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PRESS/TPRB/60
10September 1997
CHILE 'STRADE REGIME LEADS TOSTRONG ECONOMIC GROWTH, BUT
INCREASING EMPHASIS ONREGIONAL AGREEMENTS
COMPLICATES TRADE POLICY
Chile'sliberalandtransparenttraderegime-inplacenowforalmost20years-anditssuccessive
unilateral reforms haveresulted instrong economic growth andlower inflation. According toanew
WTO Secretariat report onChile'strade policies andpractices, Chile'slowanduniform tariff and
itscommitments intheWTO demonstrate itsdetermination topursue liberal tradepolicies onanMFN
(Most-Favoured-Nation) basis.
Chile'scurrent preoccupation withregionalism, however, reflects itsconcern overpossible
exclusion from agrowing number ofregional preferential trade agreements. TheWTO report notes
thatitsmembership inarange ofoverlapping agreements, many withdifferent rules oforigin, has
added ameasure ofcomplexity totheChilean trade regime.
TheWTO report andapolicy statement prepared bytheGovernment ofChile willprovide
thebasis foradiscussion onChile'strade policies andpractices intheWTO 'sTrade Policy Review
Body on23and24September.
Chile applies, onanMFN basis, auniform tariff of11percentandisreportedly considering
afurther tariff cut.While applied tariffs arewellbelow Chile'sWTO bound rateof25percent(31.5
forsome agricultural goods) andexport subsidies aretobeeliminated, thereport points outthatafew
specific sectoral non-tariff policies remain.
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Chile hasbilateral tradeagreements withCanada, Mexico, Colombia, Ecuador andVenezuela
andisanassociate member ofMERCOSUR1.Chile isalsoparticipating intheAsian Pacific Economic
Cooperation forum (APEC) andiscurrently negotiating anagreement withtheEuropean Union. These
regional agreements, saysthereport, haveresulted indifferential treatment between Chile'strading
partners andariseininter-sectoral discrimination astariffs arephased outovervarying periods for
different goods andoverdifferent timeperiods.
Chile'stradebalance ishighly dependent oncopper exports. Primary goods, including copper,
fruits, wines, forestry andfishery products, represent about 85percentofChile'sexports. Thereport
notes thatadualism seems tohavedeveloped between Chile'sagricultural goods destined forexport
andthose which areimport-competing. While anefficient fruitandforestry sector produces goods
mainly forexport, other agricultural products arelesscompetitive, some being protected byaprice
bandmechanism. About 10percentofChile'sexports aremanufactured goods, mainly processed from
natural resources.
Thereport notes thatimportant reforms inservices havetaken place since 1990. Chile isopen
toforeign direct investment inallsectors, including services, where existing market access ismuch
greater thanChile'scurrent market access commitments under theGeneral Agreement onTrade in
Services. Privatization ofthetelecommunications sector started in1992andisnowcomplete. Banking
lawsarecurrently being modified toincrease foreign access totheChilean financial market andChile
isnowdrafting anewcompetition lawandupdating itslegislation onintellectual property.
Thereport concludes thatthepossibility oflocking inChile'sreforms through further binding
commitments atthemultilateral levelessentially depends onthewillingness ofitsWTO partners to
move forward inasimilar manner, forexample, through anewround oftrade-liberalizing negotiations.
Note toEditors
TheWTO Secretariat 'sreport, together withareport prepared byChile willbediscussed by
theWTOTradePolicyReviewBody(TPRB)on23and24September1997.TheWTO'sTPRBconducts
acollective evaluation ofthefullrange oftradepolicies andpractices ofeachWTO member atregular
periodic intervals andmonitors significant trends anddevelopments which mayhaveanimpact onthe
global trading system. Thetworeports, together withareport oftheTPRB 'sdiscussion andofthe
Chairman 'ssumming up,willbepublished induecourse asthecomplete Trade Policy Review ofChile
andwillbeavailable from theWTO Secretariat, Centre William Rappard, 154ruedeLausanne,
1211 Geneva 21.
Thereports cover thedevelopment ofallaspects ofChile'stradepolicies, including domestic
lawsandregulations, theinstitutional framework, trade policies bymeasure andbysector. Since the
WTO cameintoforce, the"new areas" ofservices tradeandtrade-related aspects ofintellectual property
rights arealsocovered. Attached arethesummary observations fromtheSecretariat andgovernment
reports. Fullreports willbeavailable forjournalists from theWTO Secretariat onrequest.
1Mercado Comun delSur-Trade agreement which entered intoforceon29November 1992between
Argentina, Brazil, Paraguay andUruguay.
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Since December 1989, thefollowing reports havebeencompleted: 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), Côted'Ivoire (1995), Cyprus (1997), theCzech Republic (1996), theDominican Republic
(1996), Egypt (1992), ElSalvador (1996), theEuropean Communities (1991, 1993&1995), Fiji(1997),
Finland (1992), Ghana (1992), Hong Kong (1990 &1994), Hungary (1991), Iceland (1994), India
(1993), Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992&1995), Kenya (1993), Korea,
Rep.of(1992 &1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco
(1989 &1996), NewZealand (1990 &1996), Nigeria (1991), Norway (1991 &1996), Pakistan (1995),
Paraguay (1997), Peru(1994), thePhilippines (1993), Poland (1993), Romania (1992), Senegal (1994),
Singapore (1992 &1996), Slovak Republic (1995), South Africa (1993), SriLanka (1995), Sweden
(1990 &1994), Switzerland (1991 &1996), Thailand (1991 &1995), Tunisia (1994), Turkey (1994),
theUnited States (1989, 1992, 1994 &1996), Uganda (1995), Uruguay (1992), Venezuela (1996),
Zambia (1996) andZimbabwe (1994).
