Chile WT/TPR/S/124
Page 1
I. ECONOMIC ENVIRONMENT
(1) INTRODUCTION
1. Since its last Review in 1997, Chile's economy has grown at an average annual rate of 2.4%,
including a recession in 1999.  Economic growth has been accompanied by decreasing inflation,
stable external accounts, strong international reserves, and increased openness of the foreign trade
regime.  Chile's macroeconomic policy framework has sought increasingly to minimize potentialeffects of external shocks on output and employment;  the authorities indicate that the two most
important changes in this regard were the floating of the exchange rate in 1999, and the introduction
of the concept of a structural surplus in fiscal policy in 2001.
2. Since 1996, Chile's current account has posted a deficit each year except for 1999.  However,
the deficit has come down from the 1996-98 levels, mainly because the trade balance switched intosurplus in 1999.  The deficit has been largely finan ced by inflows of foreign investment capital, which
have tended to fall in line with the decrease of the current account deficit.  Chile's economy remains
largely resource-based;  mining exports, mostly copper, agricultural goods (including forestry and
fishing), and related processed products continue to generate about 80% of merchandise export
earnings.  Chile's main trading and investment partners are the European Union and the United States;in addition, Argentina is an important supplier of imports.
3. Chile's per capita GDP was some US$4,340 in 2002.  Chile has a remarkable record in
reducing poverty.  A combination of strong growth and social programmes reduced the poverty rate
by half between 1987 and 1998, from 40% to 20%;  about 5.7% of the population were in extreme
poverty in 2000.
(2) M
AIN ECONOMIC DEVELOPMENTS
(i) Output and employment
4. Between 1996 and 2002, Chile's real GDP grew at an average annual rate of 3.1% (Table I.1).
Growth rates declined between 1996 and 1999, when Chile's economy entered its first recession since
the early 1980s.  Although GDP growth picked up ag ain in 2000, growth rates have not attained their
levels of the early 1990s, of more than 6%.  The authorities consider that mainly cyclical factors have
contributed to the slowdown of Chile's GDP gr owth, including low copper prices, increasing oil
prices, and the impact of financial crises in East Asia, Argentina, and Brazil.
5. The GDP share of combined private and public consumption remained relatively stable over
this period, between 74% and 77%, with an increasing trend for public consumption.  The
contribution of investment dropped from over 26% in 1998 to just under 21% in 1999, and has
broadly remained at that level since.  The contribution of the external sector to GDP was negativebetween 1996 and 1998, and has been positive since 1999;  it amounted to 2.3% of GDP in 2002.
6. Agriculture contributes just over 4% to GDP, and agricultural goods are of key export
importance (section (3)(i) below).  The share of the manufacturing sector, which mostly centres
around the processing of primary goods, has slightly declined to about 16% of GDP, despite growth in
absolute terms.  The mining sector has increased its contribution to GDP to more than 8%;  copperexports remain Chile's most important single generator of foreign exchange.  The services sectorWT/TPR/S/124 Trade Policy Review
Page 2
contributes about 53% to GDP;  growth rates have  been particularly high for the transport and
communications subsectors.1
Table I.1
Basic economic indicators, 1996-02
1996 1997 1998 1999 2000 2001 2002
I.     Gross domestic product (GDP)
Current GDP (Ch$ billion) 31,237 34,723 36,535 37,139 40,393 43,344 45,763
Real GDP (1996, Ch$ billion) 31,237 33,301 34,377 34,115 35,537 36,626 37,412
Real GDP, rate of growth (%) 7.4 6.6 3.2 -0.8 4.2 3.1 2.1
Breakdown by expenditure (% of current GDP)
Total consumption 74.3 74.4 76.4 76.8 76.3 76.5 75.8
Private 63.3 63.3 64.9 64.4 63.9 64.0 63.2
Public 11.0 11.1 11.5 12.4 12.4 12.5 12.6
Gross fixed capital formation 26.4 27.1 26.1 20.8 20.7 21.3 21.1
Exports of goods and services 27.3 27.1 26.3 29.6 31.8 33.5 34.1
Imports of goods and services 29.0 29.2 29.6 27.3 30.0 31.9 31.8
II.  Fiscal indicators (% of GDP)
Revenue 21.7 21.7 21.6 21.3 22.6 22.6 22.1
Expenditure 19.8 19.9 21.3 22.6 22.4 22.9 22.9
Overall balance 2.1 1.8 0.4 -1.4 0.1 -0.3 -0.8
III.  Money and prices
Consumer price index (% change) 7.4 6.1 5.1 3.3 3.8 3.6 2.5
M3 (end of period, % change) 24.9 19.6 17.2 8.5 7.6 9.1 7.4
Exchange rate (average of the year, Ch$/US$) 412.3 419.3 460.3 508.8 535.5 634.9 688.9
Real effective exchange rate (1995 = 100) 103.4 113.1 111.1 105.4 106.0 96.6 90.9
Deposit rate (%, p.a.) 13.5 12.0 14.9 8.6 9.2 6.2 3.8
Lending rate (%, p.a.) 17.4 15.7 20.2 12.6 14.8 11.9 7.8
IV.  Memo items
Population (million)a14.4 14.6 14.8 15.0 15.2 15.4 15.1
Terms of trade 100 100.2 97.5 100.1 100.1 99.2 100.5
Gross international reserves (US$ million) 15,805 18,274 16,292 14,946 15,110 14,400 15,351
a Population figures for 2002 represent census results;  figures for previous years are projections based on the previous census .
