10 September 1997
trade regime leads to strong economic growth, but increasing emphasis on regional
agreements complicates trade policy Back to top
Chile's liberal and
transparent trade regime - in place now for almost 20 years - and its successive
unilateral reforms have resulted in strong economic growth and lower inflation. According
to a new WTO Secretariat report on Chile's trade policies and practices, Chile's low and
uniform tariff and its commitments in the WTO demonstrate its determination to pursue
liberal trade policies on an MFN (Most-Favoured-Nation) basis.
preoccupation with regionalism, however, reflects its concern over possible exclusion from
a growing number of regional preferential trade agreements. The WTO report notes that its
membership in a range of overlapping agreements, many with different rules of origin, has
added a measure of complexity to the Chilean trade regime.
The WTO report and a policy
statement prepared by the Government of Chile will provide the basis for a discussion on
Chile's trade policies and practices in the WTO's Trade Policy Review Body on 23 and 24
Chile applies, on an MFN
basis, a uniform tariff of 11 per cent and is reportedly considering a further tariff cut.
While applied tariffs are well below Chile's WTO bound rate of 25 per cent (31.5 for some
agricultural goods) and export subsidies are to be eliminated, the report points out that
a few specific sectoral non-tariff policies remain.
Chile has bilateral trade
agreements with Canada, Mexico, Colombia, Ecuador and Venezuela and is an associate member
of MERCOSURSee footnote 1. Chile is
also participating in the Asian Pacific Economic Cooperation forum (APEC) and is currently
negotiating an agreement with the European Union. These regional agreements, says the
report, have resulted in differential treatment between Chile's trading partners and a
rise in inter-sectoral discrimination as tariffs are phased out over varying periods for
different goods and over different time periods.
Chile's trade balance is
highly dependent on copper exports. Primary goods, including copper, fruits, wines,
forestry and fishery products, represent about 85 per cent of Chile's exports. The report
notes that a dualism seems to have developed between Chile's agricultural goods destined
for export and those which are import-competing. While an efficient fruit and forestry
sector produces goods mainly for export, other agricultural products are less competitive,
some being protected by a price band mechanism. About 10 per cent of Chile's exports are
manufactured goods, mainly processed from natural resources.
The report notes that
important reforms in services have taken place since 1990. Chile is open to foreign direct
investment in all sectors, including services, where existing market access is much
greater than Chile's current market access commitments under the General Agreement on
Trade in Services. Privatization of the telecommunications sector started in 1992 and is
now complete. Banking laws are currently being modified to increase foreign access to the
Chilean financial market and Chile is now drafting a new competition law and updating its
legislation on intellectual property.
The report concludes that
the possibility of locking in Chile's reforms through further binding commitments at the
multilateral level essentially depends on the willingness of its WTO partners to move
forward in a similar manner, for example, through a new round of trade-liberalizing
Note to Editors
The WTO Secretariat's
report, together with a report prepared by Chile will be discussed by the WTO Trade Policy
Review Body (TPRB) on 23 and 24 September 1997. The WTO's TPRB conducts a collective
evaluation of the full range of trade policies and practices of each WTO member at regular
periodic intervals and monitors significant trends and developments which may have an
impact on the global trading system. The two reports, together with a report of the TPRB's
discussion and of the Chairman's summing up, will be published in due course as the
complete Trade Policy Review of Chile and will be available from the WTO Secretariat,
Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover the
development of all aspects of Chile's trade policies, including domestic laws and
regulations, the institutional framework, trade policies by measure and by sector. Since
the WTO came into force, the "new areas" of services trade and trade-related
aspects of intellectual property rights are also covered. Attached are the summary
observations from the Secretariat and government reports. Full reports will be available
for journalists from the WTO Secretariat on request.
Since December 1989, the
following reports have been completed: Argentina
(1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997),
Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 &
1996), Chile (1991), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995),
Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El
Salvador (1996), the European Communities (1991, 1993 & 1995), Fiji (1997), Finland
(1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India
(1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya
(1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995),
Mexico (1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991),
Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines
(1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak
Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994),
Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994),
the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela
(1996), Zambia (1996) and Zimbabwe (1994).
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY: CHILE
Report by the Secretariat Summary Observations
Chile has now maintained a
liberal, transparent trade regime for almost two decades, coupled with sound macroeconomic
policies and structural reforms. The benefits, in terms of strong economic growth and
reduced inflation, have become increasingly evident. Thus, despite an increased emphasis
on regional agreements since 1990, the authorities plan to continue the process of
unilateral liberalization by further reducing the MFN tariff rate and eliminating certain
sectoral programmes. However, the conclusion of a range of overlapping regional
agreements, with different rules of origin, has added a measure of complexity to the
Chilean trade regime that did not previously exist.