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TRADE POLICY REVIEW BODY
CHILE
Report bytheSecretariat
INTRODUCTION
Chile hasnowmaintained aliberal, transparent traderegime foralmost twodecades, coupled
withsound macroeconomic policies andstructural reforms. Thebenefits, interms ofstrong economic
growth andreduced inflation, havebecome increasingly evident. Thus, despite anincreased emphasis
onregionalagreementssince1990,theauthoritiesplantocontinuetheprocessofunilateralliberalization
byfurther reducing theMFN tariff rateandeliminating certain sectoral programmes. However, the
conclusion ofarange ofoverlapping regional agreements, withdifferent rules oforigin, hasadded
ameasure ofcomplexity totheChilean trade regime thatdidnotpreviously exist.
THE ECONOMIC ENVIRONMENT
TheChilean economy hasgrown continuously since 1990, atanaverage rateof6percent
inrealterms. Thistrend islikely tocontinue intheimmediate future. Thisoutstanding performance
istheresult ofstructural adjustment policies thatstarted inthemid-1970s, combined withsound
macroeconomic policies, aimed atcontrolling inflation andexternal balances. Thereduction ofinflation
from27percentin1990to6.6percentin1996isanimportant achievement. Theaimistocontinue
reducing inflation tolevels comparable withindustrialized countries; however, thiscould bedifficult,
given thewidespread useofindexation intheeconomy. Domestic savings andinvestment havebeen
maintained athighlevels ofaround 25percentofGDPsince1990, withpositive effects onproductivity.
While Chile isopentoforeign direct investment leading toastrong inflow ofFDIsince 1990,
certain restrictions onthecapital account aremaintained tolimit short-term, speculative capital
movements. Capital inflows havecontributed toupward pressures ontheexchange rate,which has
appreciated steadily inrealterms by24percentsince1990. Despite thisappreciation, Chilean exports,
suchasfruit, wines, forestry andfisheries products, havecontinued togrow strongly; theauthorities
attribute thistrend tothegrowing productivity oftheeconomy. However, export growth mayalso
belinked toelements ofthedutydrawback system, which hasa(notified) subsidy component. Despite
export diversification, Chile continues tobehighly dependent upon copper andtheeconomy remains
sensitive tofluctuations inworld copper prices. Tocopewiththeresulting volatility ofincome, the
Chilean government operates astabilization fundoutofitscopper revenues.
TRADE POLICY DEVELOPMENT
Chile'smainMFN trade policy instrument istheuniform tariff, introduced inthelate1970s.
Thiscurrently stands at11percent; atpresent (July 1997) aproposal forareduction intherate,
reportedly to7or8percent,isbefore Congress. Even thepresent leveliswellbelow Chile'sWTO
ceiling binding commitments of25percent, with31.5percentforsome agricultural goods. The
neutrality ofthetariffissomewhat diminished bydifferential tarifftreatment under regional agreements,
asnoted below, andbyafewspecific sectoral non-tariff policies which benefit afewagricultural goods
(aprice-band/variable levysystem), theforestry sector (production subsidies), theautomotive industry
(local-content andexport performance requirements) non-traditional minor exports (export subsidies
via"simplified" drawback), andimported capital goods (under thesystem ofdeferred payments of
custom duties).
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Chile notified thelatter threemeasures asexport subsidies totheSecretariat andiscommitted
tophasing themoutwithin theperiods stipulated intheWTO Agreements. Noquantitative estimates
wereavailable ofthesubsidy components, sothatthedegree towhich Chile'sexport performance and,
especially, diversification canbeattributed tothese programmes, isnotclear.
Theoverall liberalization oftheChilean economy hasincreased theneedforeffective domestic
competition regulations. Inthiscontext, theauthorities areatpresent drafting anewcompetition law
toupdate thatof1974, seenbytheauthorities asinappropriate inthecurrent structure ofthemarket.
Legislation onintellectual property andcontingency trademeasures (anti-dumping andcountervailing
measures) isalsoofbeing updated.
SECTORAL DEVELOPMENTS
Primary Industries
Chile continues torelyheavily onexports ofprimary goods, namely copper, fruit, fishand
wood products. Apricebandmechanism provides protection forsome importable agricultural products
(wheat, wheat flour, edible oilsandsugar), while exportables arepriced atworld levels eveninthe
domestic market. Asaresult, adualism seems tohavedeveloped inChilean agriculture, whereby
producers ofexportables arecontinually striving toenhance productivity andimprove quality inorder
tomaintain theirplace intheinternational market andgainaccess tonewmarkets, while theless
productive importables sector lagsbehind. Theproduction subsidy forforestry plantations, which
appears tobenefit mainly small producers, islikely tohavehadapositive impact ontheenvironment,
since itisonlygranted forplantings indeforested land.
TheroleoftheStateinChile'stradehasfurther diminished inrecent years, withtheexception
ofthemining sector, where CODELCO, astate-owned company, isthemajor producer andexporter
ofcopper. Inspiteofthedominant roleoftheStateinthissector, private investment remains important.
