WORLD TRADE  
ORGANIZATION  G/SG/N/10/CHL/6/Suppl.3 
G/SG/N/11/CHL/5/Suppl.2 10 January 2006 
 
 
(06-0113) 
Committee on Safeguards Original:   Spanish 
  
 
NOTIFICATION UNDER ARTICLE 12.1(C) OF 
THE AGREEMENT ON SAFEGUARDS 
 
NOTIFICATION UNDER ARTICLE 9, FOOTNOTE 2, 
OF THE AGREEMENT ON SAFEGUARDS 
 
CHILE 
 
(Wheat Flour
) 
 
Supplement  
   The following communication, dated 6 January 2006,  is being circulated at the request of the 
delegation of Chile.  
_______________ 
 
  Pursuant to the notification commitments in Ar ticle 12.1(c) and Article 9, footnote 2, of the 
WTO Agreement on Safeguards, please be advised that  Decree No. 869 ("exempt procedure") of the 
Ministry of Finance extending the safeguard meas ure on imports of wheat flour for one year was 
published in the Official Journal on 10 December 2005.   The measure applies to the product under tariff heading 1101.0000, except
 wheat flour the 
c.i.f. price of which is equal to or higher than US$0.3/net kg., and which complies with the following 
combination of physico-chemical characteristics:  strength between 310 and 370, tenacity between 80 
and 100, extensibility between 80 and 110, equilibrium between 0.8 and 1.1, wet gluten content 30 per 
cent minimum, dry gluten content 10.5 per cent minimum and falling number 320 minimum.  The recommended measure is 14 per cent ad valorem . 
  This notification is related to those c ontained in documents G/SG/N/6/CHL/10;  
G/SG/N/7/CHL/7 and supplement;  G/SG/N/10/ CHL/6 and supplements;  G/SG/N/8/CHL/3;  
G/SG/N/11/CHL/5 and supplement;  and G/SG/N/7/C HL/5 and supplement.  Attached hereto are 
further details concerning the information used as a basis for the decision to extend the measure. G/SG/N/10/CHL/6/Suppl.3 
G/SG/N/11/CHL/5/Suppl.2 Page 2 
 
 
  ANNEX 
 
NOTIFICATION BY CHILE ON EXTENSION OF THE SAFEGUARD 
MEASURE ON IMPORTS OF WHEAT FLOUR 
 
 
Background 
 
 The Ministry of Agriculture submitted the request for extension on 7 September 2005. 
 
 On 8 September 2005, the investigating author ity decided to initiate the investigation on 
extension of the measure in force;  the notice of initiation was published in the Official Journal of 
16 September 2005.  
 The public hearing in the investigation pro cedure was held on 15 November 2005 with eight 
participants, including representatives of domestic flour producers, Argentine producers and foreign 
governments.   At a meeting on 5 December 2005, the investigating authority agreed by a majority of members present to recommend a one-year extension,  from the date of expiry of the safeguard 
measure, in the form of an ad valorem  tariff surcharge of 14 per cent on imports of wheat flour 
classified under tariff code 1101.0000 of the Nati onal Customs Tariff, except wheat flour the 
c.i.f. price of which is equal to or higher than US$0.3/net kg. and which complies with the following combination of physico-chemical characteristics:  strength between 310 and 370, tenacity between 80 
and 100, extensibility between 80 and 110, equilibrium between 0.8 and 1.1, wet gluten content 30 per 
cent minimum, dry gluten content 10.5 per cen t minimum and falling number 320 minimum. 
  The extension is justified by the continuation of  the threat of injury which gave rise to the 
measure, i.e. the imposition of differential expor t taxes on wheat, wheat flour and mixed flour in 
Argentina, which is the main source of imports.  Argentine mixed flour exports, which are classified 
in Chile as wheat flour, face an export tax of only  5 per cent, which is not the case with wheat, an 
input subject to a 20 per cent tariff, which create s an artificial advantage for Argentine producers of 
wheat flour.   Domestic industry and representativeness
 
 
 Support for the extension request was expr essed by the following groups representing 
domestic producers:   Consorcio de Sociedades Agrí colas del Sur F.G., Associación de Molineros del 
Sur A.G. and Asociación Gremial de Molineros d es Centro A.G.  The latter two associations 
accounted for roughly 70 per cent of domestic output in 2004.   Like or directly competitive product
 