THE ECONOMIC ENVIRONMENT
The Chilean economy has
grown continuously since 1990, at an average rate of 6 per cent in real terms. This trend
is likely to continue in the immediate future. This outstanding performance is the result
of structural adjustment policies that started in the mid-1970s, combined with sound
macroeconomic policies, aimed at controlling inflation and external balances. The
reduction of inflation from 27 per cent in 1990 to 6.6 per cent in 1996 is an
important achievement. The aim is to continue reducing inflation to levels comparable with
industrialized countries; however, this could be difficult, given the widespread use of
indexation in the economy. Domestic savings and investment have been maintained at high
levels of around 25 per cent of GDP since 1990, with positive effects on productivity.
While Chile is open to
foreign direct investment leading to a strong inflow of FDI since 1990, certain
restrictions on the capital account are maintained to limit short-term, speculative
capital movements. Capital inflows have contributed to upward pressures on the exchange
rate, which has appreciated steadily in real terms by 24 per cent since 1990. Despite this
appreciation, Chilean exports, such as fruit, wines, forestry and fisheries products, have
continued to grow strongly; the authorities attribute this trend to the growing
productivity of the economy. However, export growth may also be linked to elements of the
duty drawback system, which has a (notified) subsidy component. Despite export
diversification, Chile continues to be highly dependent upon copper and the economy
remains sensitive to fluctuations in world copper prices. To cope with the resulting
volatility of income, the Chilean government operates a stabilization fund out of its
TRADE POLICY DEVELOPMENT
Chile's main MFN trade
policy instrument is the uniform tariff, introduced in the late 1970s. This currently
stands at 11 per cent; at present (July 1997) a proposal for a reduction in the rate,
reportedly to 7 or 8 per cent, is before Congress. Even the present level is well
below Chile's WTO ceiling binding commitments of 25 per cent, with 31.5 per cent
for some agricultural goods. The neutrality of the tariff is somewhat diminished by
differential tariff treatment under regional agreements, as noted below, and by a few
specific sectoral non-tariff policies which benefit a few agricultural goods
(a price-band/variable levy system), the forestry sector (production subsidies), the
automotive industry (local-content and export performance requirements) non-traditional
minor exports (export subsidies via "simplified" drawback), and imported capital
goods (under the system of deferred payments of custom duties).
Chile notified the latter
three measures as export subsidies to the Secretariat and is committed to phasing them out
within the periods stipulated in the WTO Agreements. No quantitative estimates were
available of the subsidy components, so that the degree to which Chile's export
performance and, especially, diversification can be attributed to these programmes, is not
The overall liberalization
of the Chilean economy has increased the need for effective domestic competition
regulations. In this context, the authorities are at present drafting a new competition
law to update that of 1974, seen by the authorities as inappropriate in the current
structure of the market. Legislation on intellectual property and contingency trade
measures (anti-dumping and countervailing measures) is also of being updated.
Chile continues to rely
heavily on exports of primary goods, namely copper, fruit, fish and wood products. A price
band mechanism provides protection for some importable agricultural products (wheat, wheat
flour, edible oils and sugar), while exportables are priced at world levels even in the
domestic market. As a result, a dualism seems to have developed in Chilean agriculture,
whereby producers of exportables are continually striving to enhance productivity and
improve quality in order to maintain their place in the international market and gain
access to new markets, while the less productive importables sector lags behind. The
production subsidy for forestry plantations, which appears to benefit mainly small
producers, is likely to have had a positive impact on the environment, since it is only
granted for plantings in deforested land.
The role of the State in
Chile's trade has further diminished in recent years, with the exception of the mining
sector, where CODELCO, a state-owned company, is the major producer and exporter of
copper. In spite of the dominant role of the State in this sector, private investment
remains important. The fisheries sector is subject to tight regulation through a licensing
and quota system to prevent over-exploitation of available resources.
production and exports are, as might be expected, largely based on the processing of
natural resources. However, some diversification has been achieved through the export of
manufactured products, not based on natural resources, to Latin America under preferential
Only the automotive industry
is subject to a special regime, with local-content and export balancing requirements. This
programme is a remnant of the old import substitution regime, and is due to be eliminated
in 1998. In terms of production, the industry is small, there are only three plants and
annual average production during 1990-1996 amounted to some 18,000 vehicles (mainly
Since 1990, the services
sector has undergone important reforms. A bill to modify the banking law is currently
being discussed in Congress; this includes an expansion of the scope of banking activities
within Chile through increased access for foreign banks, wider authorization for Chilean
banks to operate abroad, and the adoption of the international standards laid down by the
Bank for International Settlements on capital requirements and supervision.