Thefisheries sector issubject totightregulation through alicensing andquota system toprevent
over-exploitation ofavailable resources.
Manufacturing
Chile'smanufacturing production andexports are,asmight beexpected, largely based onthe
processing ofnatural resources. However, some diversification hasbeenachieved through theexport
ofmanufactured products, notbased onnatural resources, toLatin America under preferential
agreements.
Only theautomotive industry issubject toaspecial regime, withlocal-content andexport
balancing requirements. Thisprogramme isaremnant oftheoldimport substitution regime, andis
duetobeeliminated in1998. Interms ofproduction, theindustry issmall, thereareonlythreeplants
andannual average production during 1990-1996 amounted tosome 18,000 vehicles (mainly pick-up
trucks).
Services
Since 1990, theservices sector hasundergone important reforms. Abilltomodify thebanking
lawiscurrently being discussed inCongress; thisincludes anexpansion ofthescope ofbanking activities
withinChilethroughincreasedaccessforforeignbanks,widerauthorizationforChileanbankstooperate
abroad, andtheadoption oftheinternational standards laiddown bytheBank forInternational
Settlements oncapital requirements andsupervision.
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Privatization ofthetelecommunications sector wasbegun in1992, allowing freecompetition
inthismarket; rates, especially forlongdistances services, havebeenreduced substantially, andnew
technology hasbeenintroduced. Currently, Stateintervention inthissector islimited tofixing tariffs
when there ismarket failure, particularly inthefieldofinterconnection.
More thanhalfofChile'smerchandise trade isalready conducted through private ports. A
Billhasbeenpresented under which portmanagement would bedecentralized andremaining ports
would beprivatized, leaving theStatewithonlyaregulatory role. Theauthorities alsoaimtoincrease
private participation intheadministration ofroads, airports andrailways.
Chile welcomes foreign investment initsservices sector, andthustreatment offoreign nationals
hasgonebeyond thecommitments made under theGATS. Inaddition, therecently ratified free-trade
agreement withCanada includes services; these willalsobeincluded intheframework agreement
tobenegotiated withtheEuropean Union. Asnoted, foreign presence isespecially important inthe
financial andtelecommunications sectors, where thebenefits oftechnology transfer have become
particularly evident.
TRADE POLICIES AND FOREIGN TRADING PARTNERS
Duringthelast20years,Chileantradepolicyhasbeenbasedonunilateralreforms,supplemented
bymultilateral commitments (albeit atalower level). However, since 1990, Chile'strade relations
havebecome increasingly focused onthenegotiation ofbilateral trade agreements, withCanada and
Mexico (intheabsence offullNAFTA membership), andalsowithColombia, Ecuador, Venezuela
andMERCOSUR. Aframework agreement withtheEUisunder negotiation. Inpursuit ofregional
goals, Chile hasaclear preference forconcluding free-trade agreements thatdonotinhibit itsown
freedom toundertake further unilateral reforms. Chile isalsoactive inAPEC; itsinterpretation of
the"open regionalism" principle isthatitleaves opentheoption offurther unilateral reforms, rather
thanMFN application ofmeasures agreed within theregion.
Thenegotiation ofthevarious bilateral agreements hasledtogrowing differences intreatment
ofdomestic industries, since tariffs arebeing phased outovervarying periods fordifferent goods,
andunder different time-frames overall, under eachagreement. Theresulting complexity isreinforced
bythefactthatrulesoforigin alsodiffer among agreements andbysector. Thisrenders theirconsistent
application difficult andcould alsoleadtosub-optimal sourcing.
Chile'scurrent preoccupation withregionalism reflects aclearconcern nottobeleftoutside
thegrowing number ofpreferential schemes andlosemarkets toinsiders, buttheannounced intention
tomake further unilateral tariffcutsdemonstrates itssimultaneous commitment tothepursuit ofliberal
trade policies onanMFN basis. Thepossibility oflocking inthese reforms through binding
commitments atthemultilateral levelessentially depends onthewillingness ofother WTO partners
tomove forward inasimilar manner, e.g.through anewround oftrade-liberalizing negotiations.
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TRADE POLICY REVIEW BODY
CHILE
Report oftheGovernment
INTRODUCTION
TheChilean economy hasundergone far-reaching transformations overthepasttwodecades.
From aheavily regulated import-substitution-oriented economy atthebeginning ofthe70s,ithas
switched totheconsolidation ofadevelopment strategy based ontheexpansion ofChile'smarkets
throughexports,privateinvestmentincentivesandabalancingoftheprincipalmacroeconomicvariables.
Chile hasasmall economy, opentoforeign trade, whose growth isessentially based onahigh
rateofinvestment andtheperformance oftheexport sector, reflecting itssolidity andtheefficient
allocation ofproductive resources.
Themultilateral trade system, based onclearandtransparent regulations, isoneofthepillars
oftheeconomic development strategy adopted byChile.
Informulating itseconomic policy atthedomestic level, theGovernment placed emphasis on
stability,botheconomicandinstitutional,bycreatinganddevelopinganappropriateregulatoryframework
designedtofavourprivateinitiativewhileatthesametimesafeguardingtheguidingprinciplesofequality
anddevelopment withequity.
