR 0.0 0.0 0.0 0.0 0.0
EPR -1.9 -2.4 -0.8 -1.6 -1.1
PSE 23.8 -1.7 -0.7 -0.7
ERA 40.7 -2.3 -0.8 -1.2
Grapes, Flame seedless NPR 0.0 0.0 0.0 0.0 0.0
EPR -2.7 -1.2 -0.7 -0.7 -0.8
PSE 9.5 -1.0 -0.5 -0.4
ERA 14.8 -1.2 -0.6 -0.5
Importables
Beef NPR 28.0 -11.2 -9.8 24.8 30.2
EPR 24.3 -15.0 -13.0 21.5 26.5
PSE 19.5 -10.3 -8.8 16.9
ERA 24.9 -14.7 -12.7 22.6
Maize NPR -15.7 -26.2 -5.5 4.5 -2.1
EPR -29.4 -42.7 -13.1 3.7 -7.4
PSE -21.2 -37.8 -8.0 3.3
ERA -28.4 -42.0 12.2 6.0
Milk NPR 15.3 38.9 42.8 42.7 37.4
EPR 16.2 44.7 50.2 50.1 42.1
PSE 13.7 27.5 29.4 31.0
ERA 18.6 46.9 52.2 54.2
Sugar beet NPR 23.0 6.2 42.4 56.5 37.7
EPR 45.5 6.1 79.4 123.8 67.9
PSE 16.1 3.5 27.7 34.8
ERA 46.6 6.8 80.3 126.0
Wheat (non-irrigated) NPR -6.6 -1.3 43.2 33.1 13.5
EPR -10.2 -4.6 56.7 41.7 15.4
PSE -7.5 -2.1 29.9 26.8
ERA -8.7 -2.5 63.7 49.9
Note: NPR (Nominal Protection Rate) isthedifference between thedomestic price andtheappropriate adjusted border price in
theabsence ofintervention.
EPR (Effective Protection Rate) measures howtrade barriers onaproduct anditsinputs jointly affect value-added ina
particular activity.
PSE (Producer Subsidy Equivalent) isdefined asaratioofpolicy transfers compared tothetotalvalue ofdomestic production.
ERA (Effective RateofAssistance) measures thecombined affect ofprotection oninputs andoutputs taking intoaccount
allNTMs, including domestic supports.
Source: Valdés (1995).Chile WT/TPR/S/28
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12. Theuneven treatment ofdifferent products isalsoevident fromtheestimates oftheProducer
Subsidy Equivalent (PSE) andtheEffective RateofAssistance (ERA), amore comprehensive measure
ofprotection which takes intoaccount thecombined effect ofprotection oninputs andoutputs aswell
asallnon-tariff measures (NTMs) anddomestic support.13ThePSEisdefined astheratioofpolicy
transfers compared tothetotalvalue ofdomestic production. According totheseestimates, exportables
hadnegative PSEs andERAs intheperiod 1990-93. There hasbeennochange inthestructure of
protection sincethen,although thePSEs could havefallen asaresult ofworld priceincreases.14Positive
PSEs andERAs reflect disaster transfer relief tofruitproducers (seebelow).
13. Inthecaseofmilk, theuseofminimum import prices, inforce upto1995, wasintended to
offset theeffects offoreign subsidies. Since theadjusted border priceofmilkisnormally higher than
theworld price, thissystem actsasapricesupport system forthedomestic price, giving risetopositive
EPRs which increased after1989, when theEPRstood at16percent,toreach 42percentin1993.15
Asobserved, PSE'sformilkwere positive inthe1989-92 period, rising from 13.7to31percent
(Table IV.2).
14. Thecontribution oftheimport tariff andtheprice bandmechanism applied tosugar result in
ahighEPRforsugar beetasshown inTable IV.2. Theexistence ofaprivate monopsony, IANSA,
thesolepurchaser andrefiner ofalldomestically produced sugar beet, which setstheprice paidto
farmers inadvance oftheharvest season, alsoaffects theEPR.16PSEs werealsopositive during the
1989-92 period, fluctuating between 16and34.8percent. TheERAwaspositive anditslevelincreased
after1989.
15. Ithasbeenestimated thatnominal protection andtheEPRforwheat production havebeen
higher thantheuniform tariff asaresult ofitsspecial treatment. Fortheperiod 1991-93, nominal
protection wasestimated at43percent,33percent,and13.5percent,wellabove theapplied import
tariff. Thislevelofprotection arises from theminimum import prices forwheat flour andtheprice
bandmechanism forwheat andwheat flour.17ThePSEs werealsopositive forthe1990-93 period,
affirming thatproducers arereceiving positive income transfers.
16. OneofChile'shighest priorities overtheyears hasbeentoprotect thehealth ofitsforests
andagricultural sector; hence, several import restrictions apply toagricultural products forsanitary
reasons. InFebruary 1997, Chile imposed acondition thatwheat imports fromtheUnited States must
13Laird (1994).
14ThePSEcanbealtered bychanges inworld prices, exchange rates, ordomestic production even when
government policies remain thesame. Moreover, transfers donotallhave thesame weight inthepercentage
PSEcalculation (Webb etal.,1990).
15Valdés (1994) and(1995).
16Valdés (1995). IANSA, originally setupimproved efficiency tohelpsugar producers, dominates thelocal
sugar market. However, thisprivate firmseems tohave improved efficiency after aprocess ofrestructuring,
anddoesnotappear toseekmonopsony rentsfromproducers (Latin American Economy andBusiness, July1996).
Theauthorities indicated thatIANSA together withtheNational Federation ofSugarbeet Producers (FENARE)
settheprice paidtofarmers. Thisisestablished taking intoaccount theinternational price ofsugar, thecost
ofimporting sugar andthevalues established bytheprice band.
17Valdés (1994) and(1995).WT/TPR/S/28 Trade Policy Review
Page 86
originate inStates freeofthefungus Karnal bunt(Tilletia indica )andbeaccompanied byacertificate
ortheresults oftestsconducted byprivate laboratories approved byUSDA, proving thatthefungus
wasnotpresent intheshipment.18Because ofthehighincidence ofsalmonella intheUnited States,
Chile alsorestricts imports ofrawpoultry meatoriginating inthatcountry.19Similarly, since Chile
haseradicated footandmouth disease (FMD), imports ofcattle ormeat containing bone arenot
permitted, norareimports offruitinfested withfruitfly.
17. TheroleoftheState inthemarketing ofagricultural products hasdiminished substantially.
COTRISA, theonlyremaining agricultural marketing state-owned enterprise, intervenes inthewheat,
maize andricemarkets. However, since 1991 itsparticipation inthese markets hasbeennegligible
(Chapter III(2)(xii)). Instead, theGovernment hasconcentrated oninvesting ininfrastructure and
implementing support programmes toaddress theneeds ofsmall-scale farmers tohelpdraw theminto
themore dynamic sector.
18. Public investment intheagricultural andforestry sectors isconcentrated mainly inirrigation
projects. Efficient irrigation isveryimportant inChile, where landisusedintensively, toallow the
flexibility forcropswitching inresponse tomarket signals. AMinistry ofAgriculture irrigation project,
initiated in1990, isintended tocover 450million hectares; thecostofthisprogramme is
US$500 million.
19. Subsidies aregranted forthefertilization andplanting ofpastures. Theaimofthisprogramme
istoincrease theproduction offodder aswellastheproductivity ofsmall andmedium-size producers
ofmeat, milkandwoolandtocontribute totheprotection offragile anddegraded soil.TheAgricultural
andLivestock Service (SAG) isincharge ofimplementing thisprogramme. Thesubsidy corresponds
toamaximum ofUS$50 perhectare foramedium-size producer, andamaximum ofUS$75 perhectare
forasmall producer. Amaximum of30hectares maybesubsidized, andonceasubsidy isgranted
foranestate, thisareaonlybecomes eligible foranother subsidy aftertenyears.
20. Additional domestic agricultural support measures notified totheWTO include research
programmes; training services; extension andadvisory services; inspection services forsanitary and
safety purposes; marketing andpromotion services; infrastructure services; disaster relief payments;
andsubsidies intheform ofcredit forsmall producer organizations andindividual loans forsmall
producers.20TheInstitute ofAgrarian Development (INDAP) implements many oftheseprogrammes.
21. Foreign direct investment intheagricultural andforestry sector isconsidered tobeakey
determinant offuture success. Accumulated investment during 1990-93 intheagricultural andforestry
sector amounted toUS$1,162.6 million, ofwhich some 18.6percentwasforeign direct investment
undertaken under Decree LawNo.600(Chapter II).Inthesame period, private domestic investment
intheagro-industrial sector amounted toUS$2,606 million (Table IV.3).
18InMarch 1996 theUnited States reported thepresence ofthefungus Karnal bunt(Tilletia indica )(WTO
document G/SPS/GN/14, 4April 1997).
19WTO document G/SPS/GN/3, 25October 1996.
20WTO document G/AG/N/CHL/3, 11July1996.Chile WT/TPR/S/28
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Table IV.3
Accumulated investment intheagricultural andforestry sectors, 1990-93
(US$ million)
Source Sector Amount
Private domestic investment Primary
Forestry 119.0
Fruit 55.0
Wines 17.2
Cattle 219.8
Machinery andtools 751.6
Agroindustry
Fruit andvegetables 100.0
Wines 36.0
Livestock 70.0
Forestry 2,400.0
Public sector investment Irrigation 107.6
Foreign direct investment Agriculture andlivestock 90.8
Forestry 125.9
Total investment 4,092.9
Source: Government ofChile.
22. Thecompetition ofcheaper agricultural products originating intheMERCOSUR countries
presents anewchallenge totheChilean agriculture.21Inthiscontext, theGovernment 'sobjective is
tocontinue promoting themodernization oftheagricultural sector, particularly producers andregions
thathavebeenleftbehind. TheGovernment alsohopes tohelptheexporting sector adjust tothe
conditionsofmoredemandingmarkets,takingintoaccountsustainableproductionmethodsandconcerns
fortheenvironment.
Fruit andwine22
23. Thecontribution ofthefruitsector tothevalue ofagricultural andforestry production isaround
17percent. Chile produces awidevariety offruitofwhich themost important aregrapes, apples
andpears (Table IV.4). Thesector produces mainly forexport, sothatChile hasbecome oneofthe
world 'smore important producers offruit, especially oftablegrapes, which in1995represented some
35percentofthetotalvalue offruitproduction. Overall, value andvolume ofproduction haveincreased
since 1990, although thegrowth ratehasdeclined and,inthecaseoftable grapes, ithasremained
static inrecent years (Table IV.4). Since 1990, production ofkiwis andnectarines hasincreased.
21According totheSociedad Nacional deAgricultura ,Chile willnotbeabletocompete withthecheaper
agricultural products originating intheMERCOSUR countries (ElMercurio (International Edition),
10-17 February 1997).
22This section draws heavily onEscobar andContreras (1995) andE.Bordeu (1995)WT/TPR/S/28 Trade Policy Review
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Table IV.4
Estimated volume andvalue offruit production, 1989-95
(Tonnes andUS$million)
1989/90 1990/91 1991/92 1992/93 1993/94 1994/95
Tonnes
Table grapes 730,000 710,000 800,000 880,000 880,000 880,000
Apples 700,000 780,000 830,000 840,000 810,000 850,000
Pears 139,600 165,000 180,000 210,000 230,000 250,000
Peaches 112,000 115,000 135,000 145,000 160,000 170,000
Plums 110,000 100,000 110,000 120,000 130,000 140,000
Kiwis 37,300 55,000 85,000 95,000 105,000 110,000
Oranges 97,200 99,000 108,000 105,000 112,000 110,000
Nectarines 84,000 85,000 88,000 92,000 98,000 105,000
Lemons 86,000 88,000 92,000 89,000 96,000 100,000
Avocados 37,580 39,000 48,000 42,000 55,000 60,000
Apricots 19,450 11,200 17,000 20,000 28,000 30,000
Cherries 13,700 14,500 13,000 16,000 18,000 20,000
Nuts 8,350 9,000 7,000 10,000 11,000 12,000
Olives 6,500 10,000 7,000 11,000 7,000 9,000
Almonds 2,240 2,400 2,500 2,600 2,700 2,800
Total 2,183,920 2,283,100 2,505,513 2,677,600 2,742,700 2,848,800
1990 1991 1992 1993 1994 1995
US$million
Table grapes 389 526 507 552 545 603
Apples 183 260 327 179 230 303
Pears 54 76 94 67 79 95
Peaches 45 56 47 56 59 70
Plums 48 57 59 56 63 75
Kiwis 30 50 55 54 62 77
Oranges 16 18 22 17 19 24
Nectarines 42 51 41 49 47 58
Lemons 19 20 20 28 23 20
Avocados 40 41 55 40 55 83
Apricots 7 6 8 9 11 18
Cherries 14 19 16 20 26 37
Nuts 18 24 22 30 37 49
Olives 11 15 10 16 10 18
Almonds 8 9 10 12 13 16
Total 924 1,228 1,293 1,185 1,279 1,546
Wine grapes 80 149 202 180 177 227
Source: Government ofChile.Chile WT/TPR/S/28
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24. Chile'ssuccess intheproduction andexport offruits isrelated toitsfavourable climate, the
inversion ofseasons inrelation tothenorthern hemisphere andthelackofpests andplagues dueto
theisolation ofthecountry. However, thisisolation isalsoadrawback since transportation tothe
important markets takes onaverage 15daysanditscostiscorrespondingly higher thanformany of
Chile'scompetitors. Theuseofgood refrigeration systems andwellorganized distribution channels
areveryimportant.