Privatization of the
telecommunications sector was begun in 1992, allowing free competition in this market;
rates, especially for long distances services, have been reduced substantially, and new
technology has been introduced. Currently, State intervention in this sector is limited to
fixing tariffs when there is market failure, particularly in the field of interconnection.
More than half of Chile's
merchandise trade is already conducted through private ports. A Bill has been presented
under which port management would be decentralized and remaining ports would be
privatized, leaving the State with only a regulatory role. The authorities also aim to
increase private participation in the administration of roads, airports and railways.
Chile welcomes foreign
investment in its services sector, and thus treatment of foreign nationals has gone beyond
the commitments made under the GATS. In addition, the recently ratified free-trade
agreement with Canada includes services; these will also be included in the framework
agreement to be negotiated with the European Union. As noted, foreign presence is
especially important in the financial and telecommunications sectors, where the benefits
of technology transfer have become particularly evident.
TRADE POLICIES AND FOREIGN TRADING PARTNERS
During the last 20 years,
Chilean trade policy has been based on unilateral reforms, supplemented by multilateral
commitments (albeit at a lower level). However, since 1990, Chile's trade relations have
become increasingly focused on the negotiation of bilateral trade agreements, with Canada
and Mexico (in the absence of full NAFTA membership), and also with Colombia, Ecuador,
Venezuela and MERCOSUR. A framework agreement with the EU is under negotiation. In
pursuit of regional goals, Chile has a clear preference for concluding free-trade
agreements that do not inhibit its own freedom to undertake further unilateral reforms.
Chile is also active in APEC; its interpretation of the "open regionalism"
principle is that it leaves open the option of further unilateral reforms, rather than MFN
application of measures agreed within the region.
The negotiation of the
various bilateral agreements has led to growing differences in treatment of domestic
industries, since tariffs are being phased out over varying periods for different goods,
and under different time-frames overall, under each agreement. The resulting complexity is
reinforced by the fact that rules of origin also differ among agreements and by sector.
This renders their consistent application difficult and could also lead to sub-optimal
preoccupation with regionalism reflects a clear concern not to be left outside the growing
number of preferential schemes and lose markets to insiders, but the announced intention
to make further unilateral tariff cuts demonstrates its simultaneous commitment to the
pursuit of liberal trade policies on an MFN basis. The possibility of locking in these
reforms through binding commitments at the multilateral level essentially depends on the
willingness of other WTO partners to move forward in a similar manner, e.g. through a new
round of trade-liberalizing negotiations.
report Back to top
TRADE POLICY REVIEW BODY: CHILE
Report by the Government
The Chilean economy has
undergone far-reaching transformations over the past two decades. From a heavily regulated
import-substitution-oriented economy at the beginning of the 70s, it has switched to the
consolidation of a development strategy based on the expansion of Chile's markets through
exports, private investment incentives and a balancing of the principal macroeconomic
Chile has a small economy,
open to foreign trade, whose growth is essentially based on a high rate of investment and
the performance of the export sector, reflecting its solidity and the efficient allocation
of productive resources.
The multilateral trade
system, based on clear and transparent regulations, is one of the pillars of the economic
development strategy adopted by Chile.
In formulating its economic
policy at the domestic level, the Government placed emphasis on stability, both economic
and institutional, by creating and developing an appropriate regulatory framework designed
to favour private initiative while at the same time safeguarding the guiding principles of
equality and development with equity.
In tackling the challenges
of development over the next decades, the current administration plans to encourage
reforms aimed at increasing the productivity and improving the competitiveness of the
Chilean economy by further opening up its trade and stimulating investment in physical and
human capital. To that end, through various legal initiatives, the Government has set
itself the priority of increasing investment in infrastructure and education.
Chile is a unitary,
democratic, presidential republic with separation of State powers. It has a bicameral
Congress and an autonomous Judiciary, and has independent surveillance bodies to oversee
Government activities, such as the Office of the Comptroller General of the Republic, the
Constitutional Court and the State Defence Council. Moreover, it has a tradition of
democracy, albeit interrupted from 1973 to 1989.