Intackling thechallenges ofdevelopment overthenextdecades, thecurrent administration
plans toencourage reforms aimed atincreasing theproductivity andimproving thecompetitiveness
oftheChilean economy byfurther opening upitstrade andstimulating investment inphysical and
human capital. Tothatend,through various legalinitiatives, theGovernment hassetitselfthepriority
ofincreasing investment ininfrastructure andeducation.
GENERAL FEATURES
Chile isaunitary, democratic, presidential republic withseparation ofState powers. Ithas
abicameral Congress andanautonomous Judiciary, andhasindependent surveillance bodies tooversee
Government activities, suchastheOffice oftheComptroller General oftheRepublic, theConstitutional
Court andtheState Defence Council. Moreover, ithasatradition ofdemocracy, albeit interrupted
from 1973 to1989.
Foradministrativepurposes,Chileisdividedinto13regionswithitscapital,Santiago,belonging
totheso-called Metropolitan Region. Thisregion ispredominantly urban (97percent)andaccounts
foralmost 40percentofthetotalpopulation andmore than40percentofGDP. Only16.5percent
ofthecountry 'spopulation isrural.
According toestimates based onthe1992 Census, thepopulation should reach 14,622,354
in1997, withadensity of19.1inhabitants perkm2.Theaverage population growth rateis1.64per
cent.
Asregardssocialdevelopment,accordingtothemostrecentstudies,duringtheperiod1992-1996
thenumber ofpersons living below thepoverty linefellfrom4,351,579 to3,345,176 thanks tosustained
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economic growth coupled withtarget-oriented social policies. However, income distribution figures
show thatgrowth hasnotbenefited thedifferent population groups tothesame degree.
Atthesame time, social indicators haveimproved significantly. Illiteracy doesnotexceed
4percent,liveexpectancy atbirthiscloseto78years andinfant mortality in1994was11perthousand
livebirths. Progress hasalsobeenmade inovercoming theproblem ofundernutrition among children
inthat95.7percentofthepopulation nowreceive primary education, and79.2percentreceive
secondary education.
MACROECONOMIC ENVIRONMENT
Fiscal policy isformulated bytheGovernment through theMinistry ofFinance. TheCentral
Bank ofChile isresponsible fortheadministration ofmonetary andexchange policy inaccordance
withtherelevant constitutional organic law. Thefullautonomy ofthecentral bankisenshrined in
thePolitical Constitution oftheRepublic.
Thepriority ofmacroeconomic policy istoensure thatthebasic indicators remain balanced
bycontrolling theliquidity ofthefinancial system andtheinflation rateonthedomestic front, and
seeking asustainable current account position ontheexternal front. TheCentral BankofChile achieves
thisbyadjusting theinterest rate. Meanwhile, exchange policy focuses onstabilizing theexchange
rateatitslong-term value.
Fiscal policy focuses onmaintaining abalanced budget withagrowth ratethatisconsistent
withGDP growth andwiththecountry 'sbasic macroeconomic objectives. Theshare offiscal
expenditure allocated tosocial policies, i.e.education, health, housing, social security andpoverty
alleviation programmes, isabout 67percentoftheState budget.
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Thisstabilization effort hasledtoanaverage GDP growth ratefortheperiod 1991 to1996
ofabout 7percent, which ispartly duetotheincrease intherateinvestment (growth fixed capital
formation), which forthesame period wasabout 25.6percentofGDP onaverage. Thisinvestment,
initsturn, waslargely financed byanincrease indomestic saving, which grew from 12percentof
GDP inthemid-80s toanaverage of25percentinthe90s.
Chart 1above shows theevolution ofGDP overtheperiod under consideration. Theannual
GDP growth ratewaspositive throughout, varying between 3.3percentof11percent. Itactually
declined between 1992 and1994 before resuming onceagain alevelclose totheeconomy 'sannual
growth potential, estimated atabout 7percentforChile.
Chart 2shows aneffective decline intheinflation ratefrom18.7percentin1991 to6.6per
centin1996. Theestimated ratefor1997 is5.5percent. Thistrend islargely duetothedecline
intherateofprice increase inthetradeables sector. Itshould bestressed thatthedecline ininflation
wasgradual, anditwastherefore possible toavoid sudden price fluctuations.
Thecurrent account deficit hasbeenstabilized atasustainable levelof4percentofGDP or
less,estimated tobethelevelthattheeconomy iscapable ofabsorbing. Meanwhile, therealexchange
rateappreciated steadily from 1991 atanaverage annual rateof4.4percentowing totheincrease
inproductivity ofthetradeables sector andthestrong inflow ofcapital intothecountry. Finally, a
sensible fiscal policy enabled average fiscal retrenchment toincrease to4.9percentofGDP between
1991 and1996.
Inviewoftherapid increase inGDPanddomestic demand, themonetary authority introduced
policies overthepastfewyears aimed atcooling down theeconomy toavoid overheating byincreasing
theinterest ratesofCentral Bank bonds. More recently, however, monetary policy hastended towards
agradual relaxation ofliquidity restrictions introduced attheendof1995through aprogressive lowering
ofinterest rates.
Themedium-term macroeconomic objective istomaintain thebalances achieved andtomake
further progress inensuring economic growth andlower inflation. Tothatend,themonetary authority
willcontinue tofocus itsefforts onachieving alevelofactivity thatisconsistent withthepotential
growth ofeconomy, ensuring theparticipation ofboththepublic andprivate sectors inovercoming
thechallenge ofprice stabilization andsustained growth.