25. Intheperiod 1975-90 thefruitsector experienced rapid growth asaresult ofseveral factors.
First, theprocess ofeconomic liberalization andstabilization reduced theanti-export bias,allowing
export-oriented activities todevelop more rapidly. Second, asarelated factor, theprivate sector was
abletoplayamore important role,while theState assumed asecondary one. Third, theMaritime
LawwasamendedtoallowChileanexportstobetransportedinvesselswithforeignflags,withimportant
efficiency gains andcostsavings.23
26. However, asnoted earlier, since thebeginning ofthe1990s thesector haslostsome ofits
dynamism andcompetitiveness. Thiscanbeattributed to:(i)theappearance ofthefoodflyin
LosAndes in1990, although, inmostmarkets Chile hasbeendeclared freefromfoodfly24;(ii)climatic
problems in1991; (iii)theEuropean Union 'simposition ofcountervailing duties onChilean apples
in1993; (iv)theincrease inproduction andmarketing costs; (v)thedifficulties ofcomplying with
quality control standards; and(vi)andtheconstant needtodiversify products tobeabletosatisfy
consumer 'stastes.
27. Themajor source oftheincreased production costs isthesubstantial increase inagricultural
wages inrecent years. Marketing costs havealsoincreased, mainly because oftheincrease inthe
costsoftransportation andpackaging materials. Packaging offruits hasbecome moreexpensive because
itdiffers according totypeoffruitandsometimes according tomarkets, andincertain instances
packaging mustcomply withnewer andstricter environmental standards (i.e.theuseofrecycled or
recyclable materials).
28. Chile hasalsohadsome problems intheareaofquality control, animportant factor inthis
market since theprice ofeachshipment isdetermined byitslowest quality fruit. There hasbeena
lackofhomogeneity inthefruitofthesamecategory; occasional incongruities between theinformation
onlabels andthecontents; andattimes thefruithasnotbeenripe. Boththepublic andprivate sectors
havebeenworkingsystematicallytoovercomepotentialproblemsofqualitycontrol;anewlawregarding
certification andquality control iscurrently being discussed inCongress.
29. Another difficulty istomeet theconstantly shifting demand. Atpresent, fruitmarkets are
characterized bytheavailability ofadiversity ofspecies andvarieties, which appear anddisappear
inresponse torapid changes inconsumer tastes. However, fortechnical reasons, individual suppliers
areunable torespond instantaneously todemand changes. Often, bythetimetheplants areproducing
fruit(which cantakeyears insome cases), consumer tastes havealready shifted, sothattheexpected
returnsoninvestmentarenotrealized.25Thus,toincreaseproductivityinthesector,specialprogrammes
totrainpersonnel andtopromote theuseofbetter management techniques havebeenimplemented.
23Law No.3.059 of1979.
24ThefactthatChile isfreefrom foodflyisanimportant element ofthenegotiations currently taking place
toobtain access toAsian markets, such asJapan, Korea andChina.
25Escobar andContreras (1995).WT/TPR/S/28 Trade Policy Review
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Inaddition, private producers andexporters haveintroduced newtechnologies bothattheproduction
andpost-productionleveltoincreaseproductivity.TheCORFOandtheNationalInstituteofAgricultural
Research (INIA) aresupporting theprivate sector inthisinitiative. Afurther problem isthatsome
newspecies thatareinhighdemand haveaveryshortlifespan, making itdifficult forChile tobecome
competitive because ofitsdistance from themajor markets.
30. External factors mayalsohaveabearing onthesuccess oftheseexports, forexample, climatic
conditions bothattheplace oforigin andintheplace ofdestination, mayaffect thequality ofthefruit.
Special technologies todealwithclimatic changes (e.g.drought andfrost) arebeing usedtomitigate
these effects.
31. Thus, forChile toremain competitive ininternational markets itisnecessary toimprove
management atthefarmlevelandtoenhance entrepreneurship, tofurther modernize plantations, and
toimprove thecollection ofmarketing information totarget better production andsales. Chile might
alsousefully explore newmarkets orexpand existing ones. Atpresent, Chile'smostimportant markets
aretheUnited States forgrapes, peaches, andkiwis andtheEuropean Union forapples andpears.
TheLatin American andAsian markets could alsobecome important buyers ofChilean fruit. However,
inLatin America, Chile would havetodevelop itsowndistribution channels, while inAsian markets
Chilean fruitwould havetoovercome import tariffs, quotas, andstrict sanitary requirements.
32. Apart from thenormal 11percenttariff, there arenotrade orprice interventions forfruit
andproducers sellexportables (grapes, andredandyellow apples) atworld prices onthelocalmarket.
TheEPRs fortheseexportables arenegative, ranging from-2.4to-0.3percent,because oftheimport
tariff oninputs. ThePSEalsoshows littleintervention, fluctuating from-1.7to0percent,withthe
exception of1989when itwaspositive duetothedisaster assistance given toproducers (Table IV.2).26
33. Wine hasbeenasuccessful agricultural export, astheclimatic andtopographic conditions of
thecountry allow fortheproduction ofhighquality winegrapes. Since 1989, thefocus hasbeenon
exporting,andthishasattractedincreasedinvestmentandtechnologicalinnovationtoimprovethequality
ofwines. There hasalsobeenamovement towards theproduction ofhigher quality grapes toproduce
bothredandwhite wines. Exports ofwineamounted to0.4oftotalexports in1989rising to1.2percent
in1995.27
34. Thestructure ofwineproduction inChile isrelatively concentrated, with60percentbeing
produced bysixwineries, which arebothproducers andexporters. Foreign direct investment inthe
sector doesnotseemasimportant asinother agro-industries. However, theuseofestablished foreign
distribution channels (i.e.intheUnited States andtheEuropean Union) isveryimportant forChilean
exporters.
35. Quality control willplayanimportant roleindetermining thefuture success ofChilean wines
inforeign markets. TheAgricultural andLivestock Service (SAG) isresponsible foranalysing the
winetocertify itspotability, composition andquality.
26Valdés (1995). In1989, fourgrapes infected withcyanide were found intheUnited States, causing major
losses toChilean grape producers.
27UNSTAT, Comtrade database.Chile WT/TPR/S/28
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36. Chile'sdisadvantagesasawineexporterareitsdistancefrommajormarkets,thefactthatChilean
wines arestillnotverywell-known, andthelackofasystem ofappellation oforigin which isimportant
forentry intohigh-quality winemarkets. Tohelpovercome thesedisadvantages several measures have
beenimplemented. Forexample, in1995 theMinistry ofAgriculture established asystem todivide
thecountry inzones, andaregulatory framework; inaddition, PROCHILE launched acampaign to
promote Chilean wine, which, according totheauthorities, hasbeensuccessful, especially intheAsian
markets. Wine exports increased fromUS$181.8 million in1995toUS$292.9 million in1996; and
exports toAsiaincreased from US$4.3 million in1995 toUS$11.9 million in1996.
(ii) Forestry
37. Thecontribution oftheforestry sector tothevalue ofagricultural andforestry production
increased by4percentage points during the1990-95 period, toreach 15percentin1995(Chart IV.2).
In1996, 1.8million hectares were devoted toforestry products ofwhich 1.7million hectares were
usedforpineradiata (pinus radiata )andeucalyptus, themajor species produced inChile. Thevalue
offorestry exports alsoincreased during thisperiod, fromto8.5percentoftotalexports in1990 to
12.4percentin1995, when theywere worth US$1,927 million.28
38. According totheauthorities, thisperformance canbeattributed tothediversification ofthe
forestry processing industries, andtotechnological innovation.29There hasalsobeeninvestment in
technologically advanced nurseries, ingenetic improvement, andinplague andfirecontrol. New
management techniques havealsobeenimplemented inthenative forests toimprove conservation.30
39. Thespecial incentives provided under theForestry Promotion Law(Decree LawNo.701)
andother programmes tosupport small producers, haveincreased theirparticipation inthesector,
contributing toitsgrowth. TheForestry Promotion Lawprovides fiscal andmonetary incentives to
those engaged inforestry activities. Themost important incentive isasubsidy ofupto75percent
ofthecostofproduction (Chapter III(4)). Other incentives include taxexemptions onincome generated
byexploiting theland, andassurances thatlandmaynotbeexpropriated. Approximately halfofall
forest landisplanted under thissubsidy programme. However, thesubsidy isonlygranted forplanting
inareas withlittlevegetation, withpossible beneficial effects ontheenvironment. Thegrowth inthe
supply ofwood from theincreased number ofplantations hasreduced thepressure toexploit native
forests.31Recent studies havedemonstrated thatthenative forests haveincreased insizeandthatthey
havenotbeenaffected bythedevelopment ofnewplantations ofpineandeucalyptus.32However,
there isstillsome debate about theenvironmental impact ofthese plantations.33
28UNSTAT, Comtrade database.
29Theareas planted bysmall-scale farmers hasincreased butthishasnotyetbeen reflected inanincrease
inwood production. Asmall-scale producer isdefined ashaving aminimum of200hectares andamaximum
of500hectares.
30Native forests arealsoexploited mainly forlogsforfuel, forconstruction andother minor uses.
31Rossi (1995).
32ElMercurio (International Edition) 27February-5 March 1997.
33Latin American Regional Reports -Southern Cone, 4March 1997.WT/TPR/S/28 Trade Policy Review
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40. Since therationale forthesubsidy programme wastogrant anincentive toan"infant industry",
theGovernment allowed thesubsidy toexpire attheendof1995when itscostwasUS$152 million.34
However, there isaproposal intheNational Congress toextend thebenefit foranother 15years.
Thisproposal willfavour small producers andisintended toensure theprotection oftheenvironment.
Theincentive would cover 75to90percentofthecosts ofplanting andofactivities aimed atsoil
regeneration. Theauthorities estimate thatthefunds made available under theprogramme willbe
recuperated through thepayment oftaxes oncetheplantations startproducing.
41. Anadditional subsidy andtechnical assistance programme formostsmall producers willbe
implemented in1997. Financing willamount tosome US$2.2 million overthefive-year period in
which theprogramme willbeinforce.35
42. TheNationalForestryCorporation(CONAF),partoftheMinistryofAgriculture,isresponsible
foradministering thesubsidy scheme, surveying theexploitation ofplantations ofnative forests,
administering protected areas, andfirecontrol inareas notowned byforestry companies. CONAF
reported inlateFebruary 1997 thatfineslevied forillegal felling ofnative species hadincreased by
60percentin1996.36
43. Apart fromthesubsidy scheme, thedynamism oftheprocessing industry using mainly Chilean
rawmaterials, pineradiata andsome species ofeucalyptus hasalsoencouraged planting.37
44. Theproduction ofpulp, mainly forexport, isthemostimportant processing activity. In1995,
pulpproduction amounted to1,928.6 tonnes, ofwhich 1,625.1 tonnes wereexported, equivalent to
US$1,270.4 million; exports ofcellulose decreased toUS$1,270.4 million (seebelow).38Foreign
direct investment, amounting toUS$4,000 million during 1987-94, isconcentrated inthepulpindustry.
45. In1995, Chile'smain forestry exports were cellulose, sawn wood, timber, wood panels,
newspaper, chips, wood pieces, planed wood, furniture andother manufactured goods. Themajor
markets forthese products were Japan (20.4 percent), South Korea (10.8 percent), Belgium
(10.4 percent), andtheUnited States (9.1percent).