For administrative purposes,
Chile is divided into 13 regions with its capital, Santiago, belonging to the so-called
Metropolitan Region. This region is predominantly urban (97 per cent) and accounts for
almost 40 per cent of the total population and more than 40 per cent of GDP. Only 16.5 per
cent of the country's population is rural.
According to estimates based
on the 1992 Census, the population should reach 14,622,354 in 1997, with a density of 19.1
inhabitants per km2. The average population growth rate is 1.64 per cent.
As regards social
development, according to the most recent studies, during the period 1992-1996 the number
of persons living below the poverty line fell from 4,351,579 to 3,345,176 thanks to
sustained economic growth coupled with target-oriented social policies. However, income
distribution figures show that growth has not benefited the different population groups to
the same degree.
At the same time, social
indicators have improved significantly. Illiteracy does not exceed 4 per cent, live
expectancy at birth is close to 78 years and infant mortality in 1994 was 11 per thousand
live births. Progress has also been made in overcoming the problem of undernutrition among
children in that 95.7 per cent of the population now receive primary education, and 79.2
per cent receive secondary education.
Fiscal policy is formulated
by the Government through the Ministry of Finance. The Central Bank of Chile is
responsible for the administration of monetary and exchange policy in accordance with the
relevant constitutional organic law. The full autonomy of the central bank is enshrined in
the Political Constitution of the Republic.
The priority of
macroeconomic policy is to ensure that the basic indicators remain balanced by controlling
the liquidity of the financial system and the inflation rate on the domestic front, and
seeking a sustainable current account position on the external front. The Central Bank of
Chile achieves this by adjusting the interest rate. Meanwhile, exchange policy focuses on
stabilizing the exchange rate at its long-term value.
Fiscal policy focuses on
maintaining a balanced budget with a growth rate that is consistent with GDP growth and
with the country's basic macroeconomic objectives. The share of fiscal expenditure
allocated to social policies, i.e. education, health, housing, social security and poverty
alleviation programmes, is about 67 per cent of the State budget.
Graphic file chl-gov1.wmf with height 333 p and width 470 p Center aligned
This stabilization effort
has led to an average GDP growth rate for the period 1991 to 1996 of about 7 per cent,
which is partly due to the increase in the rate investment (growth fixed capital
formation), which for the same period was about 25.6 per cent of GDP on average. This
investment, in its turn, was largely financed by an increase in domestic saving, which
grew from 12 per cent of GDP in the mid-80s to an average of 25 per cent in the 90s.
Chart 1 above shows the
evolution of GDP over the period under consideration. The annual GDP growth rate was
positive throughout, varying between 3.3 per cent of 11 per cent. It actually declined
between 1992 and 1994 before resuming once again a level close to the economy's annual
growth potential, estimated at about 7 per cent for Chile.
Chart 2 shows an effective
decline in the inflation rate from 18.7 per cent in 1991 to 6.6 per cent in 1996. The
estimated rate for 1997 is 5.5 per cent. This trend is largely due to the decline in the
rate of price increase in the tradeables sector. It should be stressed that the decline in
inflation was gradual, and it was therefore possible to avoid sudden price fluctuations.
The current account deficit
has been stabilized at a sustainable level of 4 per cent of GDP or less, estimated to be
the level that the economy is capable of absorbing. Meanwhile, the real exchange rate
appreciated steadily from 1991 at an average annual rate of 4.4 per cent owing to the
increase in productivity of the tradeables sector and the strong inflow of capital into
the country. Finally, a sensible fiscal policy enabled average fiscal retrenchment to
increase to 4.9 per cent of GDP between 1991 and 1996.
In view of the rapid
increase in GDP and domestic demand, the monetary authority introduced policies over the
past few years aimed at cooling down the economy to avoid overheating by increasing the
interest rates of Central Bank bonds. More recently, however, monetary policy has tended
towards a gradual relaxation of liquidity restrictions introduced at the end of 1995
through a progressive lowering of interest rates.
macroeconomic objective is to maintain the balances achieved and to make further progress
in ensuring economic growth and lower inflation. To that end, the monetary authority will
continue to focus its efforts on achieving a level of activity that is consistent with the
potential growth of economy, ensuring the participation of both the public and private
sectors in overcoming the challenge of price stabilization and sustained growth.