TRADE ENVIRONMENT
Asmentioned atthebeginning ofthisReport, theChilean economy issmall andopen, and
itstradepolicy isdirected towards further opening up.Thishasbeenpossible thanks totheunilateral
reduction orelimination ofprotective measures, theintroduction oftrade facilitation mechanisms,
improvement oftheregulatory framework, active participation inthemultilateral trade system and
theconclusion oftrade agreements atthesubregional andbilateral levels.
Performance oftheexternal sector during theperiod 1991-1996
Asaresult ofthecountry 'sintegration intointernational markets, foreign trade surged during
theperiod 1991-1996 bothinterms ofvolume andvalue ofexports andimports, ascanbeseenin
Chart 3.Theyear1996 sawafallinthevalue ofexports of4.9percentasaresult ofthefallinthe
international priceoftwoprincipal exports, copper andcellulose. Nevertheless, thevolume ofgoods
traded thatyearincreased 13.7percentandtrade grew 3.4percent.
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In1996, thebalance ofpayments showed anincrease innetinternational reserves of
US$1,180.8 million owing tocapital flows intheform ofdirect foreign investment andportfolio
investment, attracted bothbytheinterest ratedifferential andtheimprobability ofadevaluation of
Chilean peso.
Trade inservices showed increasing vitality, withtheresult thatexports ofnon-financial services
represented 23.8percentofexports ofgoods during theperiod 1991-1996. Themost important
subsectors were tourism, portservices, freight andinsurance.
Themain goods exported were copper (39.3 percent), fresh fruit(7.8percent), cellulose
(4.4percent)andfishflour(4percent). However, theshare intradeofnon-traditional exports with
higher valued-added, suchasfood, forestry products andother industrial goods, isgrowing. Thus,
theshare ofnatural resource product exports inoverall exports decreased from 62percentin1991
to57percentin1996. Atthesame time, there wasanincrease intheshare inoverall exports of
processed natural resource products (28.5 percentto32.2percent)andindustrial goods (9.6percent
to10.8percent).
According tothelatest statistics, therearefourmainmacro-markets ofdestination forChilean
exports. ThefirstoftheseisAsia, which accounts forabout onethirdoftotalexports. Chile'sprincipal
Asian partner isJapan, although trade with thePeople 'sRepublic ofChina, Philippines and
Hong Kong-China hasincreased considerably. Trade withtheEuropean Union accounts foraquarter
ofoverall trade, withtheUnited Kingdom (5.8percent) andGermany (4.8percent) astheleading
partners.AsregardsLatinAmerica,therehasbeenamarkedincreaseinexportstoBrazilandArgentina,
whose share inoverall exports is6.1percentand4.6percentrespectively. Inthemarket comprising
theNAFTA countries, trade withCanada hasbeenthemost dynamic: although itsshare issmall
compared totheother NAFTA countries, in1996 itincreased 45.4percentovertheprevious year.
However, themostimportant partner remains theUnited States, which accounts for16.7percentof
Chile'stotalworld exports.
Asregards imports, themainmarkets oforigin are:NAFTA (30.5 percent), Latin America
(26.5 percent), European Union (19.8 percent)andAsia(15.5 percent). Within thesemacro-markets,
imports from theUnited States (23.1 percent), Argentina (9.2percent)andBrazil (6percent) lead
theway.
Asaresult ofthese trends, thetrade balance for1996wasnegative. Thisislargely explained
bythedeficit withtheUnited States, Argentina andMexico, since tradewiththeEuropean Union and
Asiawaspositive onaggregate.
TRADE POLICY
Chile began toliberalize itstrade inthemiddle oftheseventies, andcontinued toextend the
process overthenexttwodecades, strengthening itsinternational tiesthrough multilateral andbilateral
agreements. Atthesame time, itspursued itsunilateral efforts toopenuptheeconomy through tariff
reductions andauniform tariff, currently 11percentadvalorem.
Atthedomestic level, theAgreements reached withtheframework oftheWTO entered into
effect inJanuary 1995. Thecountry nowhasasetofclear, transparent andnon-discriminatory
regulations, andhasadopted anumber ofmeasures tofacilitate trade. These include themodernization
oftheNationalCustomsService,ofthefinancialsystemandoftelecommunications,aswellasinvestment
ininfrastructure.
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Asregards itsstrategy ofintegration intointernational markets, Chile, afounding member
oftheGATT andsubsequently theWTO, favours themultilateral tradesystem asameans ofdeveloping
links withitstrade partners.
Inkeeping withthatapproach, theChilean Government 'strade strategy combines unilateral
opening upwithmultilateral economic negotiation. Attheregional level, theGovernment ofChile
subscribes totheprinciple ofopen regionalism asatoolforthecreation oftrade inaccordance with
therelevant multilateral regulations.
Unilateral Opening Up
Since itslastTrade Policy Review, Chile haslowered itsadvalorem tariff applied uniformly
toallimports by4percent. Indeed, inJune1991, thetariff wasreduced from15percentto11per
cent.