46. There wassome lossofdynamism in1996, withadecline inthevalue offorestry exports
(timber,pulpandchips),causedmainlybyafallinworldmarketpricesforforestryproducts,particularly
wood pulp. Finished products, ontheother hand, suchaswindow frames, doors andfurniture, all
increased inprice. Overall, projections for1997suggest a6.5percentincrease inincome fromforestry
exports, fuelled mainly byhigher international prices.39
34Rossi (1995).
35This programme willbefinanced withfunds financed bytheGerman Government.
36Latin American Weekly Report, 4March 1997.
37Some 85percentofrawmaterials areproduced inplantations and15percentinnative forests.
38Thedataprovided totheSecretariat covered onlyoneyear.
39Latin American Weekly Report, 4March 1997.Chile WT/TPR/S/28
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47. Theregulatory framework andtheincentives provided through Law701seem tohavehad
apositive impact uponthedevelopment oftheChilean forestry sector. Thefuture ofthesector depends
upon thesuccess offorestry exports, butoneofChile'smajor advantages, itscheap labour, is
disappearing. However, further trade facilitation, e.g.through theimprovement oftransportation,
could outweigh theincrease incosts ofproduction.40
(iii) Fisheries
48. While thefisheries sector makes asmall contribution toGDP (1.29 percentin1996), fish
andfishproducts arethethirdmostimportant export products aftercopper andforestry products.41
Since 1990, production andexports (both value andvolume) offishandfishproducts have been
increasing. During 1990-95 thecatch increased from 5.4to7.9million tonnes, while industrial
production increased from1.3to2million tonnes (Table IV.5). Exports rosefrom1to1.1million
tonnes,amountingtoUS$601millionandUS$1,130million,or7.1percentofthevalueoftotalexports
in1995; some 50percent(US$633 million) were exports offishmeal.
Table IV.5
Fisheries industrial production, 1990-95
(Tonnes)
1990 1991 1992 1993 1994 1995
Fishmeal 1,072,937 1,229,076 1,266,734 1,190,487 1,550,374 1,552,749
Fishoil 188,268 241,211 152,989 191,177 289,510 326,102
Saurel preserved (Jurel) 39,522 40,864 50,313 47,671 66,648 59,837
Frozen salmon 10,781 14,450 21,975 26,439 38,358 46,240
Frozen trout 3,348 5,491 10,235 16,231 23,454 29,675
Frozen cod 4,483 6,553 19,892 21,300 21,018 19,730
Frozen common hake 12,949 17,780 16,947 17,063 17,867 18,962
Frozen south hake 29,061 21,257 20,121 10,465 10,159 12,586
Mollusc preserved 9,435 11,645 12,310 10,446 9,629 9,627
Frozen mollusc 4,843 8,349 11,959 11,531 9,160 8,025
Total 1,375,627 1,596,676 1,583,475 1,542,810 2,036,177 2,083,533
Source: Government ofChile.
49. Several factors contributed tothesuccess ofthesector:
(i) theGeneral Fisheries andAquaculture Lawwasapproved in1991, leading tothe
modernization ofthepublic administration andproviding regulations fortheprivate
sector andtheexploitation oftheresource;
(ii) theextractive andprocessing industry (i.e.theproduction offishmealandfishoil)
underwent aprocess ofmodernization andexpansion; thenumber ofships increased
andrefrigeration systems andequipment ondeckwere improved;
40Rossi (1995).
41TheGDPfiguretakesintoaccountonlytheextractionoffishandisthereforenotconsideredbytheauthorities
tobeagoodmeasure ofthesector 'sperformance, aquaculture andtheindustrial sector areincluded inthenational
accounts aspartoftheindustrial GDP.WT/TPR/S/28 Trade Policy Review
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(iii) domestic demand roseforfishmeal, usedasfoodstuff intheaquaculture sector, poultry
farms andpiggeries; 15percentoftotalproduction isconsumed domestically;
(iv) there wasanincrease inthestocks offish,crustacea andmolluscs along theChilean
coast because ofhighoceanographic productivity;
(v) since1991foreign factory ships havestopped fishing "jack mackerel" outside Chilean
waters (i.e.beyond 200maritime miles from theshore);
(vi) theopening upoftheAsian markets hasincreased thedemand forChilean fishexports;
in1990exports toAsiagenerated 32percentoftotalrevenues fromfishexports, this
figure increased to51percentin199542;
(vii) throughout theperiod there waspolitical andmacroeconomic stability.
50. Chile hasthree main fishing areas: theNorthern, South-Central andSouth-Austral zones.
IntheNorth, industrial shipsconcentrate onthefishing ofpelagic species, tobeprocessed43,theSouth-
Centre zoneisrichinpelagic species suchasjackmackerel (jurel),sardines andanchovies, aswell
ashake, ademersal species.44Jackmackerel iscaught byindustrial vessels andprocessed forexport,
while thecatch ofsardines andanchovies inthisareaisasmall-scale activity. TheSouth-Austral zone
ismainly inhabited bydemersal species suchashakeandcod,which arefished bothbyindustrial and
bysmall-scale ships. Crustacea andmolluscs arefound along thecoast; fishing ofcrustacea isan
industrial activity, while fishing ofmolluscs isasmall-scale activity. Alicence isrequired tofishall
demersal species (Table IV.6).
51. TheGeneral LawonFisheries andAquaculture establishes foursystems tolimitaccess tofishing
inorder toattain asustainable levelofexploitation oftheexisting resources: (i)ageneral access regime;
(ii)aregime forspecies infullexploitation; (iii)aregime forfisheries which arereplenishing; and
(iv)aregime forincipient fisheries. Table IV.6shows under which regimes themostimportant species
arecaught inChile.
52. TheUnder-Secretary ofFisheries grants permits toexploit species classified under thegeneral
access regime orthefullexploitation regime; these species arenotindanger ofelimination, thus,
theircatch islessrestricted. Thepermits appear tobegranted automatically, andareprimarily ameans
ofproviding theUnder-secretary withinformation tomonitor resources. Toobtain suchapermit,
aform indicating thecharacteristics oftheship, thefishing devices andthespecies ofinterest must
becompleted attheNational Fisheries Services (SERNAPESCA), which transmits theinformation
totheSub-secretariat ofFisheries; thepermit isissued within 90days, ifapproved. Permits arenot
granted: (i)ifaccess tothecatch isclosed orconstitutes a"bycatch" ofaspecie towhich access has
beenclosed; (ii)ifthespecies isnotpresent intheareatobeexploited; (iii)iftheproposed fishing
method isdeemed inadequate; and(iv)iftherequest ismade byafactory ship.45
42Government data.
43Pelagic species liveinthesurface oftheocean (0to100metres ofdepth).
44Species thatliveatthebottom oftheocean.
45Factory ships already inoperation were granted permits prior totheentry-into-force oftheFisheries Law
in1991.Chile WT/TPR/S/28
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Table IV.6
Fishindustry structure
Species Zone Regime No.of
industrial
vesselsNo.of
small-scale
shipsNo.of
processing
plantsaNo.of
exportersLicences
required
Small pelagic species
Anchovy
(engraulis ringens )North FE 150 450 21 20 Yes
Sardine
(sardinaps sogax )Yes
Jackmackerel (Jurel)
(trochurus murphy )Centre-south FE 160 - 48b20 Yes
Common sardine
(clupea bentincki ),Centre-south FE 80 450 21 20 Yes
AnchoviescYes
Demersal species
Common hake
(merluccius gayi)Centre-south FE 34d2,000 - 30 Yes+quota
South hake(merluccius
australis )South-austral FE 19 1,500 - 35 Yes+quota
Golden conger
(genypterus blacodes )FE Yes+quota
Hoki (maceruronus
magellanicus )Center-south GA(1) 162 0 48b20 Yes
Three finhake
(micromesistius australis )X-XII regions GA(2) 2 2e1 Yes
Black cod
(dissostichus elegimoides )47-south IF 18 0 13e8 Yes+quota
Crustacea
Shrimp naylan
(heterocarpus reedi)II-VIII regions FE 43 1 - 27 Yes+quota
Yellow prawn
(cervimunida johni)III-IV regions FE 29 1 - 13 Yes+quota
RedPrawn (pleuroncodes
monodon )V-VIII regions RF 5-8 0 - 6 Yes+quota
a Thisheading includes processing plants thatproduce fishmeal, fishoilandfishpreserves, andthatfreeze fish. Ifthere is
nonoteassume thatallprocessing plants produce fishmeal andoil.
b 24plants produce fishmeal andoil,19produce preserves, andfivefreeze fish.
c Coastal fishing.
d Industrial fishing takes place outside thefirstfivemaritime miles.
e Plants onboards.
Note: FE: Fullexploitation regime.
GA: General access regime.
IF: Incipient fisheries regime.
RF: Replenishing fisheries regime.
(1): General access regime; however, noauthorizations aregranted since itisonlyauthorized tocatch thisspecies asa
bi-catch ofjack-mackerel inthecenter-south.
(2): General access regime; however, noauthorizations aregranted since itisonlyauthorized tocatch thisspecies asa
bi-catch ofsouth hakeandthegolden kingklipintheX-XII regions.
Source: Government ofChile.WT/TPR/S/28 Trade Policy Review
Page 96
53. Thecatchsizeofspecies classified under thefullexploitation regime isalsoregulated, tocontrol
therateofexploitation. Measures include theestablishment ofanannual fishing quota foreachspecies,
theestablishment ofafishing season, theestablishment ofaminimum sizeforfishtobecaught, and
thespecification ofthefishing tackle andgeartobeused.46
54. Toexploit species thatareincipient orintheprocess ofregeneration, itisnecessary toobtain
alicence, specifying theshare oftheglobal quota allowed. Licences aregranted fortenyears, and
areobtained through public bids. Thelicences aretransferable, i.e.there areindividual transferable
quotas (ITQs), which arealsodivisible andnotbound totheownership ofaship. Theimposition of
aglobal quota andtheITQisintended toensure that: (i)theoverall catch doesnotincrease despite
theentrance ofnewfishermen totheactivity; (ii)there isflexibility through thetransferability ofthe
ITQ; and(iii)theauthorities canbuybackthequotas iftheydeem itnecessary, e.g.iftheoverall
quota istoobig.However, thissystem requires strictcontrol, andcould induce wastage sincefishermen
obtain quotas foronespecies, andanyother species caught havetobediscarded.47
55. Catching species protected byinternational conventions orfromprotected areas isprohibited.
56. Aquaculture isalsoanimportant activity, consisting of730centres located along thecoast
tocultivate fish(69percent), molluscs (8percent)andseaweed (algae) (24percent). Fishcultivation
isconcentrated between Regions XandXI;salmon andtroutarethemostimportant cultivated species.
IntheNorthern zone(Regions IItoIV)andinRegion X,there arearound 108centres tocultivate
molluscs. Seaweed, thethirdmost important product, isalsocultivated inthenorth (Regions IIto
IV)andintheSouth-Centre zone(Regions VIIIandX)witharound 386production centres.
57. TheGeneral LawofFisheries andAquaculture establishes thattheaquaculture industry has
exclusive rights tousecertain territories (portions ofwater oroftheocean bed). These rights aregranted
foranindefinite period andaretransferable.
58. Aspecial support programme applies tothesmall-scale fisheries sector. Thissector, asisthe
caseforallother small andmedium-size Chilean industries, hasaccess tospecial linesofcredit. Under
theprogramme, administered bytheProduction Promotion Corporation (CORFO), loans aregranted
bythebanks butguaranteed bytheGovernment.48Inaddition, thefirstfivemaritime miles along
theChilean coast, thefjords andchannels oftheAustral zonearereserved forsmall-scale fishing.
59. ImportsoffishproductsrequireauthorizationbytheNationalFisheriesServices(SERNAPESCA)
ifsuchproducts aretobeusedasinputs toproduce exportables, orasbait.Inthefirstcase,theimporter
requires acertificate oforigin andasanitary certificate, warranting thattheproduct issafetobeeaten.
Inthesecond caseonlythesanitary certificate isrequired. TheNational Fisheries Services isalso
responsibleforimplementingfisheriespolicyandsurveyingcompliance.Regardingsanitaryrequirements
thisService verifies thedocuments andthephysical condition oftheimported fish.
46Quotas areestablished according tointernational criteria defined bytheFood andAgriculture Organization
(FAO).
47Gomez-Lobo (1993).
48Themonthly interest rateontheloaninJune 1997 was1.5percent.Chile WT/TPR/S/28
Page 97
60. Foreigners arenotpermitted tofishinChilean waters orownaquaculture centres, unless they
areregistered asaChilean company orarepermanent residents. Atpresent foreigners areonlyengaged
infishing ofdemersal fishintheSouth-Austral zone. Toregister afishing company inChile, more
than50percentofthecapital mustbeofnational origin andtheinvestment mustbeapproved bythe
Investment Committee (Chapter II).