 
 At its meeting on 10 February 2005, in connec tion with the procedure that had given rise to 
the initial safeguard measure, the investigating au thority noted that the price levels and physico-
chemical properties of certain imported flours were similar to those of the domestic product, and 
therefore concluded that domestic wheat flour and certain imported flours classified under tariff 
heading 1101.0000 are alike to or directly comp etitive with the domestic product.  At the same 
meeting, the recommended definitive measure was a pplied to imports of wheat flour classified under 
heading 1101.0000 of the National Customs Tariff, ex cept wheat flour the price of which is equal to 
or higher than US$0.3/net kg. and which compli es with the following combination of physico-
chemical characteristics:  strength between 310 a nd 370, tenacity between 80 and 100, extensibility  G/SG/N/10/CHL/6/Suppl.3 
 G/SG/N/11/CHL/5/Suppl.2  Page 3 
 
 
  between 80 and 110, equilibrium betw een 0.8 and 1.1, wet gluten c ontent 30 per cent minimum, dry 
gluten content 10.5 per cent minimum and falling number 320 minimum.   The reasons for the exception were based on th e fact that the physical characteristics and 
prices of the type of wheat flour concerned are tota lly different from those of wheat flour produced in 
Chile.  Hence, the wheat flour in question cannot be  considered a like or directly competitive product 
for purposes of the application of the definitive safe guard measure approved at that meeting, and that 
situation had not changed at the time of evalua tion of the background information in the extension 
proceedings. 
 
 For its assessment of whether the products in question were directly competitive or substitute 
products, the investigating authority took account of  the case law relating to Article III of the 
GATT 1994, according to which the following factors should be considered for determining whether 
or not a product is directly competitive with another:  (i) physical characteristics;  (ii) end use of the 
product;  (iii) prices;  (iv) distribution channels. 
 
1. Evidence of serious injury or threat thereof caused by increased imports 
 To ascertain whether there may be injury attri butable to the imports under investigation, all 
the information compiled and furnished by the Tec hnical Secretariat relating primarily to domestic 
prices, production costs, productio n, domestic sales, exports, inve ntories, financial background, 
installed capacity and use thereof, produc tivity and employment, has been analysed. 
  The average domestic price
 of wheat flour in UF ( unidades de fomento - Chilean inflation -
indexed monetary units) fell by 7 per cent compar ed with the period January-October 2005/2004. 
 
 Total production costs  for wheat flour in dollars record ed a year-to-year increase.  The 
downward trend for 2004, in terms of both the domestic  and the international price of wheat, the main 
input, was reversed in 2005.   In 2004, domestic production grew by approximate ly 2 per cent compared with the previous 
year, and this growth rate was maintained  during the first nine months of 2005. 
 
 In the first half of 2004, the total sales
 of the above-mentioned mills rose by 20 per cent, a 
growth rate similar to that observed in 2003/2002 vari ation.  In the first half of 2004, their inventories 
fell in relation to the same period of the previous  year, as did their share of total production, while 
inventories  fell by 15 per cent over the same period.  Own consumption  showed a variation of 22 per 
cent.   
  Apparent consumption
 increased by roughly 2 per cent in  the period January-June 2004/2003, 
and is estimated to have grown by close to 1 per cent in the first half of 2005. 
  The profits of the mills belonging to the Asociación de Molineros del Centro  and the 
Asociación de Molineros del Sur  were positive in aggregate term s, which meant that the losses 
incurred in 2002 were recovered.  At  the same time, installed capacity
 and employment  increased in 
2003, and continued to display the positive annual variation observed in 2002.  Labour productivity  
also improved in 2003 compared with the previous year.  
 As far as threat of injury
 is concerned, the Commission is aware that the rate and amount of 
the increase in wheat flour imports under investigation continue to be high, despite the tariff surcharge 
of 17 per cent, and there is a real possibility that these imports – which have an artificial advantage in G/SG/N/10/CHL/6/Suppl.3 
G/SG/N/11/CHL/5/Suppl.2 Page 4 
 
 
  that production costs are 15 per cent lower – could have a negative impact on the level of sales, 
production, utilization of installe d capacity and profitability of the domestic milling industry. 
  Moreover, the capacity available in Argentina, as an exporting country, and possible measures 
by other countries, of relevance to Argentine expor ts, constitute a threat of trade diversion, whereby 
surplus wheat flour could be reconsigned to Chile.   As regards causality
, the share of wheat flour imports in apparent consumption reached 
0.4 per cent in the period January-June 2005, implying an increase of more than 25 per cent in relation 
to the same period in 2004. 
  In the period January-October 2005/2004, the average price of wheat flour imports
 under 
investigation declined by 20 per cent in dollars c.i. f. and by 30 per cent in UF.  From June 2004 to the 
present time import prices have shown a downward trend. 
 
 A comparison of domestic and import prices for the period from January 2002 to October 2005 shows that domestic prices declined  from about mid-2004 onwards while there were 
similar but more pronounced falls in the price of imported flour.   If the domestic price is compared to the estim ated cost of entering imports from Argentina 
and the Free Zone, the domestic price is found to be  consistently higher than the cost of imports 
entered from both the Free Zone and Argentina.    
2. Information on whether there is an absolu te increase in imports or an increase in 
imports relative to domestic production 
 Imports
 
  Imports of the product under investigati on totalled 5,194 tonnes in the period January-
October 2005, representing a 26 per cent increase compar ed with the same period of the previous 
year.  Total imports in 2004 amounted to 7, 694 tonnes, a 754 per cent increase over 2003. 
 