Theadvalorem tariffbound byChile intheframework oftheUruguay Round tradenegotiations
dropped from 35percentto25percentwiththeexception ofcertain agricultural products (wheat,
wheat flour, sugar, oilsanddairy products), which werereduced to31.5percent. Inconnection with
theliberalization plans adopted intheframework ofanAsia-Pacific Economic Cooperation Council
(APEC), Chile advanced itsbound tariff reduction schedule byfouryears, asaresult ofwhich the
binding came intoeffect asof1996 instead of2000 asoriginally stipulated.
TheExecutivehasannouncedthatitwillsubmitabilltoCongressprovidingforatariffreduction
ofsome 3percent. Thisnewreduction willbecome areality provided itcanbefullycompensated
through increases inother forms oftaxrevenue.
Multilateral Trade System
Chile hasbeenamember ofthemultilateral trade system eversince theGATT came into
existence. Most ofitscurrent trade isgoverned bytheprovisions oftheWTO Agreements, which
form anintegral partofitsdomestic legalsystem.
Chile considers thattheWTO should beadynamic, future-oriented multilateral organization
capable ofincorporating thenewdimensions ofinternational trade intoitsagenda attheappropriate
timeinorder toencourage thecreation oftrade flows contributing totheprosperity ofitsMembers.
Thus, during thepreparatory work fortheSingapore Ministerial Meeting, Chile supported thecreation
ofworking groups toaddress, separately andinanexhaustive manner, theissues ofinvestment and
competition policy interms oftheirrelation totrade, without prejudging theresults, inorder tolay
thefoundations forthedevelopment ofnewmultilateral disciplines inthefuture ifnecessary and
desirable.
Withrespecttothenegotiationsthathavetakenplaceontradeinservices,Chilemadesubstantive
contributions intheareaofbasictelecommunications, fullyrespecting themost-favoured-nation clause.
Similarly, itmade conditional offers inthefieldofmaritime transport, andhopes thatthenegotiations
onfinancial services currently under waywillreach asatisfactory conclusion. Asregards professional
services, Chile isparticularly interested inthediscussions oftherelevant WTO Working Group. Thus,
therecommendations issued bythatGroup willbeusedasareference forfuture negotiations, andwill
beseenasdisciplines aimed atfacilitating trade inprofessional services.
Chile isoftheopinion thattradeliberalization efforts atthemultilateral levelshould berevived
asameansofincreasingeconomicgrowthanddevelopmentopportunities.Thus,itsupportstheinclusion
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inthefuture WTO calendars ofnegotiations ofahorizontal nature leading totheelimination oftariff
barriers affecting trade innon-agricultural goods ingeneral, together withtheplanned negotiations
intheagricultural andservices sectors.
Chile considers thattheaccession totheWTO ofnewmembers isessential tothecontinued
strengthening ofthemultilateral trade system, andisconcerned atthelackofprogress overthepast
twoyears intheaccession procedures currently under way.
Regional andBilateral Initiatives
Thedevelopment ofcloser economic andcultural relations withthecountries ofLatin America
isoneofChile'sforeign policy priorities, reflected intheEconomic Complementarity Agreements
(ACE) andthePartial-Scope Agreements (AAP) concluded under theauspices oftheLatin American
Integration Association (LAIA). These agreements establish tariff preferences withBolivia (ACE)
andPeru(AAP). Free-trade agreements withMexico (1991), Venezuela (1993), Colombia (1993)
andEcuador (1994) haveliberalized more than90percentofreciprocal trade ineachcase. An
association agreement withMERCOSUR, which entered intoforce inOctober 1996, willliberalize
theentire tariff universe. Thebulkoftrade willbefreeofcustoms duties within eight years, i.e.by
2004.
Atthesametime, Chile isnegotiating thedismantling ofthelistsofexceptions intheAgreement
withVenezuela, having recently completed suchnegotiations withColombia. Itishoped thatbythe
endofthisyear, theagreement withMexico willbeextended tocover, inter alia, services and
investment. Anagreement onfreetrade ingoods iscurrently being negotiated withPeru, while in
thecaseofBolivia, therange ofproducts covered bypreferences hasbeenextended.
Inthewake ofthedecision ofthe1994 Miami Summit towork towards theestablishment of
aFreeTrade AreaoftheAmericas (FTAA), Chile participated inthe12working groups responsible
fordoing thenecessary technical groundwork. Thenegotiations areexpected tobegin formally atthe
Second Summit oftheAmericas tobeheldinApril 1998 inSantiago.
5July1997sawtheentry intoforce ofafar-reaching free-trade agreement withCanada under
which more than80percentofreciprocal trade wasfreed fromcustoms duties withimmediate effect.
Theagreement covers investment andservices, andprovides formutual exemption fromanti-dumping
duties.
Chile isanactive party toAPEC. Itshould bestressed thatthe18APEC member countries
together account for50percentofChile'stotalexports. Asamember ofAPEC, Chile hasundertaken
toliberalize itstrade ingoods andservices, andinvestment, by2010, andhasindicated thatitintends
todosothrough theconclusion ofbilateral orplurilateral free-trade agreements.
Since February 1996, Chile hasparticipated intheOrganization forEconomic Cooperation
andDevelopment (OECD) asanobserver intheTrade Committee andtheCommittee onInternational
Investment andMultinational Enterprises.
Finally, inJune1996, Chile concluded aFramework Cooperation Agreement withtheEuropean
Union anditsmember States, theultimate objective ofwhich istoform anassociation between the
twoparties. Thesection ontrade provides forprogress towards complete liberalization oftrade both
ingoods andservices. Thisistobeachieved intwostages: thepreparatory stage andtheassociation
stage. Thefirststage isalready under way.