61. Aconsumption taxof50percentisstilllevied oncaviar (Chapter III(2)(vi)).
62. According totheauthorities, theroleoftheStateistocontinue itsregulatory function aswell
asthepromotion ofthesector, while protecting andpreserving natural resources. Thefullincorporation
ofthesmall-scale sector intotheformal economy isalsoagoal. Awell-functioning extractive sector,
aswellasthequantity andquality ofthecatch, willdetermine theperformance oftheindustrial sector.
Thechallenge intheprocessing industry istoensure thatproduction isofthehighquality demanded
ininternational markets. Resources havebeenchannelled towards researching methods topreserve
marine life.
(3) Mining
63. During 1990-95, thecontribution ofmining toGDPwasaround 8percent,making itthethird
mostimportant sector, afterservices andmanufacturing. However, interms ofexport revenues and
foreign investment inChile, thisisthemost important sector intheeconomy.
64. Mining centres around copper, byfarthemostimportant product, andgold, molybdenum and
silver (Table IV.7). Most ofthelabour employed inthemining sector isengaged incopper mining
(Table IV.8). Chile isworld 'slargest producer ofcopper; with output reaching almost
2.5million tonnes in1995, itproduced overaquarter oftheworld supply.
Table IV.7
Production ofselected minerals, 1990-96
(Tonnes andkg.)
1990 1991 1992 1993 1994 1995 1996
Refined copper (tonnes) 1,616,261 1,855,126 1,976,339 2,115,936 2,189,547 2,480,827 3,141,152
Limestone (tonnes) 2,882,629 3,154,612 4,064,457 4,460,362 5,030,125 4,834,927 4,997,809
Refined molybdenum (tonnes) 13,830 14,434 14,830 14,899 15,949 16,694 17,415
Refîned lead(tonnes) 1,120 1,050 298 343 465 524 1,089
Refined zinc(tonnes) 25,146 30,998 29,696 29,619 30,178 34,457 35,625
Manganese mineral (tonnes) 39,697 43,767 49,857 63,382 62,958 70,450 62,450
Refined gold(kg.) 27,503 28,879 33,774 33,542 36,896 44,233 51,838
Refined silver (kg.) 654,603 676,339 1,028,560 985,023 959,210 1,037,847 1,129,868
Total 5,260,789 5,805,205 7,197,811 7,703,106 8,325,328 8,519,959 9,437,246
Source: Banco Central deChile, Boletín Mensual No.790(December 1993), No.823(September 1996) andNo.827(January 1997).
65. Atthebeginning ofthe1990s mining exports represented 54percentoftotalexports, and,
despite thedevelopment ofother export-oriented activities suchasfruit, forestry andfisheries, mining
stillaccounts formore than40percentoftotalexports. Copper ores,concentrates, anodes andalloysWT/TPR/S/28 Trade Policy Review
Page 98
comprise 95percentofmining exports.49Chile sellscopper tomore than200countries, withAsian
countries taking some 50percentofexports. Japan hasbecome Chile'smajor market, followed by
Chinese Taipei, South Korea, Germany andFrance, whereas in1990theEuropean Union wasChile's
major market.
Table IV.8
Employment inthemining sector, 1990-95
(No.ofworkers andpercent)
1990 1991 1992 1993 1994 1995
Metallic mining industry No.ofworkers
Copper 47,180 47,882 47,049 44,570 42,276 41,124
Large producers 26,606 26,841 26,170 24,291 21,822 19,598
Medium producers 14,540 14,336 15,356 14,987 15,287 16,466
Small producersa6,034 6,705 5,523 5,292 5,167 5,060
Iron 2,757 2,766 2,679 2,413 2,148 1,941
Medium producers 2,757 2,766 2,679 2,413 2,148 1,941
Manganese 266 289 287 280 281 250
Medium producers 266 289 287 280 281 250
Lead andzinc 531 556 432 390 290 306
Medium producers 531 556 432 390 290 306
Gold andsilver 9,944 10,426 11,200 11,123 11,544 10,274
Medium producers 6,146 6,901 7,295 7,311 7,602 6,417
Small producersa3,798 3,525 3,905 3,812 3,942 3,857
Total metallic mining industry 60,678 61,919 61,647 58,776 56,539 53,895
Total non-metallic mining industry 3,594 3,400 3,487 3,413 3,526 3,290
Total fuels 13,503 13,075 10,291 7,327 6,782 6,484
Total 77,775 78,394 75,425 69,516 66,847 63,669
Percent
Copper relative tothemining
industry60.7 61.1 62.4 64.1 63.2 64.6
a Estimate data.
Source: Government ofChile.
66. Since 1990, national consumption ofrefined copper hasincreased from45,200 to91,000 metric
tonnes in1996, suggesting anexpansion ofthecopper manufacturing industry andofmanufactured
copper exports (Table IV.9).
67. Mining receives more foreign investment thananyother sector oftheeconomy, attracted by
therichness ofthemines andthelarge reserves. Inaddition, theprevailing macroeconomic stability
renders Chile anattractive market. There wasalarge increase inforeign direct investment during
1993-95, inparticular, when newmining projects emerged. Theauthorities consider thatforeign direct
investment wasadecisive factor inhelping toincrease copper production.
49UNSTAT, Comtrade database.Chile WT/TPR/S/28
Page 99
Table IV.9
Chilean production oftradeable copper
('000metric tonnes, refined copper)
Byproducts National Consumptionc
Period RefinedaBlister InbulkbTotal (Refined)
1990 1,191.6 136.9 259.9 1,588.4 45.2
1991 1,228.3 67.8 518.2 1,814.3 47.6
1992 1,242.3 84.2 606.2 1,932.7 62.8
1993 1,268.2 120.9 666.3 2,055.4 74.2
1994 1,277.4 183.0 759.5 2,219.9 86.3
1995 1,490.9 174.8 822.4 2,488.1 87.3
1996 1,748.2 243.1 1,124.5 3,115.8 91.0
a Includes electrolytic copper from TresEstrellas andMantos Blancos.
b Includes cement copper, concentrates, slagandminerals.
c Copper deliveries tonational manufacturing industries (i.e.production oftubes, wire, etc.)fordomestic consumption and
manufactured exports.
Source: Banco Central deChile,Boletín Mensual No.790(December 1993) andNo.823(September 1996).
68. TheMinistry ofMines isresponsible formining policy andregulating thesector. Inaddition,
eachRegional Government hasitsownRegional Ministerial Secretary forMining (SEREMI). The
Ministry hasseveral advisory bodies: theChilean Copper Commission (COCHILCO), theNational
Service ofGeology andMining (SERNAGEOMIN), andtheMining Metallurgic Research Centre
(CIMM). COCHILCO advises theGovernment onmining policy, supervises andevaluates the
performance ofthestate-owned mining enterprises, andadvises theForeign Investment Committee
ontheapproval ofinvestment contracts. SERNAGEOMIN isresponsible forthegeological survey
ofChile, forupdating dataonmineral resources, forkeeping andupdating aregistry ofallmining
concessions andtheofficial mining landregistry, andformonitoring safety conditions inthemining
sector. Technological development ispromoted bytheCIMM, which specializes inapplied research
andserves boththestate-owned andprivate mining companies.
69. TheroleoftheStateinproduction,especiallyofcopper,isstillsubstantial.TheStateparticipates
inproduction through thestate-owned enterprises Chile'sNational Copper Corporation (CODELCO)
andtheNational Mining Company (ENAMI), which arethefirstandthethirdmainexporters ofmineral
products inthecountry. ENAMI alsopromotes thedevelopment ofthemedium andsmall enterprises.
PROCHILE provides advice toexporters ofnon-traditional mining products.
70. TheChileanConstitutionstipulatesthattheStateisthesoleownerofallthemines,independently
ofwhoowns thesurface land.50However, asystem ofconcessions isinplace. Under thissystem,
foreigners areallowed toexplore fororexploit minerals, andaregranted national treatment.
71. Applications forconcessions toexplore orexploit amine havetobeposted withtheJustice
ofthePeace (i.e.thenearest judge tothemining site). Each application forexploration canbefor
upto5,000 hectares, while anapplication toexploit mayonlycover 1,000 hectares; however, several
50Chilean Constitution Title III,Art.19,No.24.WT/TPR/S/28 Trade Policy Review
Page 100
applications maybesubmitted atthesame time. Thesame (legal) person mayapply foraconcession
toexplore orexploit neighbouring landwithout restriction. Aconcession toexploit isvalid foran
indefinite period, itremains inforce aslongasthelicence feecontinues tobepaid. Aconcession
toexplore isvalidfortwoyears fromthedayitisgranted, itcanbeextended fortwoadditional years
iftheareaoflandbeing explored isreduced by50percent.51
72. Theprocedure togrant aconcession forexploration normally takes fivetosixmonths from
thedateofapplication. Thelanddoesnothavetobemeasured, buttheNational Geology andMining
Service mustsubmit atechnical report before theconcession canbegranted. However, theprocedure
toobtain aconcession toexploit cantakeaslongas15months aftertheNational Geology andMining
Service hassubmitted itstechnical report. Thisdelay mayoccur where thelandhastobesurveyed
andtheboundaries marked; surveying certain areas (e.g.thealtacordillera during May-September)
isdifficult andtakes time. Inaddition, applications foraconcession arepublicly announced toallow
anyconflicting claim tobeaired. Theannual feeforanexploitation concession is1/10UTM (unidad
tributariamensual)perhectareformetallicminerals,and1/30UTMperhectarefornon-metallicminerals;
foranexploration concession, theannual feeis1/50UTM perhectare.52
73. Concessions maybegranted onallmetal andnon-metal mineral substances, including minerals
thatlieunder theocean andareaccessible from landthrough tunnels. Concessions arenotgranted
fortheexploitation ofhydrocarbons inanystate, liquid orgaseous, orforanydeposits located inthe
ocean thatarenotaccessible fromland. However, theStatecanextend anoperational contract, which
allows anindividual (national orforeign) toexploit thoseminerals forwhich concessions arenotgranted.
These contracts imply thattheindividual isfreetoexploit aspecific mineral forafixed period for
which theStateprovides thenecessary permits andlicences; atpresent suchcontracts arebeing granted
toexploit petroleum.
74. Despite thestrong presence ofthepublic sector inthemining sector, theauthorities claim that
thesectorhasdevelopedinanatmosphereofrespectforprivateproperty,withoutdiscriminationbetween
public andprivate enterprises orbetween national andforeign investors; taxtreatment isequal tothat
inother sectors oftheeconomy andthere arenorestrictions onthemarketing ofmineral products
either innational orinforeign markets.
75. Inpractice, thetwomostimportant companies areCODELCO andENAMI. However, there
arealso21privateChileancompaniesthatexploitdifferentmetallicandnon-metallicmineralsthroughout
thecountry, while 17foreign companies areengaged inmineral exploration andanother 27in
exploitation. Foreign investment seems tocome mainly from Canada, with13ofthe27foreign
companies, followed bytheUnited States. Foreign companies haveentered Chile under theregulations
oftheForeign Investment Statute (Decree Law600)(Chapter II).
76. CODELCO, themajor producer ofcopper intheworld, concentrates mainly onexploiting
andmarketing copper; itisalsooneofthemajor producers ofmolybdenum. In1995, CODELCO
produced 1,153,000 metric tonnes ofcopper, ofwhich some 90percentwereexported (Table IV.10),
making itthemostimportant generator offoreign exchange andfiscal revenue inChile. According
totheauthorities, CODELCO 'slevels ofproduction willbemaintained because ofthelarge reserves
owned bythecompany. CODELCO alsohasjointventures bothwithnational andforeign companies,
51Mining Code, Article 112.
52AUTM (unidad tributaria mensual )wasequivalent toUS$57 inMay 1997.Chile WT/TPR/S/28
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inChile andabroad, forexploration, production ofelectricity, production ofmining equipment, and
production ofmanufactured products suchasmetal wires.
Table IV.10
Production andsales ofCODELCO-Chile, 1995
Products Production
million tonnesSales
million US$Exports
asapercentage ofsales
Copper 1,153,000 3,250 91.7
Refined 1,008,000 2,819 93.2
Blister andanode 50,000 131 71.7
Concentrate 95,000 300 86.0
Sub-products ... 377 80.8
Molibdeno 16,500 281 91.3
Metal Dore 226 60 79.4
Othersa- 36 1.0
Total ... 3,627 90.5
... Notavailable.
a Itisnotpossible toobtain acombined figure for"others" because ofthedifferent nature oftheresidual items.