As mentioned at the
beginning of this Report, the Chilean economy is small and open, and its trade policy is
directed towards further opening up. This has been possible thanks to the unilateral
reduction or elimination of protective measures, the introduction of trade facilitation
mechanisms, improvement of the regulatory framework, active participation in the
multilateral trade system and the conclusion of trade agreements at the subregional and
Performance of the external sector during the
As a result of the country's
integration into international markets, foreign trade surged during the period 1991-1996
both in terms of volume and value of exports and imports, as can be seen in Chart 3. The
year 1996 saw a fall in the value of exports of 4.9 per cent as a result of the fall in
the international price of two principal exports, copper and cellulose. Nevertheless, the
volume of goods traded that year increased 13.7 per cent and trade grew 3.4 per cent.
In 1996, the balance of
payments showed an increase in net international reserves of US$1,180.8 million owing
to capital flows in the form of direct foreign investment and portfolio investment,
attracted both by the interest rate differential and the improbability of a devaluation of
Trade in services showed
increasing vitality, with the result that exports of non-financial services represented
23.8 per cent of exports of goods during the period 1991-1996. The most important
subsectors were tourism, port services, freight and insurance.
The main goods exported were
copper (39.3 per cent), fresh fruit (7.8 per cent), cellulose (4.4 per cent) and fish
flour (4 per cent). However, the share in trade of non-traditional exports with higher
valued-added, such as food, forestry products and other industrial goods, is growing.
Thus, the share of natural resource product exports in overall exports decreased from 62
per cent in 1991 to 57 per cent in 1996. At the same time, there was an increase in the
share in overall exports of processed natural resource products (28.5 per cent to 32.2 per
cent) and industrial goods (9.6 per cent to 10.8 per cent).
According to the latest
statistics, there are four main macro-markets of destination for Chilean exports. The
first of these is Asia, which accounts for about one third of total exports. Chile's
principal Asian partner is Japan, although trade with the People's Republic of China,
Philippines and Hong Kong-China has increased considerably. Trade with the European
Union accounts for a quarter of overall trade, with the United Kingdom (5.8 per cent) and
Germany (4.8 per cent) as the leading partners. As regards Latin America, there has been a
marked increase in exports to Brazil and Argentina, whose share in overall exports is 6.1
per cent and 4.6 per cent respectively. In the market comprising the NAFTA countries,
trade with Canada has been the most dynamic: although its share is small compared to the
other NAFTA countries, in 1996 it increased 45.4 per cent over the previous year. However,
the most important partner remains the United States, which accounts for 16.7 per cent of
Chile's total world exports.
As regards imports, the main
markets of origin are: NAFTA (30.5 per cent), Latin America (26.5 per cent), European
Union (19.8 per cent) and Asia (15.5 per cent). Within these macro-markets, imports from
the United States (23.1 per cent), Argentina (9.2 per cent) and Brazil (6 per cent) lead
As a result of these trends,
the trade balance for 1996 was negative. This is largely explained by the deficit with the
United States, Argentina and Mexico, since trade with the European Union and Asia was
positive on aggregate.
Chile began to liberalize
its trade in the middle of the seventies, and continued to extend the process over the
next two decades, strengthening its international ties through multilateral and bilateral
agreements. At the same time, its pursued its unilateral efforts to open up the economy
through tariff reductions and a uniform tariff, currently 11 per cent ad valorem.
At the domestic level, the
Agreements reached with the framework of the WTO entered into effect in January 1995. The
country now has a set of clear, transparent and non-discriminatory regulations, and has
adopted a number of measures to facilitate trade. These include the modernization of the
National Customs Service, of the financial system and of telecommunications, as well as
investment in infrastructure.
As regards its strategy of
integration into international markets, Chile, a founding member of the GATT and
subsequently the WTO, favours the multilateral trade system as a means of developing links
with its trade partners.
In keeping with that
approach, the Chilean Government's trade strategy combines unilateral opening up with
multilateral economic negotiation. At the regional level, the Government of Chile
subscribes to the principle of open regionalism as a tool for the creation of trade
in accordance with the relevant multilateral regulations.
Unilateral Opening Up
Since its last Trade Policy
Review, Chile has lowered its ad valorem tariff applied uniformly to all imports by
4 per cent. Indeed, in June 1991, the tariff was reduced from 15 per cent to 11 per cent.
The ad valorem tariff
bound by Chile in the framework of the Uruguay Round trade negotiations dropped from 35
per cent to 25 per cent with the exception of certain agricultural products (wheat, wheat
flour, sugar, oils and dairy products), which were reduced to 31.5 per cent. In connection
with the liberalization plans adopted in the framework of an Asia-Pacific Economic
Cooperation Council (APEC), Chile advanced its bound tariff reduction schedule by four
years, as a result of which the binding came into effect as of 1996 instead of 2000 as
The Executive has announced
that it will submit a bill to Congress providing for a tariff reduction of some 3 per
cent. This new reduction will become a reality provided it can be fully compensated
through increases in other forms of tax revenue.