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Taking account ofalloftheinstances oftrade liberalization mentioned above andthecurrent
trade structure, anestimated 90percentofalltrade should becovered through thisstrategy bythe
year2010. Thisisreflected inChart 4,which shows thatapproximately 22percentofChile'strade
iswiththecountries oftheEuropean Union, 24percentwithAsia, 25percentwithNorth America
and20percentwiththerestofAmerica.
INSTITUTIONAL ENVIRONMENT
Taxenvironment
Theefficiency oftheChilean taxsystem isreflected inthelowincidence oftaxevasion, the
absence ofanyelements thatcould distort productive decisions, andlowadministrative costs. The
Chilean taxsystem isalsoequitable, inthatincome taxisprogressive.
During thisdecade, anumber oftaxchanges havebeenintroduced inorder tomake upfor
certain shortages inthesocial expenditure areawithout harming thetaxstructure oraffecting public
finances, while atthesame timeprogressively improving thepositive aspects ofthesystem interms
ofefficiency andfairness. In1990 VAT wasincreased from 16percentto18percent(Congress
iscurrently discussing whether tomaintain thatlevel ortoreduce itto17percent), andanumber
ofotherchangeswereintroducedinvolving,inparticular,anincreaseinthenumberoftaxpayerscovered
bytheeffective income regime. In1993, accrued profits onceagain replaced profits actually received
asabasis forthetaxation ofenterprises, andmechanisms were introduced toencourage saving and
investment. In1995, taxes oncigarettes andgasoline wereincreased, andnewlegalrestrictions were
introduced onthepersonal useofcorporate goods forthepurpose ofevasion.
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Anumber ofreforms emanating fromthetariffreduction billbeing prepared bytheGovernment
(seeSection IV)arecurrently under consideration. Asmentioned, thisreduction mustbecompensated
entirely through taxrevenue, i.e.through anumber ofmeasured increases inindirect taxesandaseries
ofmeasures tocombat evasion ofsuchtaxes.
Ataxreform billisalsobeing drawn upfor1998withaviewtofurther increasing theefficiency
andfairness ofthetaxsystem bysimplifying thewayinwhich itoperates, enhancing theefficiency
oftaxcontrol andreducing administrative coststoaminimum bothforthetaxauthorities andthetax
payers. Thisreform should have aneutral effect onfiscal accounts soasnottojeopardize the
macroeconomic balances.
Reform oftheState
Government policy inthisareahastended towards privatization ofenterprises operating in
competitive markets, orinregulated markets where Statepresence isnotrequired toensure thesupply
ofgoods orservices.
Pursuing thisprivatization policy, begun inthe70sandcovering revenue-earning enterprises
aswellasalarge number ofservice enterprises, theState disposed during theperiod 1991 to1996
ofhalfofitsshares intheIquinque Duty-Free Zone aswellasmostofitsshares incompanies involved
inmaritime, airandlandtransport. In1996, themain State electrical company wastransferred to
theprivate sector, andefforts arecurrently being made tospeed uptheprivatization ofthelastState
electrical concern.
TheLegislative iscurrently studying anumber ofbillsrelating toport-service andhealth
enterprises. TheGovernment 'sprivatization strategy isnotnecessarily directed towards transferring
allState property intoprivate hands, butrather, towards finding anefficient combination ofprivate
capital andStateparticipation which candiffer foreachcase. Thispolicy mayresult inpureandsimple
privatization justasitmaygenerate companies, jointventures, franchises andother types ofbusiness
partnerships. However, theintention oftheauthorities isthatthecontrol ofthese enterprises should
beinprivate hands withtheState playing onlyaregulatory rolewhile continuing toshare intheir
ownership bymaintaining aminority interest.
Oneofthemostinteresting projects involving private equity participation hasbeeninthefield
ofinfrastructure. Aware oftheimportance ofroadandportinfrastructure inthedevelopment ofthe
country, theGovernment introduced asystem ofconcessions totheprivate sector inwhich theprivate
companies themselves provide thenecessary capital forthework andmaintenance. Thus, theState
doesnothavetoallocate resources tothatsector andmayusethem forsocial projects.
Inthemining sector, theGovernment announced itsintention tomaintain itsownership ofthe
Chilean Copper Corporation (CODELCO), themaincopper-producing company ofChile. However,
considerable domestic andforeign private capital investments havebeenmade inthatsector, andmany
more areplanned.
Competition policy
Eversince 1959, Chile hashadregulations insupport offreecompetition. Asof1973, these
regulationsbecamefullyapplicableattheinstitutionallevelwiththeestablishmentofajudicialmechanism
forinvestigation, prosecution andpunishment ofanti-competitive practices.
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Thismechanism operates bothatthenational andregional levels through theinvestigating body,
theNational Economic Prosecutor 'sOffice, andtheinstitutions withdecision-making power, i.e.the
Regional Preventative Commissions andtheResolutory Commission, towhich theProsecutor 'sOffice
andtheparties affected byanyanti-competitive actmayturn. Some oftherulings oftheResolutory
Commission, such asthose imposing fines, dissolving companies orbanning them from certain
professional functions maybebrought before theSupreme Court.