Source: Government ofChile.
77. Thesecond State company, ENAMI, owns twocopper processing plants andanelectrolytic
refinery,andpurchasescopper,goldandsilverfromsmall-scaleproducers;italsopurchasesconcentrate
atmarket prices frommedium-size producers. ENAMI buysatinternational prices plusfreight; most
ofitsfinalproducts (electrolytic copper, gold, silver andothers) areexported (Table IV.11). As
mentioned earlier, ENAMI isthethirdmostimportant exporter ofminerals inChile, afterCODELCO
andEscondida aBritish-owned copper company. ENAMI alsopromotes theexploitation andprocessing
ofalltypes ofminerals byprocessing andmarketing minerals forsmall andmedium enterprises. It
provides technical andfinancial support sothatthese enterprises canbecome self-sufficient.
78. Themining industry cannot operate under thefree-zone regime, butmayimport rawmaterials
atconcessional dutyandtaxrates, provided thattheimported rawmaterials areexported afterbeing
processed (Chapter III(3)(xi)). Thepreferential customs andtaxregime established in1985 for
RegionXII(theStraitofMagellanandtheChileanAntarctica)alsocoverstheminingsector.Inaddition,
ataxrebate system topromote small mining operations isstillinplace (Chapter III(4)(i) and(iii)).
Theauthorities indicated thattheimpact ofthese programmes oncopper production hasnotbeen
important.
79. ChilewasafoundingmemberoftheIntergovernmentalCouncilofExportersofCopper(CIPEC)
in1967. However, thisCouncil disappeared in1991, when itbecame clearthatitwasnotfulfilling
itsfunctions.WT/TPR/S/28 Trade Policy Review
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Table IV.11
Production andsales ofENAMI, 1995
Products Production (Tonnes million) Sales (US$ million) Exports asapercentage ofsales
Copper 241,680.0 727.4 79.3
Cathode 229,746.0 695.6 82.9
Non-refined 11,934.0 31.9 0.1
Sub-products ... 154.6 87.7
Gold 9.5 120.1 94.1
Silver 151.8 26.4 81.5
Others ... 8.1 12.2
Total ... 882.0 80.8
... Notavailable.
Source: Government ofChile.
(4) Manufacturing
80. Thecontribution ofthemanufacturing sector toGDP since 1990 hasshown aslight decline
toreach some 16percentin1996(Table IV.12). However, thisisonlyarelative decline; value-added,
exports andimports ofmanufactured goods haveallbeenincreasing invalue terms, butother sectors
havebeengrowing evenfaster under therecent restructuring oftheChilean economy.53
Table IV.12
Industrial sector background, 1990-96
1990 1991 1992 1993 1994 1995 1996
Manufacturing/GDP (percent) 17.7 17.6 17.6 17.4 17.1 16.8 16.2
Manufacturing industry/
totalindustry (percent)a50.9 50.7 51.4 51.2 51.3 51.1 49.7
Value-added
(Ch$ million of1986)b785.0 836.5 928.6 975.6 1,003.8 1,069.1 1,106.5
Exports value
(current US$million f.o.b.)2,813.9 3,410.5 4,128.7 4,132.4 5,165.4 6,846.7 6,510.7
Imports value
(current US$million c.i.f.)5,970.0 6,359.7 8,290.0 9,380.1 9,915.4 13,304.8 14,868.5
Foreign direct investment
(US$ million)98.6 238.0 120.8 473.0 308.5 324.6 813.4
FDImanufacturing/FDI total(percent) 7.5 24.3 12.1 27.4 12.3 10.7 17.8
Employment ('000) 736.6 751.6 792.1 840.9 835.8 834.8 844.9
a Industry: includes mining, manufacturing industry, electricity, gasandwater, andconstruction.
b Corresponds totheGDP inthemanufacturing industry.
Source: Government ofChile.
53Ffrench-Davis andSaéz (1995).Chile WT/TPR/S/28
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81. Asnoted inChapter I,foreign direct investment inthemanufacturing sector increased
substantially intheperiod 1990-95, butwithwidevariations fromyeartoyear. Most investment has
been inthechemical andplastic industry, which received some 39percentoftotalFDIinthe
manufactured sector in1995. Large foreign investment flows werealsodirected tothemanufacture
ofexportables suchasfoodproducts, wood, cellulose andpaper, which tooksome 29percentoftotal
FDIinsector.54
82. TheChilean manufacturing sector islargely based ontheprocessing ofnatural resources: food
products andanimal feed, cellulose, paper andwood products. Oflessimportance arethetraditional
industries suchastextiles andclothing andthenewer industries suchasfurniture anddurable consumer
goods.55Production volumes forsome ofthese industries intheperiod 1990-96 areshown in
Table IV.13; most sectors recorded solid growth, overtheperiod 1990-95, withsome fluctuations
andinter-sectoral variations, buttherewasaslow-down andevenadecline inseveral sectors in1996.
Table IV.13
Production ofselected industries, 1990-96
1990 1991 1992 1993 1994 1995 1996a
Fishmeal (thousand tonnes) 297.7 885.6 881.9 775.7 1,008.1 877.0 726.8
Noodles (thousand tonnes) 96.7 121.9 135.6 128.8 142.1 149.6 167.3
Beer(million litres) 243.9 255.5 307.0 335.2 304.9 331.7 325.2
Beverages (million litres) 715.6 756.7 883.8 962.5 937.9 1,021.9 1,111.6
Pressed fiberpanels
(thousand m2)16,374.4 17,452.4 18,506.9 19,059.7 17,409.2 20,029.9 17,703.8
Cellulose (thousand tonnes) 690.8 798.0 1,075.9 1,123.6 1,150.8 1,219.8 1,200.8
Newsprint (thousand tonnes) 170.5 172.9 166.1 185.5 183.1 201.5 171.9
Papers andcardboard
(thousand tonnes)84.3 79.2 105.9 90.8 108.2 198.7 138.5
Tyres (thousand units) 1,632.1 1,824.9 2,001.6 2,197.9 2,285.4 2,329.9 2,268.9
Flatglass (thousand m2) 5,684.0 5,730.3 6,653.4 7,068.7 7,088.6 6,523.9 10,658.6
Cement (thousand tonnes) 2115.2 1,995.3 2,349.7 2,642.6 2,617.9 2,885.2 3,059.5
Ironorsteelplates
(thousand tonnes)214.0 216.7 336.7 377.2 333.6 294.1 409.1
Copper wireandbarecable
(thousand tonnes)10.5 10.1 13.4 6.5 5.9 5.6 7.0
a Provisional data.
Source: Banco Central deChile, Boletín Mensual No.790,December 1993, No.823,September 1996 andNo.827,January 1997.
83. Chile'smostimportant manufactured exports: since1991havebeenfoodproducts (ISIC 311),
paper andwood products (ISIC 331and347), andchemicals (ISIC 351and352), which accounted
formore than70percentoftotalmanufactured exports (Chart IV.3).
54Comité deInversiones Extranjeras (1996).
55Ffrench-Davis andSaéz (1995).WT/TPR/S/28 Trade Policy Review
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Chile WT/TPR/S/28
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84. Themajor market formanufactures suchas,chemicals, textiles andmetal manufactures and
machinery (ISIC 38)isLatin America.56While these items arecurrently ofminor importance, their
growth inLatin American markets hashelped toachieve greater diversification ofChile'smanufactured
exports.57Preferences areprovided fortheseproducts under theLAIA Agreements andtheFree-Trade
Agreement withCanada.
85. IntheUruguay Round, Chile bound alltariffs onmanufactured goods atauniform rateof
25percent,although theapplied MFN rateis11percent(Chapter III).However, concessional entry
isespecially important intheautomotive assembly industry (seebelow). Manufactured imports, as
wellasdomestic manufactured products, aresubject toVAT andother domestic taxes, some ofwhich
apply onlytocertain luxury goods, alcoholic beverages, fuels andvehicles. Taxes onliquor apply
bothtodomestic andimported spirits; however different ratesapply todifferent spirits. TheEUhas
made acomplaint about thedifference inthetaxrates levied onwhisky, which attracts arateof
70percentandpisco (grape brandy), adomestically produced spirit, which attracts arateofonly
25percent. Theauthorities indicated thatChile isexamining possible modifications tothese rates.
86. Minimum customs values, which canbeapplied under Law18.525, wereapplied upto1995
tospecific textiles (e.g.HS5208.12 andHS6305.20).
87. Theautomotive industry istheonlyindustry subject toaspecific preferential regime; other
incentives apply inamore horizontal manner.
88. Thegeneralized dutydrawback system, othertaxexemptions, andthesimplified dutydrawback
system have hadasignificant impact onmanufactured exports (Chapter III(3)(x)). Ofthese, the
simplified drawback system seems tohavebecome themost important interms ofvalue: in1994,
fiscal expenditure inthesimplified dutydrawback system amounted toUS$150 million compared to
US$26 million spent under thegeneralized system. Ithasbeenestimated thatsome 13percentof
thetotalvalue ofexports, or24.8percentofthevalue ofmanufactured exports, tookplace under
thesimplified drawback system.58However, theauthorities indicated that,while thetotalvalue of
drawbacks under theprogramme hasbeenincreasing, thenumber ofproducts covered hasdecreased.
Inaddition, CORFO provides credit linesformanufactures ofnon-traditional exports, atnon-subsidized
interest rates.
89. Other preferential regimes available tothemanufacturing sector, aswellastoother activities,
include thefree-zone andPrivate Export Warehouses regime andthose thatapply tospecific regions.
These include thetaxcredit forinvestment intheprovinces ofArica andParinacota (Chapter III(4)(i));
theexemption fromincome taxreturns tocapital forcompanies andusers established inthefreezones
ofIquique andPunta Arenas (Chapter III(3)(xvi)); andthesupport programme forthemanagement
ofexport firms (PREMEX) (Chapter III(3)(xiv)). Free-zones havealsobeenestablished topromote
development inIquique andPunta Arenas (Chapter III(4)(i)).
90. Theonlyincentive thatapplies toinputs isstipulated inLawNo.18.634 of1987; thislaw
establishes asystem ofdeferred payments ofcustoms duties, fiscal credit andother taxbenefits for
56UNSTAT, Comtrade database (SITC rev.3).
57Ffrench-Davis andSaéz (1995).
58Ffrench-Davis andSaéz (1995).WT/TPR/S/28 Trade Policy Review
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importers ofcapital goods andforfirstbuyers ofadomestically produced capital goods.59Inaddition,
imports ofcapital goods forinvestment purposes, which areincluded inalistprepared bytheMinistry
ofEconomy, Development andReconstruction60,maybeexempted frompayment oftheVAT ifthey
areimported under Chile'sForeign Investment LaworiftheyaretobeusedbyaChilean investor.61
However, while theVAT exemption applies automatically forforeign investors, itonlyapplies to
nationals ifaforeign investor haspreviously imported acapital good tobeusedinasimilar activity.
91. Theautomotive industry inChile issmall, consisting ofthreemotor vehicle assembly plants.
While production hasbeenincreasing since 1990, thevolume hasremained low,averaging justover
18,000 unitsayearfor1990-96 (Table IV.14). In1995, totalexports amounted toUS$15,901 million.
Main exports aretrucks andpick-ups (HS8704), andcars (HS8703), which amounted to
US$55.8millionandUS$15.9millionrespectively.ThemajorChileanmarketsforautomotiveproducts
isLatin America especially Argentina, followed byPeru; however, in1995 Colombia became an
important market, probably asaresult oftheeconomic complementarity agreement, signed in1993.
In1995, theLatin American market accounted forsome 86percentoftotalautomotive exports.62
Table IV.14
Automotive production, 1990-96
(Number ofvehicles assembled inChile)
Item 1990 1991 1992 1993 1994 1995 1996
Enterprises
Automotores Franco Chilena S.A.
(Renault-Peugeot)2,790 2,877 3,685 3,065 2,788 3,888 2,338
Cormecanica S.A. 296 708 1,089 1,618 1,310 1,426 3,010
General Motors Chile S.A. 7,962 9,224 14,183 16,230 15,330 16,260 16,433
Total 11,048 12,809 18,957 20,913 19,428 21,574 21,781
Type ofvehicle
Automobiles 3,014 3,357 4,610 4,324 3,472 5,053 5,019
Pick-up Trucks 7,962 9,172 14,183 16,230 15,330 16,260 16,433
Vans 72 228 164 359 626 261 329
Total 11,048 12,757 18,957 20,913 19,428 21,574 21,781
Source: Banco Central deChile,Boletín Mensual No.790(December 1993), No.823(September 1996) andNo.827(January 1997).