Source: Central Bank of Chile;  Ministry of Finance;  and IMF International Financial Statistics .
7. Between 1996 and 2002, total employment increased from 5.18 million to 5.39 million
(Table I.2).  Unemployment rates averaged around 6.2% from 1996 and 1998, but increased to nearly10% in 1999 and have remained around 9% since.  Employment has shifted away from agriculture
and manufacturing, and all services subsectors have increased their share.
8. Trade plays an increasingly important role in Chile's economy.  Chile's exports of goods and
services amounted to US$22.7 billion in 2002, whereas imports of goods and services were
US$21.1 billion.  The share of exports of goods and services in GDP increased from 27.3% in 1996 to
34.1% in 2002; the share of imports of goods and services increased from 29.0% in 1996 to 31.8% in
2002.
Table I.2
                                                     
1 Services as defined here include:  commerce, hotels and restaurants;  transport and communications;
financial services;  real estate;  private and personal services;  and public administration.Chile WT/TPR/S/124
Page 3
Employment indicators, 1996-02
(Per cent and thousands)
1996 1997 1998 1999 2000 2001 2002
Rate of unemployment (%) 6.3 6.1 6.3 9.8 9.2 9.1 9.0
Labour force 5,532 5,625 5,728 5,827 5,847 5,861 5,914
Total employment 5,181 5,281 5,375 5,255 5,311 5,326 5,385
      by sector (%)
Agriculture 15.2 14.2 14.1 14.1 13.9 13.2 13.1
Mining 1.8 1.8 1.6 1.4 1.4 1.4 1.3
Manufacturing 16.3 16.3 15.7 14.5 14.3 14.2 14.2
Electricity, gas and water 0.8 0.7 0.6 0.6 0.6 0.6 0.6
Construction 7.8 8.6 8.9 7.3 7.3 7.8 7.9
Commerce 17.9 18.1 18.3 19.1 18.8 19.0 19.4
Transport and communications 7.5 7.7 8.0 7.8 8.0 8.0 8.3
Financial services 6.8 6.9 7.2 7.5 7.7 7.8 7.8
Public services 25.9 25.8 25.7 27.6 28.1 28.1 27.3
Source: Chilean authorities.
(ii) Fiscal policy
9. The formulation of fiscal policy is mainly the responsibility of the Ministry of Finance.  The
authorities indicated that the most important modifi cation in fiscal policy formulation since Chile's
last Review has been the introduction of the concept of a structural surplus in 2001.  According to this
concept, the authorities target an annual fiscal surplus equivalent to 1% of GDP, by assuming a level
of economic activity consistent with normal capacity utilization and a hypothetical copper price
equivalent to the long-term price of copper.  This  policy is aimed at ensuring medium-term fiscal
stability, while permitting counter-cyclical meas ures in periods of slower economic growth.
10. According to Ministry of Finance figures, Chile has posted a fiscal deficit three times since
1996 (Table I.3).  In addition, the Central Bank's balance has been negative for some time, and fairly
stable at around 1% of GDP.  As  a share of GDP, government expenditure rose by about three
percentage points between 1996 and 2002, whereas fiscal revenue has been more stable, oscillating
around 22%.