Multilateral Trade System
Chile has been a member of
the multilateral trade system ever since the GATT came into existence. Most of its current
trade is governed by the provisions of the WTO Agreements, which form an integral part of
its domestic legal system.
Chile considers that the WTO
should be a dynamic, future-oriented multilateral organization capable of incorporating
the new dimensions of international trade into its agenda at the appropriate time in order
to encourage the creation of trade flows contributing to the prosperity of its Members.
Thus, during the preparatory work for the Singapore Ministerial Meeting, Chile supported
the creation of working groups to address, separately and in an exhaustive manner, the
issues of investment and competition policy in terms of their relation to trade, without
prejudging the results, in order to lay the foundations for the development of new
multilateral disciplines in the future if necessary and desirable.
With respect to the
negotiations that have taken place on trade in services, Chile made substantive
contributions in the area of basic telecommunications, fully respecting the
most-favoured-nation clause. Similarly, it made conditional offers in the field of
maritime transport, and hopes that the negotiations on financial services currently under
way will reach a satisfactory conclusion. As regards professional services, Chile is
particularly interested in the discussions of the relevant WTO Working Group. Thus, the
recommendations issued by that Group will be used as a reference for future negotiations,
and will be seen as disciplines aimed at facilitating trade in professional services.
Chile is of the opinion that
trade liberalization efforts at the multilateral level should be revived as a means of
increasing economic growth and development opportunities. Thus, it supports the inclusion
in the future WTO calendars of negotiations of a horizontal nature leading to the
elimination of tariff barriers affecting trade in non-agricultural goods in general,
together with the planned negotiations in the agricultural and services sectors.
Chile considers that the
accession to the WTO of new members is essential to the continued strengthening of the
multilateral trade system, and is concerned at the lack of progress over the past two
years in the accession procedures currently under way.
Regional and Bilateral Initiatives
The development of closer
economic and cultural relations with the countries of Latin America is one of Chile's
foreign policy priorities, reflected in the Economic Complementarity Agreements (ACE) and
the Partial-Scope Agreements (AAP) concluded under the auspices of the Latin American
Integration Association (LAIA). These agreements establish tariff preferences with Bolivia
(ACE) and Peru (AAP). Free-trade agreements with Mexico (1991), Venezuela (1993), Colombia
(1993) and Ecuador (1994) have liberalized more than 90 per cent of reciprocal trade in
each case. An association agreement with MERCOSUR, which entered into force in October
1996, will liberalize the entire tariff universe. The bulk of trade will be free of
customs duties within eight years, i.e. by 2004.
At the same time, Chile is
negotiating the dismantling of the lists of exceptions in the Agreement with Venezuela,
having recently completed such negotiations with Colombia. It is hoped that by the end of
this year, the agreement with Mexico will be extended to cover, inter alia,
services and investment. An agreement on free trade in goods is currently being negotiated
with Peru, while in the case of Bolivia, the range of products covered by preferences has
In the wake of the decision
of the 1994 Miami Summit to work towards the establishment of a Free Trade Area of the
Americas (FTAA), Chile participated in the 12 working groups responsible for doing the
necessary technical groundwork. The negotiations are expected to begin formally at the
Second Summit of the Americas to be held in April 1998 in Santiago.
5 July 1997 saw the entry
into force of a far-reaching free-trade agreement with Canada under which more than 80 per
cent of reciprocal trade was freed from customs duties with immediate effect. The
agreement covers investment and services, and provides for mutual exemption from
Chile is an active party to
APEC. It should be stressed that the 18 APEC member countries together account for 50 per
cent of Chile's total exports. As a member of APEC, Chile has undertaken to liberalize its
trade in goods and services, and investment, by 2010, and has indicated that it intends to
do so through the conclusion of bilateral or plurilateral free-trade agreements.
Since February 1996, Chile
has participated in the Organization for Economic Cooperation and Development (OECD) as an
observer in the Trade Committee and the Committee on International Investment and
Finally, in June 1996, Chile
concluded a Framework Cooperation Agreement with the European Union and its member States,
the ultimate objective of which is to form an association between the two parties. The
section on trade provides for progress towards complete liberalization of trade both in
goods and services. This is to be achieved in two stages: the preparatory stage and the
association stage. The first stage is already under way.