92. Despite theindustry 'sapparent lackofimportance, acomplicated incentive programme isin
place(Chapter III(2)). Therationale oftheprogramme isdescribed asoneoflabour creation orregional
development.However,itappearstobearemnantoftheoldimport-substitutionindustrializationregime
ofthe1970s, whose other elements havedisappeared from theChilean economy.
59Capital goods entitled tothese benefits include machinery, vehicles, equipment andtools.
60Decree oftheMinistry ofEconomy No.468, 1990.
61Decree Law825of1974 (Value-added TaxLaw), Article 12.
62UNSTAT, Comtrade database. Dataprovided bytheauthorities show thatexports toLatin America amount
to97.9 percentoftotalexports.Chile WT/TPR/S/28
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93. Under theincentive programme, theindustry benefits from thepartial ortotalreduction of
import duties aswellasfiscal credits fortheuseandexport ofnational components. Imports of
components forassembly arenormally subject toanimport dutyof11percent,payable within 60days
ofthedateofimportation (Law 18,483). However, imports ofcompletely knocked down (CKD) and
semi-knocked down (SKD) unitsbyassemblers, offset byexports oflocalcomponents bytheassemblers
themselves orbyancillary processors, canbewholly orpartly exempt from payment ofadvalorem
duties, provided thattheexports takeplace inthe12months preceding orfollowing thedateof
authentication oftheimport declaration.63
94. Until 31December 1998, firms assembling vehicles fromCKD unitsareentitled toataxcredit
inrespect oflocalcontent ofvehicles produced andtransferred (sold) within thecountry oroffsetting
exports orother exports oflocalcomponents. Thecredit canamount to35percentofthecustoms
value ofthefinished motor vehicle produced andtransferred within thecountry.64
95. Inaddition, taxcredits areincluded tofacilitate thepromotion ofexports oflocalcomponents
(CKD andSKD); credit isallowed uptoamaximum of11percentofthef.o.b. value ofexports
oflocalcomponents (minus those recorded forcompensatory purposes, asmentioned above). Since
1January 1996, the11percentmaximum hasbeenreduced by2.75percentage points eachyear.65
96. Forautomotive assemblers tobenefit from these schemes, theymust beregistered inthe
corresponding Registry oftheAutomotive Commission andcomply withtheminimum national content
requirements asstipulated intheAutomotive Statute.
97. Theautomotive sector istheonlysector inChile affected byalocal-content scheme.66End
processorsassemblingvehiclesfromCKDunitsmustincorporateaminimumof13percentlocalcontent,
whilevehiclesassembledfromSKDunitsmustincorporateatleast3percentoflocalcontent.However,
thisrequirementisonlycompulsoryforend-processors,enrolledintheAutomotiveCommissionRegistry,
thatavailthemselves ofthebenefits stipulated intheAutomotive Statute. Fortheassembly ofpassenger
vehicles forthetransport ofmaximum 15persons from CKD units, thelocal content percentage is
3.25percent. Forvehicles totransport merchandise assembled fromCKD units, theassembly process
mustincorporate atleast2percentoflocalcontent.67Exports oflocalcomponents maybecounted
towards thelocal-content requirement.
98. Anexport development programme fortheautomotive industry hasalsobeeninplace since
1990, aimed atincreasing theannual volume ofexports beyond theaverage for1989and1990. Firms
assembling vehicles from CKD units, which enrol intheprogramme, benefit from anextension of
63Article 3,Law No.18.483, Official Journal, 28December 1985, amended byLaw No.19.090,
16November 1991.
64Article 9,Law no.18.483, Official Journal, 28December 1985, amended bylawNo.19.090,
16November 1991.
65Article 11,Law No.18.483, Official Journal, 28December 1985, amended byLaw No.19.090,
16November 1991.
66TheGovernment introduced aminimum content requirement in1962 (GATT 1991).
67WTO document G/SCM/N/2/CHL/Suppl.1, 2May 1985. Article 7Law 18.483 Ministry ofFinance,
28December 1985.Chile WT/TPR/S/28
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Nospecial incentives aregranted totheservices sector, butprivatization, thegeneral opening-up of
theeconomy andtheincrease offoreign investment haspromoted efficiency intheservices sector.
Forexample, thedevelopment ofthefinancial markets inChile hasbenefited from theliberalization
ofthetelecommunications sector andtheincrease inthesupply ofinformation technology. Moreover,
improved efficiency inservices alsobenefits production andtrade inagriculture andmanufacturing
which usesuchservices. Competition intheservices sector isregulated bytheCompetition Law(Decree
LawNo.211)(Chapter III(4)).70
102. Foreign direct investment (FDI) inservices isimportant: during 1990-95 thesector attracted
some 25percentofthetotalforeign investment inmost years, withtheexception of1994 when it
droppedto14percent.Financialservicesattractedthemostforeigninvestment,particularlyininsurance
services. Intelecommunications, FDIincreased substantially from US$3.1 million in1990 to
US$409.8 million in1995 (Table IV.15).
Table IV.15
Foreign direct investment intheservices sector, 1990-95
(Thousand US$)
1990 1991 1992 1993 1994 1995 Total
Electricity andgas ... ... ... 2,510 12,118 54,043 68,671
Water supplies ... ... ... 256 432 25 713
Construction 5,413 32,486 23,713 20,905 38,513 59,266 303,599
Commerce 6,209 40,785 19,649 44,271 35,429 26,646 326,737
Tourism 2,646 1,048 15,402 9,189 19,225 26,240 75,918
Transport andstorage 3,386 17,098 5,962 38,092 14,729 2,739 103,067
Communications 3,134 14,927 41,169 16,449 59,097 409,770 827,656
Financial institutions 67,832 34,654 38,667 103,865 58,160 151,658 1,141,358
Investment funds andrisk
capital270,930 61,760 91,412 55,634 39,511 39,151 655,962
Insurance 17,641 44,062 29,180 14,804 12,697 57,325 212,715
Services toenterprises 6,565 17,815 20,896 19,336 42,013 41,193 192,223
Sanitation services and
others27 348 183 604 656 7,790 9,907
Cultural andentertainment
services537 7,672 3,155 7,027 25,376 13,434 59,828
Other services 105 27 336 177 319 8,587 13,512
Total FDIinservices 384,425 272,682 289,724 333,119 358,275 897,867 3,991,866
Total FDIinallsectors 1,320,346 980,578 1,000,288 1,728,113 2,517,998 3,041,070 15,691,634
... Notavailable.
Source: Government ofChile.
70Decree LawNo.211regulates competition inallChilean markets.WT/TPR/S/28 Trade Policy Review
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103. TheChilean Schedule ofSpecific Commitments negotiated intheUruguay Round andin
subsequent sectoral negotiations includes horizontal commitments affecting allsectors aswellas
sector-specific commitments. Horizontal commitments extend tosuppliers ofservices whooperate
inChile through acommercial presence, andwhomake investments under theprovisions oftheForeign
Investment Statute.71However, inpractice, Chile currently offers better conditions thanthosestipulated
intheirschedule ofcommitments. Theauthorities haveindicated thatdecisions togrant authorization
todeliver services maytakeintoaccount theeffect ofcommercial presence oneconomic activity, on
productivity, oncompetition inthesector andother sectors, andthecontribution ofthecommercial
presence toChile'sintegration intotheworld market.
104. Horizontal commitments alsocover foreign labour. Restrictions apply tothepresence ofsenior
andspecializedforeignpersonnel.Forexample,seniorandspecializedpersonnelmustestablishdomicile
andresidence inChile. Limits arealsosetontheproportion offoreigners allowed towork inforeign
companies: foreign natural persons maynotmake upmore than15percentofthetotalstaffemployed
inChile. Allproviders ofservices areadmitted onatemporary basis forarenewable period oftwo
years.72Temporary admission alsoapplies toforeign personnel inother sectors oftheeconomy.
105. Under theschedule ofhorizontal commitments foreign investors arenotallowed totransfer
theircapital abroad before theelapse ofthree years. However, inpractice, theForeign Investment
Law(D.L. 600)allows forthetransfer ofcapital ayearafterithasbeenbrought toChile (Chapter II).
106. Sector-specific commitments cover business services, leasing and rental services,
telecommunications, financial services, tourism andtravel related services, andauxiliary airtransport
services. Therestrictions thatapply tobusiness services arethose stipulated inthehorizontal
commitments regarding thepresence ofnatural persons.
107. Chile haslisted itsexemptions totheprinciple ofmost-favoured-nation (MFN) treatment under
theAnnex onArticle IIExemptions totheGATS Agreement. These exemptions include: (i)horizontal
measures regarding dispute settlement procedures contained inbilateral treaties ontheprotection of
investment; and(ii)specific measures which cover maritime transportation (seebelow), theLand
Transportation Agreement of1977between Argentina, Bolivia, Brazil, Paraguay, PeruandUruguay;
andaudiovisual services.73
108. Inaddition, mostofChile'sbilateral free-trade agreements haveaservices component, which,
inmostcases, isyettobeimplemented. Thebilateral agreements withColombia, Ecuador, Mexico,
andVenezuelaestablishthecommitmenttofacilitatetradeinservices,andtherearespecificcommitments
regarding maritime andairtransport. Theagreement withMERCOSUR (Chapter II)alsocontemplates
thepromotionoftradeinservices.Chilealsosubscribedtoabilateralmaritimetransportationconvention
withBrazil in1974(seebelow), andanInternational LandTransport Agreement (1977) with,Argentina,
Bolivia, Brazil, Paraguay, PeruandUruguay, which ensures thatnational treatment isgranted onland
transportation. Theagreement recently signed between Chile andCanada contemplates theliberalization
ofservices based onNAFTA, withtheexception offinancial services. TheFree-Trade Areaofthe
71Commer cialpresenceincludescorporationslistedonthestockexchange,unlistedcompanies,privatelimited
companies andsubsidiaries.
72Personnel admitted willbesubject totheprovisions ofthelabour andsocial security legislation inforce.
73WTO document GATS/EL/18, 15April 1994.Chile WT/TPR/S/28
Page 111
Americas (ALCA) alsocontemplates freetradeinservices bytheyear2005. InAPEC, tradeingoods
andservices should beliberalized bytheyear2010.
(i) Financial services
(a) Banks
109. In1996, some 30private banks were registered inChile, ofwhich 17were foreign banks,
andthree werefinance companies; there were21institutions representing foreign banks. Asshown
inTable VI.16, thestructure ofthebanking sector inChile hasbeenlargely transformed since 1980,
withasubstantial reduction intheroleoftheState; theDevelopment Banks disappeared in1981.
TheBanco delEstado ,theonlyremaining state-owned bank, isstillChile'slargest bank, accounting
for12percentofloans and17percentofdeposits. Thisbankconcentrates onproviding services
tothepublic sector (i.e.theNational Treasury andtheministries), andsavings accounts forsmall and
individual savers. Forthisreason, theauthorities consider thatitisnotamajor direct competitor to
thecommercial banking system.74
Table IV.16
Banking sector, 1980 and1996
Institution No.ofbanks No.ofbranches Deposits
(percentage)Assets
(percentage)
1980
Commercial andState-owned banks 33 630 85.6 88.0
Development banks 6 28 8.2 4.5
Financial enterprises (Sociedad Financiera ) 18 57 6.3 7.5
1996
State-owned banks 1 198 17.0 14.7
Domestic private banks 12 696 60.4 61.6
Foreign banks 17 228 18.5 21.1
Financial enterprises (Sociedad Financiera ) 3 158 4.0 2.6
Source: Government ofChile.
110. Thebanking sector isregulated bytheSuperintendency ofBanks andFinancial Institutions,
which reports totheMinistry ofFinance. Banks areallowed totrade foreign exchange ontheofficial
foreign exchange market. Since mid-1992, banks andother localfirms havebeenallowed totrade
currency futures andoptions, including foreign currency interest futures andoptions. There areno
restrictions onthesetting ofinterest ratesthatthebanks cancharge, withtheexception ofmeasures
toprevent usury.75
74Department oftheTreasury (1994).
75Forexample, interest rates onconsumer loans cannot bemore than50percentabove theaverage market
interest ratepublished monthly intheOfficial Journal.WT/TPR/S/28 Trade Policy Review
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111. There arecertain market access limitations inthebanking sector. Foreign banking institutions
mustbecompanies legally constituted intheircountry oforigin andmustputupthecapital required
byChilean law. Forshareholdings inestablished Chilean banks andsubsidiaries, theymustacquire
legalpersonality inChile. Foreign banking institutions mayonlyoperate through shareholdings in
Chilean banks established ascorporations, subsidiaries andbranches. Inthelatter casethelegal
personality ofthecountry oforigin isrecognized. Forthepurposes ofaforeign bankbranch operating
inChile, thecapital effectively invested inChile isconsidered, notthatoftheparent house.