11. With a view to reducing the volatility of fiscal income, the Government has operated a
Copper Stabilization Fund since 1997.  Thus, if copper prices exceed an annually determined baseline
price by US$0.04 to US$0.05, 50% of the difference is paid into the Fund;  if the copper price exceeds
the baseline price by more than US$0.10, all the surplus is paid into the Fund.  Likewise and with the
same thresholds, resources are drawn out of the F und to supplement current fiscal income when the
price of copper falls below the baseline price.
12. Government revenue from import tariffs decreased from US$1.5 billion in 1996 to
US$0.7 billion in 2002, reflecting reductions of MFN tariffs and of tariffs under preferential
agreements (Table I.4).  As a result of trade liberalization, the share of customs duties in total
government revenue decreased from more than 12% in 1996 to just over 6% in 2002.  VAT collected
on imports increased to US$3.7 billion in 1998, but has been falling since then, to US$2.9 billion in
2002, reflecting in large measure the drop in the value of imports.  The proportion of fiscal revenuederived from foreign trade (tariffs and internal taxes levied on imports) showed a falling trend
between 1996 and 2001, when it amounted to just over 31%, but increased again in 2002, to over
35%, mainly due to weak total fiscal revenue.WT/TPR/S/124 Trade Policy Review
Page 4
Table I.3
Central Government finances, 1996-02
(Ch$ billion)
1996 1997 1998 1999 2000 2001 2002
I.  Revenue 6,788 7,525 7,907 7,910 9,115 9,796 10,129
    1. Current revenue 6,617 7,334 7,708 7,731 8,960 9,620 9,917
       Operational incomea440 471 560 650 912 653 665
       Contributions to social security 403 449 497 527 577 628 679
       Net tax incomeb5203 5673 5952 5806 6616 7267 7709
       Copper-related revenuec213 306 208 251 279 334 346
       Transfers 56 60 67 73 78 97 86
       Other income 302 376 424 424 499 641 433
    2. Capital revenue 171 191 199 179 154 175 211
II. Expenditure 6,130 6,902 7,775 8,412 9,058 9,908 10,493
    1. Current expenditure 4,972 5,576 6,325 6,882 7,556 8,270 8,713
       Personnel (wages and salaries) 1,159 1325 1491 1645 1778 1891 2011
       Goods and services 516 569 633 577 634 671 713
       Social security benefits 1,698 1898 2145 2442 2684 2925 3058
       Interest payments 166 141 233 121 180 203 135
          internal debt 65 63 178 36 81 91 10
          external debt 101 78 55 85 99 112 125
       Transfers 1,390 1594 1758 2041 2211 2498 2705
       Other 42 50 65 56 68 81 91
    2. Capital expenditure 1,158 1,326 1,451 1,530 1,502 1,638 1,780
       Real investment 884 992 1074 1038 905 979 1033
       Financial investment 148 207 199 177 205 174 178
       Capital transfers 126 127 177 316 392 485 569
III. Balance
      Current expenditure and revenue (I.1-II.1) 1,645 1,759 1,383 848 1,404 1,350 1,204
      Global (I.-II.) 658 623 132 -502 56 -113 -365
IV. Financing -658 -623 -132 502 -56 113 365
        Net external financing -286 -174 -78 186 -105 275 450
        Net domestic financing -317 -175 -378 -278 -60 -219 -394
        Change in cash flow and other -55 -274 324 594 108 56 308
V. Memo items:
     Deposits in Copper Stabilization Fund 78 44 -162 -234 -64 -267 -290
     Use of Petrol Stabilization Fund 19 17 -47 60 185 -8 -7
     Public debt amortization 655 409 508 421 219 400 730
     Recognition Bonds 210 260 304 369 416 493 487
     CODELCO transfers to Armed Forcesd110 118 99 117 160 163 153
a Includes income from privatization.
b Net of tax deductions and devolutions.
c Includes transfers from CODELCO (profits and taxes) net of state contributions to the Copper Stabilization Fund;  excludes 
CODELCO's transfers to the Armed Forces.
d Law No. 13.196 requires CODELCO to transfer 10% of its gross revenue to an extra-budgetary account maintained by the 
Central Bank and to be used by the armed forces.