Graphic file chl-gov4.wmf with height 333 p and width 470 p Center aligned
Taking account of all of the
instances of trade liberalization mentioned above and the current trade structure, an
estimated 90 per cent of all trade should be covered through this strategy by the year
2010. This is reflected in Chart 4, which shows that approximately 22 per cent of Chile's
trade is with the countries of the European Union, 24 per cent with Asia, 25 per cent with
North America and 20 per cent with the rest of America.
The efficiency of the
Chilean tax system is reflected in the low incidence of tax evasion, the absence of any
elements that could distort productive decisions, and low administrative costs.
The Chilean tax system is
also equitable, in that income tax is progressive.
During this decade, a number
of tax changes have been introduced in order to make up for certain shortages in the
social expenditure area without harming the tax structure or affecting public finances,
while at the same time progressively improving the positive aspects of the system in terms
of efficiency and fairness. In 1990 VAT was increased from 16 per cent to 18 per cent
(Congress is currently discussing whether to maintain that level or to reduce it to 17 per
cent), and a number of other changes were introduced involving, in particular, an increase
in the number of tax payers covered by the effective income regime. In 1993, accrued
profits once again replaced profits actually received as a basis for the taxation of
enterprises, and mechanisms were introduced to encourage saving and investment. In 1995,
taxes on cigarettes and gasoline were increased, and new legal restrictions were
introduced on the personal use of corporate goods for the purpose of evasion.
A number of reforms
emanating from the tariff reduction bill being prepared by the Government (see Section IV)
are currently under consideration. As mentioned, this reduction must be compensated
entirely through tax revenue, i.e. through a number of measured increases in indirect
taxes and a series of measures to combat evasion of such taxes.
A tax reform bill is also
being drawn up for 1998 with a view to further increasing the efficiency and fairness of
the tax system by simplifying the way in which it operates, enhancing the efficiency of
tax control and reducing administrative costs to a minimum both for the tax authorities
and the tax payers. This reform should have a neutral effect on fiscal accounts so as not
to jeopardize the macroeconomic balances.
Reform of the State
Government policy in this
area has tended towards privatization of enterprises operating in competitive markets, or
in regulated markets where State presence is not required to ensure the supply of goods or
Pursuing this privatization
policy, begun in the 70s and covering revenue-earning enterprises as well as a large
number of service enterprises, the State disposed during the period 1991 to 1996 of half
of its shares in the Iquinque Duty-Free Zone as well as most of its shares in companies
involved in maritime, air and land transport. In 1996, the main State electrical company
was transferred to the private sector, and efforts are currently being made to speed up
the privatization of the last State electrical concern.
The Legislative is currently
studying a number of bills relating to port-service and health enterprises. The
Government's privatization strategy is not necessarily directed towards transferring all
State property into private hands, but rather, towards finding an efficient combination of
private capital and State participation which can differ for each case. This policy may
result in pure and simple privatization just as it may generate companies, joint ventures,
franchises and other types of business partnerships. However, the intention of the
authorities is that the control of these enterprises should be in private hands with the
State playing only a regulatory role while continuing to share in their ownership by
maintaining a minority interest.
One of the most interesting
projects involving private equity participation has been in the field of infrastructure.
Aware of the importance of road and port infrastructure in the development of the country,
the Government introduced a system of concessions to the private sector in which the
private companies themselves provide the necessary capital for the work and maintenance.
Thus, the State does not have to allocate resources to that sector and may use them for
In the mining sector, the
Government announced its intention to maintain its ownership of the Chilean Copper
Corporation (CODELCO), the main copper-producing company of Chile. However, considerable
domestic and foreign private capital investments have been made in that sector, and many
more are planned.
Ever since 1959, Chile has
had regulations in support of free competition. As of 1973, these regulations became fully
applicable at the institutional level with the establishment of a judicial mechanism for
investigation, prosecution and punishment of anti-competitive practices.
This mechanism operates both
at the national and regional levels through the investigating body, the National Economic
Prosecutor's Office, and the institutions with decision-making power, i.e. the Regional
Preventative Commissions and the Resolutory Commission, to which the Prosecutor's Office
and the parties affected by any anti-competitive act may turn. Some of the rulings of the
Resolutory Commission, such as those imposing fines, dissolving companies or banning them
from certain professional functions may be brought before the Supreme Court.