112. Except withtheprior authorization oftheSuperintendency ofBanking, nonational orforeign
natural orlegalperson mayacquire, directly orthrough thirdparties, shares inabankwhich, alone
oradded totheshare thatsuchaperson already possesses, represent morethan10percentofthebank's
capital. Inaddition, thepartners orshareholders ofafinancial institutions maynottransfer apercentage
ofrights orshares inthecompany inexcess of10percentwithout authorization from the
Superintendency ofBanking.76
113. Foreigninvestorswhoparticipateinthefinancialservicessectormaytransfertheircapitalabroad
twoyears afterbringing itintoChile.77However, theauthorities noted thatinpractice onlyaone
yearrestriction isapplied, asprovided intheForeign Investment Statute (D.L. 600). Inaddition, as
stipulated inD.L. 600,thecapital andthereserves brought intoChile byaforeign bankhavetobe
exchanged forChilean pesos.Theminimum taxonbranches offoreign banks wasrepealed in1993.
114. Foreign banks canalsooperate inChile through arepresentative office butsuchoffices cannot
supply banking services perse.
115. Foreign banks areallowed toundertake thesame range ofactivities asnational banks, and
aresubject tothesame capital requirements, credit limits, requirement ofasset classification, and
transparency obligations; theirdeposits areguaranteed bythestate.
116. Formalities toobtain theapproval toopenaforeign branch inChile aresimilar forforeigners
andnationals. Theapplicant mustapply foraprovisional certificate fromtheSuperintendency ofBanks
andFinancial Institutions. Theapplication hastostipulate, interalia,theamount ofcapital thatis
tobeusedintheoperation; thiscannot belessthantheequivalent ofUS$12.5 million inpesos and
incash. Theapplicant mustmake adeposit atanybankinfavour oftheSuperintendency of10percent
ofthecapital thatwillbeinvested; thisisreimbursed with interest once theSuperintendency
provisionallyapprovestheestablishmentoftheinstitution.78Provisionalapprovalisnecessarytoregister
asaforeign investor. Theprovisional certificate isvalidfor10months, butdoesnotentitle theapplicant
tobegin operations. During thistime, theForeign Investment Committee considers theapplication
undertheprovisionsofDecreeLawNo.600(ChapterII).OnlywhentheForeignInvestmentCommittee
approves theinvestment, doestheSuperintendency starttheprocedure forfinalauthorization forthe
banktostartitsoperations. Suchauthorization iscontingent onthefinancial solvency oftheapplicant
andhis/her record asmanager offinancial institutions orsimilar activities inthefinancial sector
(Box IV.1).
76WTO document, GATS/SC/18/Suppl.1/Rev.1.
77WTO document, GATS/SC/18/Suppl.1/Rev.1. Inother sectors, however, capital canbetransferred only
three years aftertheinvestment hasbeenmade, asstipulated inthehorizontal commitments. (WTO document,
GATS/SC/18).
78Thepayment ofinterest isnotstipulated inthelaw.Chile WT/TPR/S/28
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BoxIV.1: Requirements tosetupabranch ofaforeign bank
Provisional certification
Theapplication submitted totheBanking Supervisory Authority must contain thefollowing information:
- certificate oflegal existence andoperationality issued bythecompetent authority ofthecountry
where theparent house isbased;
- name anddomicile oftheparent house;
- actual amount ofcapital thatwillbedevoted totheoperation ofthebranch, which maynotbe
lessthantheequivalent inpesos of400,000 UF,atthetimeofissue oftheresolution granting
final authorization;
- proof ofsufficient power granted totheperson responsible formanaging thesetting upofthe
branch inChile.
Final authorization
Protocolization: After checking bytheSupervisory Authority, thefollowing documents, dulylegalized
andtranslated intoSpanish, must beprotocolized:
- company by-laws;
- certificate oflegal existence andoperationality;
- decision ofthebank'sboard ofdirectors toopen abranch.
Declaration: Byanotarial deed ofthesame dateanddone bythesame notary astheprotocolization of
theabove-mentioned documents, thelegal representative must declare onbehalf ofthecompany:
- thename andaddress ofthebranch inChile andoftheparent house abroad;
- thatitsobject willbebanking activity inaccordance with thegeneral lawonbanking andthe
relevant regulations withwhich thelegal representative declares himself tobefamiliar;
- thattheassets ofthebranch aresubject toChilean law,inparticular tocover anyobligations it
hastomeet inChile;
- theactual capital itwillhave inthecountry, which may notbelessthan theequivalent of
400,000 UFinthenational currency, atthetimewhen theresolution granting finalauthorization
isissued.
Resolution: Once theBanking Supervisory Authority isinpossession ofalltheabove-mentioned
information anddocuments, itissues theresolution approving thesetting upofthebranch.
Legalization oftheresolution: Theresolution andtheextract oftheparent bank'sby-laws, certified by
thesupervisory authority, areentered intheCommercial Register ofthebranch 'sdomicile andpublished
intheOfficial Journal, within 60days from thedateoftheresolution granting approval.
Authorization tooperate
Inadopting itsresolution onauthorization, thebanking supervisory authority takes intoaccount the
consolidated solvency oftheapplicants, their financial behaviour orintegrity, andtheir background as
regards banking administration orfinancial activities.
117. TheChilean authorities cansuspend operating licences foraspecified period oftimeforpolitical
economy orfinancial reasons.
118. Atpresent, adraftbilltomodify theGeneral Banking Lawisbeing discussed. Theaimis
tomodernize thebanking sector. Reforms include theexpansion ofthescope ofbanking activities
bothdomestically andinternationally, andtheadoption ofinternational standards regarding supervisionWT/TPR/S/28 Trade Policy Review
Page 114
methods. Thus, atthedomestic level, banks would beallowed toundertake activities suchasfactoring,
securitization, underwriting andbrokerage ofnon-provisional insurances; attheinternational level,
Chilean banks would beallowed toestablish branches abroad andtolendmoney abroad. Inaddition,
thestandards laiddown bytheBank ofInternational Settlements regarding capital requirements would
beadopted. TheSuperintendency ofBanking would initsperiodic evaluations takeintoaccount the
management procedures usedinthebank.
(b) Insurance andre-insurance companies
119. According totheInsurance Law(Decreto confuerza deleyNo.251of1931) insurance and
re-insurance services canbeprovided onlybyinsurance andre-insurance companies established in
Chile fortheexclusive purpose ofdeveloping thislineofbusiness. Insurance andre-insurance
corporations mustbelegally constituted inaccordance withtheprovisions ofChilean company law.
120. InChile, theinsurance business isdivided intwogroups: thefirstcomprises companies that
insure goods andproperty against theriskoflossordamage; thesecond comprises companies that
provide (i)personal insurance; or(ii)thatguarantee, within orattheendofacertain term, acapital
sum, apaid-up policy, oranincome fortheinsured orhisbeneficiaries. Credit insurance companies
areclassified inthefirstgroup andmustbeestablished ascorporations withthesolepurpose ofcovering
thistypeofrisk.79Insurance companies inthefirstgroup arenotallowed tocover thesame category
ofriskasthesecond group, andviceversa.
121. Insurance canbebought abroad withtheexception ofcompulsory insurances which mustbe
contracted withcompanies established intheChilean market.
122. Re-insurance services canbesupplied inChile byinsurers established inthecountry; by
corporations whose solepurpose istooperate re-insurance inoneofthetwogroups indicated above,
subject toinspection bytheSecurities andInsurance Supervision Department; andthose foreign
reinsurers whoareenrolled intheRegister ofForeign Reinsurers maintained bytheSecurities and
Insurance Supervision Department.
123. Re-insurance canbeobtained abroad, provided thatthere-insurer complies withprudential
requirements (i.e.theminimum capital requirement, proper establishment inthecountry oforigin,
andproof ofcapacity topayinaconvertible currency).
124. National regulations apply equally tonational andforeign companies providing insurance and
re-insurance services. Nationals andforeigners mustcomply withtworequirements. First, thecompany
must belegally constituted asacorporation which hasoneexclusive function (namely, tosupply
insurances), and,second, itmustmeettheminimum capital requirements. Theminimal required capital
toestablish aninsurance company isapproximately US$2,821,000 andapproximately US$3,761,000
forare-insurance company. TheSuperintendency ofSecurities andInsurance isincharge ofapproving
theestablishment ofaninsurance orre-insurance company.
125. Importers andexporters canuselocalorforeign insurance companies, without anyrestrictions.
However, when insurance services arecontracted abroad, inaddition totheVAT, ataxof20percent
islevied ontheinsurance premium. Insurance forthetransport ofexports andimports isexempt from
theVAT.
79Loss ordamage asaresult ofthenon-payment ofamoney debtorloan; andguaranty andfidelity risk.Chile WT/TPR/S/28
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(ii) Telecommunications
126. Theregulatory roleofthestate inthetelecommunications sector isundertaken bythe
Under-secretary ofTelecommunications (SUBTEL), which controls and surveys public
telecommunications services andprotects users. SUBTEL isseparate from, andnotaccountable to,
anysupplier ofbasic telecommunications services. Itisincharge ofimplementing andsurveying the
application oftheGeneral Telecommunication Law, approved in1982 andsubsequently amended.
Theamendment, in1987, incorporated aprocedure forestablishing thetariffforlocalpublic services,
long-distance national andinternational services, andservices provided among concessionaries through
interconnections, intheevent ofmarket failure. Thelawwasamended asecond time, in1994, to
allow competition inthelong-distance market.
127. Thetelecommunications sector hasbeenfullyprivatized. There are27private companies:
15carriers, ofwhich nineareinoperation; ninelocalcompanies; andthreecellular phone companies.
Theformerstate-ownedmonopolies,theChileanTelecommunicationsCompany(CTC)andtheNational
Telecommunications Enterprise (ENTEL) retain alarge share ofthemarket; theCTC hasthelargest
market share fordomestic localcalls.80Until 1992, ENTEL hadthemonopoly forlong-distance calls.
Today, seven other companies haveconcessions tooperate aslong-distance carriers, butENTEL has
thelargest market share, followed byCTC Mundo (Table IV.17).
128. Withtheintroduction ofthemulti-carrier system, in1994tariffs werereduced by30percent
relative tothesituation before themarket wasopened toprivate sector competition. Inaddition, the
private companies haveundertaken important investments ininfrastructure, including networks offibre
optics andsatellite equipment.
Table IV.17
Enterprise participation inthemarket forlong-distance calls, 1996
(Percent)
ENTEL USATEL CTC MUNDO CHILESAT VTR BELLSOUTH TRANSAM CNT
National 40.8 0.2 32.5 15.7 5.0 1.8 1.6 2.4
International 39.8 2.4 20.8 12.7 10.9 10.6 2.3 0.5
Source: Government ofChile.
129. Theauthorities estimate thatsince thebeginning ofthe1970s thetelecommunications market
hasexpanded atanannual rateof20percent. During 1995, income fromtelecommunications services
reached US$801 million andthenumber ofprinciple linesreached 1.9million users; theauthorities
project thatbytheyear2000there willbe2.8million lines. Atpresent, Chile has15telephone lines
per100inhabitants, andthere arearound 190,000 users ofmobile telephones.
130. Thesupply ofother value-added telecommunications products hasincreased through public
andprivate network systems. Forinstance, cable television services canbesupplied bylocal and
long-distance telephone companies.
8043percentofCTC'sshares areowned bytheSpanish telephone company.WT/TPR/S/28 Trade Policy Review
Page 116
131. Telecommunications services, asdefined byChile initsschedule ofspecific commitments,
consist ofthetransport ofelectromagnetic signals (sound, data, image oranycombination thereof)
regardless ofthetypeoftechnology used.81Chile'sschedule includes onlydomestic andinternational
long-distancebasictelecommunicationsservices.82Excludedarelocalbasictelecommunicationsservices,
one-way satellite transmissions ofDirect-to-Home andDirect Broadcast Satellite television services
anddigital audio services. Italsoexcludes freereception ofbroadcasting services.
132. Commercial presence inChile issubject toaconcession, licence orpermit, granted by
SUBTEL.83Anapplicant must bealegalperson established inChile anddomiciled inthecountry.