Source: Ministry of Finance.Chile WT/TPR/S/124
Page 5
Table I.4
Import-related fiscal revenue, 1996-02
(US$ million)
Year 1996 1997 1998 1999 2000 2001 2002
Tariffs 1,528 1,615 1,597 1,033 1,067 862 711
VAT on imports 3,303 3,591 3,687 2,738 3,225 3,007 2,936
Specific taxes on imports 102 172 192 139 162 169 204
Total trade-related fiscal revenue 5,091 5,261 4,971 4,012 4,456 4,080 3,882
Total fiscal revenue 12,623 13,543 12,955 11,427 12,269 13,039 11,045
Share of trade-related revenue in total fiscal
revenue (%)40.3 38.8 38.4 35.1 36.3 31.3 35.1
Source : Chilean authorities.
13. The Budget for 2003, approved by Congress on 20 November 2002, provides for fiscal
expenditure of US$16.5 million and an estimated revenue of US$16.1 million, projecting a central
government deficit of 0.7% of GDP.
(iii) Monetary and exchange rate policies
14. The institutional framework for Chile's monetary policy is laid out in Articles 97 and 98 of
the Constitution and in the Constitutional Organic Law of the Central Bank (Law No. 18.840 of
10 October 1989), both of which stipulate that the Central Bank is an autonomous institution.
Pursuant to Article 6 of the Law, the Council of the Central Bank is the highest authority for the
formulation of monetary policy in Chile.  The Council is composed of five members designated by the
President of the Republic and approved by the Senate for a renewable period of ten years.  ThePresident of the Council, who also serves as the head of the Central Bank, is designated by the
President of the Republic from among the members of the Council, for a period of five years.
15. Pursuant to Article 3 of the Constitutional Organic Law, the Central Bank has as an objective
to protect currency stability and the normal functioning of internal and external payments.  The
authorities confirmed that in practice price stability is the key objective of the Central Bank.
16. The Central Bank has been successful in keeping inflation rates low;  the average rate
decreased from 7.4% in 1996 to 2.5% in 2002.  Since January 2001, the Central Bank has beenfollowing an annual inflation target of 2% to 4%, centred on 3%, and measured by increases of the
consumer price index.  For 2003, the Central Bank expects an inflation rate of 2.9%.
17. With a view to lowering inflation, the Central Bank tightened its monetary policy between
1996 and 1999;  it was tightened in particular during the second half of 1998, but was relaxed in the
first months of 1999.
18. A large share of prices in Chile are indexed, i.e. expressed in Unidad de Fomento or Unidad
Tributaria.  The authorities indicated that this is ma inly due to inflation rates being high in the past,
and consider that indexation does not impact on the efficiency of monetary policy.
19. There are two foreign exchange markets, the formal and the informal.  The exchange rate is
the same in both markets, and agents may sell or purchase foreign exchange in either market, exceptfor capital transactions, which must be conducted through the formal foreign exchange market.  The
foreign exchange market consists of commercial banks and other entitities licensed by the Central
Bank.WT/TPR/S/124 Trade Policy Review
Page 6
20. Since 1998, interest rates have been decreasing.  The Central Bank's monetary policy rate fell
from nearly 13% in October 1998 to below 3% in January 2003;  in June 2003 the rate was 2.75%.
The average spread between lending and deposit rates has ranged between 3.7% and 5.7% since 1996.
21. Since September 1999, the Central Bank has been following a free floating policy.  While it
does not pursue an exchange rate goal as such, the Central Bank may intervene exceptionally in the
foreign exchange market in situations of strong volatility and uncertainty, defined as an overshootingof the exchange rate leading to contractions in the economy.
2  The authorities indicate that since the
introduction of the floating policy, the Central Bank  has intervened in the exchange market twice,
between August and December 2001, and between October 2002 and January 2003.  From 1992 to
September 1999, Chile's exchange rate policy was based on a crawling band, whereby the reference
nominal currency value was pegged to a basket of key currencies.
22. A number of factors contributed to the abandonment of the band and the adoption of a
flexible exchange regime.3  First, after reaching its inflation target of around 3% in 1999, the
prevailing inflation targeting scheme was modified in order to accommodate the subsequent goal of
keeping inflation low and stable, rather than reducing it each year.  As part of this upgrade in the
inflation targeting scheme, a free floating system was considered as much more consistent andimmune to conflicts with inflation targets than an exchange rate band.  In addition, the significance of
imported inflation during the 1998-99 depreciations had proved to be much smaller than previously
thought, so fluctuations in the exchange rate were seen as having a lesser impact on inflation.