 Viewed in terms of a broader time-frame, the volume of imports for the period January-
October 2005 was the second highest for the years 1999 to October 2005, being exceeded only by 
total imports for 2004.   The import/domestic production ratio over the period January-September 2005 was 0.48 per 
cent, which is higher than the 0.32 per cent achieved in the same period of the previous year.  In 2004 
it reached its highest level, 0.59 per cent.   In the period 1999-October 2005, there were tw o main sources of the wheat flour imports 
investigated:  Argentina and the Free Zone, whic h together accounted for 99 per cent of imports 
during the period considered.  Argentina's share of th e total was in excess of 67 per cent, except in the 
two-year period 2002-2003, when it was marginal.  The share of imports from the Free Zone reached 
its highest levels during that period, which is also  evidence of the fact that Argentine wheat flour 
enters the country by that route.   Unforeseen developments
 
 
 Argentina is the main source of imports of wheat flour classified under tariff heading 1101.0000, which includes mixed flour from Argen tina, inasmuch as the Chilean National Customs 
Service classifies wheat flour mixed or combined w ith other materials according to the product that  G/SG/N/10/CHL/6/Suppl.3 
 G/SG/N/11/CHL/5/Suppl.2  Page 5 
 
 
  gives it its essential character.  In this regard, the discriminatory and selective imposition of export 
duties in Argentina constitutes an unforeseen develo pment and would explain the increasing flow of 
wheat flour imports into the country.  
 Indeed, by resolutions No. 11 and No. 35 of the Ministry of the Economy and Infrastructure, 
dated March and April 2002, respectively, Argent ina established a 20 per cent export duty on wheat 
and wheat flour.  This is not levied on exports of mixed flour, which are currently subject to an export 
duty of 5 per cent.  
 The foregoing means that some of the wheat flour exported from Argentina to Chile as mixed 
flour and classified in Chile as wheat flour, as explained above, is subject to an export tax of only 5 per cent instead of the 20 per cent tax levied on wheat flour exports.   Consequently, the imposition of an export tax of 20 per cent on flour and of 5 per cent on 
mixed flour has created an artificial competitive advantage for the Argentine milling industry, 
enabling it to apply a price for wheat in that country  which is 20 per cent below its international value, 
a situation that would not occu r under normal market conditions. 
 
3. Provide a precise description of the product involved (Chilean Harmonized System 
Nomenclature) 
 Wheat flour, classified under tariff heading 110 1.0000 of the Chilean Customs Tariff, except
 
wheat flour the c.i.f. price of which is equal to or  higher than US$0.3/net kg. and which complies with 
the following combination of physico-chemical characteristics:  strength between 310 and 370, 
tenacity between 80 and 100, exte nsibility between 80 and 110, equilibrium between 0.8 and 1.1, wet 
gluten content 30 per cent minimum, dry gluten content 10.5 per cent and falling number 320 
minimum. 
 
4. Provide a precise description of the proposed measure 
An ad valorem  tariff surcharge of 14 per cent on imports of the product. 
 
5. Proposed date of introduction of the measure  
 One year after expiry of the period of application of the initial definitive measure, i.e. from 
10 December 2005, the date of publication of the decree ordering the extension. 
 
6. Specify the expected duration of the measure 
 Under Chilean law, a safeguard measure may be  applied for a period of one year (including 
the period of application of a provisional measure if any), with the possib ility of extension for a 
maximum period of one additional year.  
7. For a measure with a duration of more than th ree years, specify the proposed date for 
the review (under Article 7.4) to be held not later than the mid-term of the measure, if 
such a date for the review has already been scheduled. 
Not applicable. 
 G/SG/N/10/CHL/6/Suppl.3 
G/SG/N/11/CHL/5/Suppl.2 Page 6 
 
 
  8. If the expected duration is over one year, provide expected timetable for progressive 
liberalization of the measure 
Not applicable. 
 9. If the measure is being extended, also provi de:  (i) evidence that the industry concerned 
is adjusting and that the safeguard measure continues to be necessary to prevent or 
remedy serious injury 
 Production increased by around 2 per cent over the first nine months of 2005.  For the reasons 
explained in the previous sections, the safeguard measure continues to be necessary to prevent or 
remedy injury. 
 
10. Exclusion of other WTO Members 
 The measure excludes imports from Mexico, Ca nada and Peru under trade agreements with 
those countries, and from developing country Members of the World Trade Organization (WTO) 
whose average individual share of total imports during the 24-month period from December 2003 to 
November 2005 was less than 3 per cent and which collectively account for not more that 9 per cent of total imports of the product concerned, in acco rdance with the provisions of Article 9.1 of the 
Agreement on Safeguards.  
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