Toobtainaconcessionforintermediaryservicessupplyinglong-distancetelephoneservices,theapplicant
hastoregister asanopen(public) corporation (i.e.thestocks ofthecompany havetobesoldonthe
stock exchange). Aconcessionary maysupply bothlocalandlong-distance telephone services, but
through separate companies, which must alsoberegistered asopencompanies.
133. Whereaconcession,licenceorpermitissought,thefollowinginformationmustbemadepublicly
available: (i)thelicensing criteria andtheperiod oftimenormally required toreach adecision
concerning anapplication foralicence; and(ii)theterms andconditions ofindividual licences.
Concessions aregranted for30years forpublic services andtelecommunications intermediaries, and
for25years forradio transmission. Permits aregranted foronlytenyears fortelecommunications
services, while licences aregranted forfiveyears forcertain limited services, e.g.experimental stations
andstations thatoperate inlocal andcommunity-owned bands. Concessions, permits andlicences
arerenewable. SUBTEL isrequired tomake adecision within 60daysfrom theapplication date;
ifthesecretariat doesnotpronounce ajudgement, theapplication isconsidered tohavebeenapproved.
Incaseofdenial, thereasons aremade known totheapplicant upon request.
134. Tariffs ofpublic services andofintermediary services contracted among enterprises maybe
freely established bytheprovider. However, ifthere isaresolution bytheResolutory Commission
totheeffect thatmarket conditions donotallow tariffs tobedetermined bymarket forces, these tariffs
arefixedaccordingtotheprovisionsoftheGeneralLawofTelecommunicationsNo.18.168(Article29).
Tariffs sofixed arebased onthelong-run marginal costsofahypothetical efficient enterprise andare
indexed according toincreases inthecostsofproduction oftheenterprise. They arecalculated every
fiveyears bytheMinistry ofTransportation andTelecommunications andtheMinistry ofEconomy,
Development andReconstruction.
135. TheGeneral Telecommunications Lawstipulates thatthepublic telephone service mustprovide
access tothegeneral network. Inter-connection withamajor supplier isensured atanytechnically
feasible point inthenetwork. Such inter-connection isprovided under non-discriminatory terms,
conditions (including technical standards andspecifications) andrates. Aservice supplier requesting
inter-connection withamajor supplier hasaright ofrecourse toresolve disputes regarding terms,
conditions andratesforinter-connection. Thedispute settlement bodyisgenerally theregulatory body,
81Itdoes notinclude theprovision ofservices whose content requires telecommunication services forits
transportation.
82These aretelephone services (CPC 7521), packet-switched datatransmission services (CPC 7523), circuit-
switched datatransmission services (CPC 7523), telex services (CPC 7523), telegraph services (CPC 7522),
facsimile services (CPC 7521** +7529), andprivate leased circuit services (CPC 7522 +7523).
83WTO document GATS/SC/18/Suppl.2, 11April 1997.Chile WT/TPR/S/28
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SUBTEL. Iftheparties involved inthedispute disagree withtheresolution, thismaybeappealed
inthecourts. However, nosuchdisputes havetaken place.
136. Chile hasagreements withPeruandArgentina tosupply telephone services intheborder areas.
(iii) Transportation
137. TheMinistry ofTransport andTelecommunication, through theUnder-secretary of
Transportation,isresponsibleforregulatingtransportationservices.Atpresent,theaimoftheauthorities
istoincrease theparticipation oftheprivate sector intheadministration ofroads, ports, airports and
railways. TheState owns three transportation companies: theSantiago Metro, themainline train
companyforpassengertransportation(FerrocarrilesdelEstado)andamaritimetransportationenterprise
thatoperates onlyinthefjords inChiloé. However, these enterprises arebeing managed byan
autonomous board butnotbytheState
138. Ingeneral, nosubsidies aregranted toenterprises thatsupply transport services. Subsidies
areonlygranted totransportation services operate inisolated areas, where theStatehasaresponsibility
toprovide public transportation.
139. There arenoregulations orincentives topromote theuseofnational transportation intrade.
(a) Maritime transport
140. Maritime transport isregulated bytheMinistry ofTransport andTelecommunications, the
Merchant Marine Commission andtheGeneral Directorate oftheMaritime Territory andMerchant
Marine, abody oftheMinistry ofNational Defence. The Ministry ofTransport and
Telecommunications,interalia,regulatesandsurveysinternationaltransportandcabotage.TheMerchant
Marine Commission isincharge ofensuring thattheprinciple ofreciprocity isenforced. TheGeneral
Directorate oftheMaritime Territory andMerchant Marine isincharge ofsafety atsea,andgrants
licences tocrew members.
141. In1995, 44percentoftradewasconducted through public portsand55percentusing private
ports.84Thestate-owned ports areadministered bytheChilean Ports Enterprise (EMPORCHI). In
1995 adraftlawwasputforward tomodify theadministration ofthestate-owned ports. Under the
proposed law,themanagement ofthestate-owned ports would bedecentralized; nineautonomous
companies would becreated toreplace EMPORCHI; andtheports would beprivatized. TheState
would remain astheregulatory body. Thisdraftbillisbeing discussed inCongress andwasexpected
toberatified in1997.
142. TheGovernment hasprivatized theauxiliary services intheState-owned ports bygranting
concessions. Theauthorities havestated thatthere willbenofurther public investment innewports,
leaving thewayopenforprivate investment. Some portservices, suchasstevedoring, areundertaken
byprivate companies. However, warehousing isprovided byEMPORCHI.
143. CORFO (thestate-owned Corporation fortheDevelopment ofProduction) owns amaritime
company (TRANSMOCHILAY), whose share intheprovision oftransportation services isofminor
84Thepublic ports areArica, Iquique, Antofagasta, Coquimbo, Valparaíso, SanAntonio, SanVicente,
Talcahuano, Puerto Montt, Chacabuco, Punta Arenas andBahía Catalina.WT/TPR/S/28 Trade Policy Review
Page 118
importance since itonlyprovides cabotage services between theRegions XandtheXI.85TheState
hasnoother roleintheprovision ofmaritime services, andnone inthefixing oftariffs orinthe
assignment ofroutes.
144. Ingeneral,Chileaninternationalmaritimetransportpolicyisbasedupontheprincipleoffreedom
ofmaritime navigation. However, where foreign countries apply cargo preferences Chile mayalso
apply areciprocal measure fornational vessels, andthemaritime authorities canalsogrant preferential
treatment insuchcases. Pursuant tothe1974bilateral convention, allmaritime transportation between
Brazil andChile must becarried onvessels flying theChilean orBrazilian flag,withtheexception
ofthetransportation ofoilanditsby-products andnatural liquid gas.Freight costshavetobeshared
among thetwocountries. Transport inforeign vessels (i.e.neither Chilean norBrazilian) isonlyallowed
ifnoother means oftransportation isavailable; cabotage isexcluded fromtheagreement. There are
nomeasures which grant preferential treatment inthesupply ofauxiliary services oraccess toand
useofportandharbour facilities.
145. Inthecourse offoreign trade there isnormally nodiscrimination against foreign vessels, or
regarding access toanduseofnational ports orterminal facilities. In1995, 25percentofthe
merchandise transported byseawascarried outbythenational vessels andtherestbyvessels with
foreign flags.86
146. Incoastal trade, cabotage isreserved toChilean vessels, however, transport incoastal waters
fromandtothePortofArica isopentoforeign vessels.87Foreign vessels mayparticipate innormal
coastal tradewhen thevolume concerned exceeds 900tonnes; prospective carriers havetoparticipate
inapublic tender foraconcession. Ifthemerchandise transported islessthanorequal to900tonnes,
butthere arenoChilean vessels available, theMaritime Authority mayauthorize coastal transport by
foreign vessels. Foreign vessels areallowed totransport empty containers fromoneChilean portto
another onlyifChilean vessels receive reciprocal treatment inthecountry oforigin oftheforeign vessel.
147. OnlyaChilean orlegalperson registered inChile isqualified toregister ashipinChile. The
president, managers anddirectors ofsuchashipping company must beChilean, andmore thanthe
50percentofthecapital ofthecompany mustbeowned byChileans. Ships, other thanforfishing,
owned byforeigners mayberegistered asChilean ships iftheforeigners aredomiciled inChile, if
theprincipal location oftheirbusiness isChile oriftheyexercise permanently aprofession inChile.
148. Maritime transportation services arenotsubsidized, withtheexception ofcoastal transportation
toisolated areaswhere thereisnotenough demand tojustify theexistence ofaregular shipping service.
Insuchcases theGovernment ensures theprovision oftransportation atasubsidized rate. Subsidies
areallocated bytherelevant ministry through apublic bid,andareadministered bytheauthorities
oftheregion concerned; inthecaseofPuerto Montt theyareadministered bytheMinistry ofTransport
andTelecommunications.
149. Chile participated intheWTO maritime transportation negotiations.
85Empresa Marítima (EMPREMAR), alsoowned byCORFO, wasprivatized in1996.
86In1979 maritime transportation wasopened without anycargo limitation (Law No.3.059 of1979).
87LeyArica No.19.420, 23October 1995.Chile WT/TPR/S/28
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(b) Airtransport
150. Commercial airtransportation isregulated bytheCivil Aeronautics Board (JAC), while the
General Directorate ofCivilAeronautics (DGAC) isresponsible fortechnical andoperational matters.
TheJACandtheDGAC areincharge ofapproving theentry ofnewairlines totheChilean market.
151. Under theCommercial AirNavigation Law, 1979 (Law No.2.564), Chile adopted anopen
skypolicyregardingtransportationofpassengersandmerchandise.Chileanandforeignairlinecompanies
areallowed tosupply commercial airtransport services bothdomestically andinternationally. However,
theparticipation offoreign companies isallowed onlyonthebasisofreciprocity.88Theopenskypolicy
hasbeencomplemented bythenegotiation oftraffic rights withdifferent countries, resulting in22
bilateral airtransportation agreements, aswellasseveral multilateral aviation agreements (Table IV.18).
Table IV.18
Multilateral conventions oncivilaviation ofwhich Chile isaMember
Convention Date ofentry intoforce
Convention fortheUnification ofCertain Rules Relating toInternational Carriage byAir 13.2.1933
Protocol toAmend theWarsaw Convention 13.2.1933
International AirServices Transit Agreement 30.1.1945
Convention onInternational Civil Aviation 4.4.1947
Convention ontheInternational Recognition Rights inAircraft 17.9.1953
Convention onOffences andCertain Other ActsCommitted onBoard Aircraft 4.12.1969
Convention fortheSuppression ofUnlawful Seizure ofAircraft 14.10.1971
Convention fortheSuppression ofUnlawful Actsagainst theSafety ofCivil Aviation 26.1.1973
Source: Government ofChile.
152. Atpresent (July 1997), 34airlines operate inChile, seven ofwhich areprivate national
companies. Thirty ofthese airlines engage inthetransportation ofpassengers, cargo andmail, and
theother three transport solely merchandise. There are25additional non-regular cargo airlines.
153. While companies mayfreely establish theirtariffs, under LawNo.2.564 of1983 theJAC
wasallowed tonegotiate international airline tariffs when another country fixed orattempted tofix
tariffs. Thelawwasintended tosafeguard theinterests ofcompanies andusers. Inaddition, theJAC
isallowed tolimittheaccess offoreign companies onlyifother countries limittheaccess ofChilean
airlines tointernational routes.
154. Private companies, including airlines, canobtain concessions fromtheMinistry ofPublic Works
tosupply auxiliary services suchashandling, cargo, catering, etc.Theconcessions aregranted for
5-25years, according tothesizeoftheinvestment; bothnationals andforeigners mayparticipate in
thebidstoobtain aconcession. Limitations ontheuseofforeign labour, stipulated inChile'shorizontal
commitments, apply inthefollowing auxiliary airservices: opening ofoffices, issue andsaleofair-
transport tickets, computer reservation systems, ground operation ofsupport equipment andaircraft
88Código Aeronáutico ,LawNo.18.919 (Article 38)andDecree LawonCommercial Aviation No.2.564
(Articles 1and2).WT/TPR/S/28 Trade Policy Review
Page 120
maintenance.AllothermodesofsupplyhavenolimitationsorChilemadenocommitmentswithrespects
tothese items.89
155. TheDGAC isincharge oftheadministration andcontrol oftheinfrastructure andequipment
ofairports, aswellastheestablishment oftechnical standards. Technical standards arebased on
international standards issued bytheInternational Civil Aviation Organization (ICAO) andthe
International Association forAerial Transport (IATA).
89WTO document GATS/SC/18, 15April 1994.Chile WT/TPR/S/28
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