Furthermore, the development of a foreign exchange derivatives and hedging instruments market
allowed domestic enterprises to reduce some of the possible costs of exchange rate flexibility.
23. Since 1996, the exchange rate of the Chilean peso has been characterized by recurrent
depreciation against the U.S. dollar.  The depreciation was particularly marked in 2001, against thebackground of various international currency crises.  However, inflows of foreign capital have helped
to keep these changes at an annual average of 7.6% over this period.  As of June 2003, the U.S. dollar
exchange rate was Ch$703.  The peso's real effective exchange rate (REER) has depreciated
considerably since 1997, after a phase of marked appreciation in the mid 1990s:  the accumulated
depreciation since 1997 is almost 20%.
24. With a view to reducing Chile's exposure to  short-term capital flows and warding off
appreciating pressure on the exchange rate, Chile applied short-term capital controls until 1998.  The
“unremunerated reserve requirement” (URR), introduced in 1991 and more commonly known in
Chile as the encaje , required foreign investors to make a non-interest-bearing deposit in the
Central Bank valued at a certain percentage of their investment.  The deposit was required forportfolio inflows such as foreign currency deposits  in local banks and foreign borrowing (excluding
trade credits).  The URR was set at 20% until 1992 and at 30% between 1992 and 1998;  against the
background of decreasing capital inflows and the increasingly important policy objective of financial
integration, it was reduced to 10% in July 1998, and then to 0% in September 1998.
25. For investments made under the Investment Law (Decree Law No. 600), there are restrictions
on the repatriation of capital (Chapter II(3)).
(iv) Balance-of-payments
26. Chile's current account has posted a deficit in each year since 1996, with the exception of
1999 (Table I.5).  The deficit was particularly marked between 1996 and 1998, when it exceeded
                                                     
2 Central Bank of Chile (2003) January, pp. 42-44.
3 Morandé and Tapia (2002).Chile WT/TPR/S/124
Page 7
US$3 billion.  In 2002, the deficit narrowed to US$550 million, equivalent to 0.8% of GDP.  It has
been largely financed by inflows of foreign investment capital.
Table I.5
Balance-of-payments, 1996-02
(US$ million)
1996 1997 1998 1999 2000 2001 2002
1. Current account -3,082.6 -3,660.2 -3,918.4 99.5 -766.3 -1,192.2 -553.1
  A. Trade in goods and services -1,072.5 -1,563.4 -2,492.0 1,690.1 1,471.0 1,136.4 1,556.3
    (a) Goods -1,071.9 -1,427.6 -2,040.2 2,427.2 2,118.9 2,054.4 2,513.2
      1. Exports 16,626.8 17,870.2 16,322.8 17,162.3 19,210.2 18,465.8 18,339.9
      2. Imports -17,698.7 -19,297.8 -18,363.1 -14,735.0 -17,091.4 -16,411.4 -15,826.7
    (b) Services -0.6 -135.8 -451.8 -737.2 -647.8 -918.0 -956.9
      1. Receipts 3,588.0 3,891.8 3,952.0 3,869.0 4,077.9 4,105.4 3,960.2
      2. Payments -3,588.6 -4,027.6 -4,403.8 -4,606.2 -4,725.7 -5,023.4 -4,917.2
  B. Investment income -2,517.6 -2,617.1 -1,888.7 -2,233.1 -2,795.3 -2,756.6 -2,535.7
      1. Remuneration of employees -14.0 -20.5 -15.8 -14.4 -14.3 -15.0 -16.0
      2. Investment income -2,503.6 -2,596.6 -1,872.9 -2,218.7 -2,781.0 -2,741.6 -2,519.7
        Income from foreign direct
        investment-1,760.2 -1,942.6 -1,135.7 -1,412.8 -1,894.4 -1,788.7 -1,697.4
            Receipts 132.2 242.8 265.6 54.3 567.5 467.4 458.8
            Payments -1,892.4 -2,185.4 -1,401.3 -1,467.1 -2,461.9 -2,256.1 -2,156.2
        Income from portfolio investment -281.4 -355.5 -362.4 -347.5 -402.1 -501.5 -500.3
        Income from other investment -462.0 -298.6 -374.8 -458.5 -484.5 -451.4 -322.0
  C. Current transfers 507.5 520.3 462.4 642.5 558.0 428.0 426.4
      1. Receipts 665.1 835.0 809.9 840.9 765.3 678.4 698.1
      2. Payments -157.6 -314.7 -347.5 -198.4 -207.3 -250.4 -271.7
2. Financial account 3,063.7 3,422.0 4,160.3 974.7 490.6 2,356.2 799.5