Therelevant legislation wasmerged intoasingle textin1980. Atthesame time, theState
eliminated allregulations relating topricing withtheexception ofthose concerning certain basicpublic
utility services.
Studies havejustbeencompleted onabilltobesubmitted toCongress inthenearfuture for
legislative approval. Thisbillstrengthens theNational Economic Prosecutor 'sOffice, granting it
increased resources with which tocarry outitstaskofcontrolling, preventing andpunishing
anti-competitive practices asrapidly andasefficiently aspossible. Atthesame time, consideration
isalsobeing given tothepossibility ofrestructuring theProsecutor 'sOffice andgiving itthewherewithal
tofulfil thetaskofsupervising andcontrolling practices which could hinder competition.
Reform ofthefinancial sector
TheChilean financial system ishighly competitive andwellintegrated withtheoutside world.
Overthepastyears ithasalsoundergone various far-reaching reforms initsinstitutional structure aimed
atrevitalizing thewayinwhich itoperates.
Thus, thanks totheso-called capital market reforms, institutional investors suchaspension
funds, insurance companies andmutual funds were given access tonewandimproved financial
instruments while maintaining appropriate safeguards. Atthesame time, asolidbodyofregulations
governing conflicts ofinterests andinsider information wasintroduced withaviewtoensuring the
transparent functioning ofthemarket.
Thebanking system operates efficiently, anditssolvency andstability aresteadily improving.
Nevertheless,areformaimedatacquiringnewbusiness,facilitatingtheinternationalizationofoperations
ofbanks established inChile, bringing capital adequacy regulations intolinewiththesuggestions of
theBasle Committee, andbasing thegranting oflicences onstandardized criteria iscurrently inthe
finalstages oflegislative approval.
Investment
Chile maintains andhascontinued todevelop anopenandtransparent trade policy forgoods
andservices, coupled withacomparable investment regime. Thelegalandinstitutional system favours
foreign investment, afactwhich, together withthecountry 'spolitical andmacroeconomic stability,
accounts fortheaverage annual growth rateininvestment flows intothecountry ofsome 34percent
during theperiod 1991-1996. Thisisaclear reflection ofinvestor confidence inChile.
Theforeign investment regime provides access toabroad range ofeconomic activities both
ingoods andservices production, andnon-discriminatory treatment ofnatural andlegal persons is
enshrined inChile'sConstitution.
During theperiod 1991-1996, 40percentofforeign investment went tothemining sector,
while agrowing share, averaging 29percentperannum, wenttotheservices sector, chiefly totourism
andtelecommunications.
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Similarly, starting in1992, there wasasignificant increase inChilean investments abroad.
Thiswasduetonewmeasures aimed atderegulating theexchange market andimportant liberalization
initiatives intherestofLatin America. Thus, close to90percentofChilean investments weremade
inthatregion, principally inthefinancial andservices sectors.
Another formofinvestment thatisontheincrease involves theplacement bycertain Chilean
firms ofADRs (American Deposit Receipts) ontheNewYork Stock Exchange, further contributing
tothepromotion ofthepolicy ofinternationalization andopening upoftheChilean economy.
Onthedomestic front, investment hasremained stable, oscillating between 25percentand
29percentofGDP. Thishasbeenpossible essentially thanks tothesavings ofenterprises andof
contributors topension funds through thePension Fund Administrators (AFP). TheAFPhavethe
authoritytoinvestonbehalfoftheircontributorsinlow-riskassets,therebycontributingtothedynamism
oftheeconomy andtheexpansion ofthestock market.
CONCLUDING REMARKS
Chileisadevelopingcountrywhosemainsourceofgrowthisforeigntrade.Aftergoingthrough
alonganddifficult process oftransforming production during the70sand80s,Chile hasbegun to
consolidate itsdevelopment strategy based onincreased international integration ledbyprivate initiative
andstructured around unilateral, bilateral andmultilateral initiatives.
Themultilateral strengthening oftrade isoneofChile'strade policy priorities. Astrong,
law-based multilateral trade system provides theperfect basis fortheexpansion ofinternational trade
andthebestguarantee thattherights andobligations ofitsmembers willberespected, regardless of
theirsizeandrelative weight.
Chile takes theviewthatthemultilateral trade system canonlybeefficient andcontinue to
grow andacquire strength ifitisbased onlegalregulations. Thisrequires anadded effort toeliminate
from thesystem alltraces ofarbitrary discrimination, suchasthepossibility ofapplying selective
safeguards, anti-dumping duties without proper disciplines, exceptions toMFN treatment intheGeneral
Agreement onTrade inServices andtheproliferation ofquantitative restrictions, particularly in
agriculture. Similarly, recourse tounilateral andextraterritorial measures provided forincertain
domestic legislations undermines theprotection, certainty andstability provided bytherules of
international law.
Aware oftheimportance offreetrade toChile'sdevelopment, theGovernment hasextended
itslegislative reforms tofavour even greater liberalization oftrade ingoods andservices andof
investment flows. ItistheChilean Government 'sintention tocontinue thisliberalization process by
allthemeans placed atitsdisposal bythemultilateral trade system while atthesame timeworking
onthedomestic front tomodernize itsinstruments andinstitutions inconformity withtheobjective
ofpromoting theinternationalization oftheeconomy onthebasis ofastrategy ofdevelopment with
equity.
END