The relevant legislation was
merged into a single text in 1980. At the same time, the State eliminated all regulations
relating to pricing with the exception of those concerning certain basic public utility
Studies have just been
completed on a bill to be submitted to Congress in the near future for legislative
approval. This bill strengthens the National Economic Prosecutor's Office, granting it
increased resources with which to carry out its task of controlling, preventing and
punishing anti-competitive practices as rapidly and as efficiently as possible. At the
same time, consideration is also being given to the possibility of restructuring the
Prosecutor's Office and giving it the wherewithal to fulfil the task of supervising and
controlling practices which could hinder competition.
Reform of the financial sector
The Chilean financial system
is highly competitive and well integrated with the outside world. Over the past years it
has also undergone various far-reaching reforms in its institutional structure aimed at
revitalizing the way in which it operates.
Thus, thanks to the
so-called capital market reforms, institutional investors such as pension funds, insurance
companies and mutual funds were given access to new and improved financial instruments
while maintaining appropriate safeguards. At the same time, a solid body of regulations
governing conflicts of interests and insider information was introduced with a view to
ensuring the transparent functioning of the market.
The banking system operates
efficiently, and its solvency and stability are steadily improving. Nevertheless, a reform
aimed at acquiring new business, facilitating the internationalization of operations of
banks established in Chile, bringing capital adequacy regulations into line with the
suggestions of the Basle Committee, and basing the granting of licences on standardized
criteria is currently in the final stages of legislative approval.
Chile maintains and has
continued to develop an open and transparent trade policy for goods and services, coupled
with a comparable investment regime. The legal and institutional system favours foreign
investment, a fact which, together with the country's political and macroeconomic
stability, accounts for the average annual growth rate in investment flows into the
country of some 34 per cent during the period 1991-1996. This is a clear reflection of
investor confidence in Chile.
The foreign investment
regime provides access to a broad range of economic activities both in goods and services
production, and non-discriminatory treatment of natural and legal persons is enshrined in
During the period 1991-1996,
40 per cent of foreign investment went to the mining sector, while a growing share,
averaging 29 per cent per annum, went to the services sector, chiefly to tourism and
Similarly, starting in 1992,
there was a significant increase in Chilean investments abroad. This was due to new
measures aimed at deregulating the exchange market and important liberalization
initiatives in the rest of Latin America. Thus, close to 90 per cent of Chilean
investments were made in that region, principally in the financial and services sectors.
Another form of investment
that is on the increase involves the placement by certain Chilean firms of ADRs (American
Deposit Receipts) on the New York Stock Exchange, further contributing to the promotion of
the policy of internationalization and opening up of the Chilean economy.
On the domestic front,
investment has remained stable, oscillating between 25 per cent and 29 per cent of GDP.
This has been possible essentially thanks to the savings of enterprises and of
contributors to pension funds through the Pension Fund Administrators (AFP). The AFP have
the authority to invest on behalf of their contributors in low-risk assets, thereby
contributing to the dynamism of the economy and the expansion of the stock market.
CONCLUDING REMARKS Back to top
Chile is a developing
country whose main source of growth is foreign trade. After going through a long and
difficult process of transforming production during the 70s and 80s, Chile has begun to
consolidate its development strategy based on increased international integration led by
private initiative and structured around unilateral, bilateral and multilateral
strengthening of trade is one of Chile's trade policy priorities. A strong, law-based
multilateral trade system provides the perfect basis for the expansion of international
trade and the best guarantee that the rights and obligations of its members will be
respected, regardless of their size and relative weight.
Chile takes the view that
the multilateral trade system can only be efficient and continue to grow and acquire
strength if it is based on legal regulations. This requires an added effort to eliminate
from the system all traces of arbitrary discrimination, such as the possibility of
applying selective safeguards, anti-dumping duties without proper disciplines, exceptions
to MFN treatment in the General Agreement on Trade in Services and the proliferation of
quantitative restrictions, particularly in agriculture. Similarly, recourse to unilateral
and extraterritorial measures provided for in certain domestic legislations undermines the
protection, certainty and stability provided by the rules of international law.
Aware of the importance of
free trade to Chile's development, the Government has extended its legislative reforms to
favour even greater liberalization of trade in goods and services and of investment flows.
It is the Chilean Government's intention to continue this liberalization process by all
the means placed at its disposal by the multilateral trade system while at the same time
working on the domestic front to modernize its instruments and institutions in conformity
with the objective of promoting the internationalization of the economy on the basis of a
strategy of development with equity.
1Mercado Comun del Sur - Trade agreement which entered into force on 29 November 1992
between Argentina, Brazil, Paraguay and Uruguay.