      1. Foreign direct investment 3,681.2 3,808.7 3,144.3 6,203.1 -347.7 3,044.9 1,139.3
          Outflows -1,133.5 -1,462.7 -1,483.5 -2,557.9 -3,986.5 -1,431.6 -463.7
          Inflows 4,814.6 5,271.4 4,627.8 8,761.0 3,638.8 4,476.5 1,603.0
      2. Portfolio investment 1,134.1 1,625.1 -2,468.6 -3,217.4 638.8 46.0 -1,875.5
      3. Derivative financial instruments -21.7 165.2 -59.3 -5.6 2.2 -85.7 -123.7
      4. Other investment -607.9 1,142.7 1,349.8 -2,742.9 534.1 -1,245.1 1,858.0
      5. Change in reserves -1,122.0 -3,319.7 2,194.1 737.5 -336.7 596.1 -198.6
3. Errors and omissions 18.9 238.2 -241.9 -1,074.1 275.7 -1,164.0 -246.5
Source: Central Bank of Chile.
27. Chile's merchandise trade balance has shown a noticeable surplus since 1999, after posting
sizeable deficits between 1996 and 1998.  Despite positive GDP growth, imports of goods have been
declining since 1997;  exports have shown a slightly positive trend.  Fluctuations in merchandise
exports are strongly linked to the evolution of the terms of trade and world copper prices, given thecontinued importance of copper in Chile's exports.  Since 1996, Chile's balance of trade in services
has posted a deficit, on a widening trend.
28. FDI inflows amounted to about US$5 billion a year between 1996 and 1998, reached a peak
in 1999 with nearly US$8.8 billion, and dropped to just over US$1.6 billion in 2002.  The large stock
of foreign investment in Chile's economy, makes profit remittances an important contributor to Chile'scurrent account;  in 2002 they were, for the fi rst time, superior to inflows of new FDI.WT/TPR/S/124 Trade Policy Review
Page 8
29. Chile's external public debt stood at US$8.3 billion in June 2003, equivalent to about 12.3%
of GDP;  international currency reserves of the Central Bank amounted to US$15.5 billion.  Private
external debt was at US$33.1 billion.
(3) MERCHANDISE TRADE AND INVESTMENT FLOWS
(i) Composition of trade
30. Chile's exports continue to consist mostly of primary goods, including processed mining and
agricultural products.  Mining products, mostly copper, still account for more than 42% of Chile's
merchandise exports, although this share has declined slightly since 1996;  the various copper
products alone made up 37% of Chile's exports in  2001 (Chart I.1 and Table AI.1).  Agricultural
goods account for some 37% of Chile's exports, the same share as in 1996;  they include mainly wine,
fruits, and fish, and agricultural raw material consisting mostly of various forestry products.  Withinagricultural exports, wine and various fresh and frozen fish products have increased their shares,
whereas the share of fish flour has decreased.
31. Chile's imports in 2000 and 2001 were below their 1996 level, although import patterns
remained relatively stable over the period.  Imports are dominated by a wide range of manufactured
goods and crude petroleum.  Fuels, office machines, chemicals, and other semi-manufacturesincreased their share in Chile's imports, whereas imports of machinery and transport equipment have
fallen since 1998, including a sharp drop during the 1999 recession, in line with the decrease in the
share of investment in GDP (Table AI.2).
(ii) Direction of trade
32. Chile's main export market in 2001 was the European Union, which absorbed 25% of its
exports, up from 24.2% in 1996 (Chart I.2 and Table AI.3).  The share of exports destined for the
United States increased to nearly 19%, from around 15%, while Japan's share fell by more than fourpercentage points, to just over 12%.
33. The share of other Asian countries in Chile's exports declined from more than 18% to just
below 14%, despite an increase of more than thre e percentage points in exports to China, to nearly
6%.  Chile's export industries were particularly hit by the Asian financial crisis:  from 1997 to 1998
the share of exports destined to Asian countries dropped from over 35% to below 28%;  the dollarvalue of Chile's exports to Asian countries fell from US$5.36 billion in 1996 to US$4.89 billion in
2001.
34. Chile's largest supplier in 2001 was Argentina, just ahead of the United States and the
European Union (Table AI.4).  While the share of Chile's imports from the United States fell to just
over 18%, Argentina's share constantly increased, by more than nine percentage points to over 19% in2001.  Other countries that increased their shares in Chile's imports include Brazil and China.Chile WT/TPR/S/124
Page 9
Total: US$16,136.2 millionChart I.1 Chile
Merchandise trade by product, 1996 and 2001
1996 2001
(a)    Ex ports (f.o.b. )
Mining 42.1Chemicals 
6.3Other semi-
manufactures 
5.2Other 
manufacturing 
5.5
Total: US$15,406.8 million
(b)    Im ports (f.o.b. )
Other semi-
manufactures
8.0Food  7.2 Other 
agricultural 
products  1.3
Fuels  10.9
Other mining 
products 1.2
Iron & steel
2.8
Chemicals 12.0
Power generating 
machines
1.9Other non-electr. 
machinery
14.9Automotive 
products 11.8Office 
machines & 
telecom 7.4Other machinery
6.6Textile & 
clothing
5.4Other 7.2
Other semi-
manufactures 9.2Food  7.4Other 
agricultural 
products  1.2
Fuels  16.9
Other 
mining 
products
1.1
Iron & 
steel
2.4
Chemicals
13.7
Power generating 
machines 1.0Other non-electr. 
machinery
11.3Automotive 
products 
8.3Office 
machines & 
telecom 
9.2Other machinery
5.1Textile & 
clothing
5.5Other 7.4
Total: US$16,810.0 million
Source :   UNSD, Comtrade database (SITC Rev.3).Per cent
Total: US$18,745.4 millionMining 45.1Wine or fresh 
grapes 1.9
Chemicals 3.6
Other agriculture 
17.6Other semi-
manufactures
3.6Other manufacturing 
6.0
Agricultural raw 
material 10.3Other 4.6Other 3.7 Grapes, fresh or
dried 3.0
Fish, frozen 2.0
Fruit, fresh, 
dried 2.3Wine or fresh 
grapes 3.5Grapes, fresh or 
dried 2.7
Fish, frozen 2.6
Fruit, fresh, 
dried 2.3
Agricultural raw 
material 11.0
Other 
agriculture
 15.1WT/TPR/S/124 Trade Policy Review
Page 10
Chart I.2 Chile
Merchandise trade by partner, 1996 and 2001
1996 2001
(a)    Exports (f.o.b.)
Total:   US$15,406.8 million Total:   US$18,745.4 million
Total:   US$16,810.0 million Total:   US$16,136.2 million
Source:  UNSD, Comtrade database (SITC Rev.3).Per cent
(b)    ImportsAmerica
36.2
Europe
26.3Asia 34.8
Italy 3.2Other Europe
 2.1Other EU 15.1United Kingdom
5.9United States 15.4
Japan 16.4Other Asia 10.2Other 2.7
America
44.0
Europe
27.0Asia
26.1United States 18.6
Japan
12.3
America
55.5Europe
23.0Asia
16.7
China 3.1Other Asia 13.6Other 4.8
Japan 5.6Korea 3.3 United States
24.4
Other America 9.5EU
21.0Other
Europe
2.0
Europe
20.7America
58.7Asia
17.6United States
18.4
Argentina
19.1
Brazil 9.2EU 18.9
Mexico 3.3 Other America 8.6Other
Europe
1.9China 6.3Other Asia 11.4Other 3.0Other 2.7Canada 0.9
Mexico 0.9
Brazil 6.1
Argentina 4.5
Other
America 8.2Canada 1.5
Mexico
4.9
Brazil 4.9
Argentina
3.3
Other America
10.9Other 2.9
United Kingdom
6.6Italy
4.4Other EU 13.9Other
Europe
 2.0Other Asia 13.7Other 2.9
Argentina 9.7
Brazil 6.3
Mexico 5.5Other 4.8 Other
 3.0China 2.4Korea 5.8China 5.7Korea 3.2
Japan 3.4Korea 3.3Chile WT/TPR/S/124
Page 11
35. Due to the growing importance of preferential ag reements in Chile's trade policy, the share of
trade under MFN conditions has been declining sin ce its last Review in 1997.  Trade with countries
with which Chile has preferential trade or partial scope agreements (as at May 2003) accounted for a
combined share of 49% of exports and 59% of imports in 2001, the last year for which figures were
available.  Taking into account trade agreements that  have been signed but have not entered into force
(see Chapter II(4)(iii)), these shares rise to 72.4% and 81.7% respectively.
(iii) Foreign direct investment
36. Foreign investment continues to play a crucial role in promoting growth and foreign trade by
increasing productivity, contributing to import demand, and triggering exports.  According to data
provided by the Foreign Investment Committee, the accumulated inflow of foreign investment capital
(excluding portfolio investment) between 1996 and 2002 amounted to US$36.3 billion, of which 26%went to the mining sector;  25% to electricity, gas and water;  and 24% to services (not including
transport and communication).  In contrast, the manufacturing sector receives a very small proportion
of foreign direct investment (Table I.6).
37. As regards long-term trends in the composition of FDI, there has been a decrease in the
relative importance of inflows in the mining sector since the early 1990s, counterbalanced mainly byhigher investment in the transport and communications subsector, and the electricity, gas, and water
industries.
Table I.6
Foreign direct investment by sector, 1996-02(US$ million)
Sector 1996 1997 1998 1999 2000a2001a2002a1996-02
A g r i c u l t u r e 1 61 41 22 12 21 0 2 9 9
Fishing and aquaculture 21 12 9 1 94 5 0 142
Forestry 20 29 37 19 4 1 1 111
Construction 26 114 280 215 29 164 138 967
     Electricity, gas and water 406 1,395 495 4,560 860 908 490 9,113
Mining 999 1,706 2,393 1,221 242 1,024 1,935 9,519
Industry 917 593 530 780 191 754 209 3,972
     Transport and communication 459 171 211 359 870 1,281 335 3,687
Services 1,958 1,197 2,005 1,910 665 700 212 8,648
Total 4,822 5,230 5,973 9,086 2,977 4,848 3,322 36,257
a Provisional figures of December 2002.
Source: Foreign Investment Committee.
38. The main source countries for investment capital flows into Chile between 1996 and 2002
were the United States (26%), Spain (24%), Canada (13%), and the United Kingdom (9%) (Table I.7).
39. Chile's regulatory framework for FDI appears to have strongly encouraged inflows
(Chapter II(3));  the privatization of the telecommunications and electricity industries in the early
1990s opened up these subsectors to foreign capital and private competition.  In addition, a
programme launched in 1993 to sell concessions for the construction and operation of roads and
airports opened the way for the participation of priv ate foreign capital.  Furthermore, the privatization
of water management and a related concessions programme have captured important FDI inflows in
recent years.WT/TPR/S/124 Trade Policy Review
Page 12
Table I.7
Foreign direct investment by selected country of origin, 1996-02
(US$ million)
Country 1996 1997 1998 1999 2000a2001a2002a Total
1996-2002
A r g e n t i n a 9 76 09 74 78 22 7 9 4 1 8
Australia 109 181 385 6 42 499 169 1,391
Belgium 80 0 103 105 20 22 132 463
Canada 571 811 899 450 713 218 895 4,559
France 66 63 150 608 43 57 20 1,007
Holland 121 363 169 181 104 88 41 1,068
Italy 325 19 6 51 96 920 30 1,446
Japan 148 164 323 224 56 133 45 1,092
South Africa 74 476 330 40 1 12 0 935
Spain 488 1,498 896 4,583 723 388 242 8,818
United Kingdom 232 201 412 311 180 424 1,499 3,258
United States 2,264 935 1,358 1,909 751 1,760 530 9,506
Total (all countries) 4,822 5,230 5,973 9,086 2,977 4,848 3,322 36,287
a Provisional figures of December 2002.
Source: Foreign Investment Committee.
40. According to the Central Bank's balance-of-payments statistics, Chile's direct investment
abroad amounted to US$12.5 billion between 1996 and 2002.  The major destinations are Latin
America and the Caribbean;  the most important sector is financial services with more than 60% of the
investment capital.
(4) OUTLOOK
41. The Central Bank expects a growth rate of between 3% to 4% for 2003, an inflation rate of
2.9%, and a current account deficit of about US$600 million, equivalent to 0.8% of GDP.  Available
figures for the first four months of 2003 indicate a growth rate of 3.5% over the same period of 2002
and a current account surplus of US$291 million.