WORLD TRADE
ORGANIZATIONG/SG/N/9/CHL/6/Suppl.1
G/SG/N/10/CHL/5
24 September 2002
(02-5129)
Committee on Safeguards Original:  Spanish
INFORMATION TO BE NOTIFIED TO THE COMMITTEE WHERE A
SAFEGUARD INVESTIGATION IS TERMINATED WITH
NO SAFEGUARD MEASURE IMPOSED
NOTIFICATION UNDER ARTICLE 12.1(c) OF THE AGREEMENT
ON SAFEGUARDS
CHILE
The following communication, dated 20 September 2002, has been received from the
Permanent Mission of Chile.
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Please find attached the notification by Chile, pursuant to Article 12.1(c), concerning the
recommendation of the Chilean investigating authority to apply a definitive safeguard measure onimports of "other fructose and fructose syrup, containing in the dry state more than 50 per cent by
weight of fructose", classified under tariff heading 1702.6090, other than 100 per cent fructose.
In addition, Chile hereby notifies the recommendation not to apply definitive measures and to
terminate the investigation into imports of "glucose  and glucose syrup containing in the dry state at
least 20 per cent but less than 50 per cent by weight of fructose", classified under tariff heading
1702.4000.
The investigation was initiated on 8 June 2002 and notified pursuant to Article 12.1(a) of the
WTO Agreement on Safeguards (G/SG/N/6/CHL/9).  The investigating authority subsequently
decided not to recommend the application of provisional measures on imports of glucose and glucose
syrup classified under tariff heading 1702.4000, while maintaining this product under investigation;and to recommend the application of a provisional ad valorem  tariff surcharge of 14 per cent on
imports of fructose and fructose syrup, classified under tariff heading 1702.6090, as notified in
documents G/SG/N/7/CHL/6 – G/SG/N/9/CHL/6.
At its meeting No. 262 of 30 August 2002, the investigating authority decided to recommend
the application of a definitive safeguard measure in the form of an ad valorem  surcharge of 14 per
cent on imports of fructose and fructose syrup, classified under tariff heading 1702.6090.
The tariff in force in Chile is 7 per cent.  If the safeguard measure recommended (14 per cent)
is introduced, the tariff applied to imports of fructose and fructose syrup of heading 1702.6090 fromthird countries will be 21 per cent.  It should be noted that Chile's bound tariff in the WTO is 25 per
cent.  It should also be pointed out that under Chilean legislation a safeguard measure may be applied
for one year and may be renewed for one additional year at the most.G/SG/N/9/CHL/6/Suppl.1
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1. At its meeting No. 257 of 24 May 2002, the Commission had unanimously decided to initiate
a safeguard investigation into imports of glucose and glucose syrup, and fructose and fructose syrup,
at the request, made on 9 May 2002, of Empresas Iansa S.A. (hereinafter Iansa).  The notice of
initiation of the investigation was published in the Official Journal on 8 June 2002.
2. The products subject to investigation were listed in the application as follows:
(i) Glucose and glucose syrup, classified under tariff heading 1702.3000;(ii) glucose and glucose syrup, classified under tariff heading 1702.4000;
(iii) fructose and fructose syrup, classified under tariff heading 1702.6090.
3. On the basis of the information gathered during the investigation, the Commission
nevertheless decided, at its meeting No. 260 of 5 July 2002, not to recommend the application of any
measures and to terminate the investigation into imports of glucose and glucose syrup, classified
under tariff heading 1702.3000, since it did not consider these products to be direct competitors ofsugar.
4. At its meeting No. 260 of 5 July 2002, the Commission decided not to recommend the
application of provisional measures on imports of glucose and glucose syrup, classified under tariff
heading 1702.4000, although this product will remain under investigation;  and to recommend the
application of a provisional ad valorem  tariff surcharge of 14 per cent on imports of fructose and
fructose syrup, classified under tariff heading 1702.6090.
5. Meeting No. 261 of 2 August 2002 was a public hearing attended by 27 participants,
including, inter alia , representatives of fructose importing companies, sugar production companies,
trade unions, industrial users, trade associations and foreign governments.
6. At meeting No. 262 of 30 August 2002, the Chilean investigating authority:
(i) acting with the unanimity of members present, decided not to recommend the
application of definitive measures on, and to terminate the investigation into, imports
of "glucose and glucose syrup containing in the dry state at least 20 per cent but less
than 50 per cent by weight of fructose", classified under tariff heading 1702.4000,
given that there had been no increase in imports of 42 per cent fructose and its share
of total natural sweeteners used was small;
(ii) by a majority of members present, decided to recommend the application of a
definitive ad valorem  tariff surcharge of 14 per cent on imports of "other fructose and
fructose syrup, containing in the dry state more than 50 per cent by weight of
fructose", classified under tariff heading 1702.6090, other than 100 per cent fructose,
given that the information available made it possible to determine an increase inimports which threatens to cause imminent serious injury to the sugar industry.
7. Precise description of the recommended measure
Definitive ad valorem  tariff surcharge of 14 per cent on imports of "other fructose and
fructose syrup, containing in the dry state more than 50 per cent by weight of fructose", classified
under tariff heading 1702.6090, other than 100 per cent fructose.G/SG/N/9/CHL/6/Suppl.1
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8. Proposed date of introduction of the recommended measure
The definitive measure, if adopted, is expected to come into force in the second half of
September 2002.
9. Proposed duration of the recommended measure
The definitive safeguard measure, if adopted, will remain in force for a maximum of one year,
counted from the date of entry into force of the provisional measure, i.e. 30 July 2002.  This definitive
measure may be extended for a maximum of one year.
10. Non-application of the measure pursuant to Article 9.1 of the Agreement on Safeguards
The recommendation was that the proposed measure, if applied, should not be applied against
developing country Members of the World Trade Organization whose indivi dual share of overall
imports, over the two-year period August 2000 to July 2002, had not exceeded 3 per cent, providedthat those Members collectively accounted for no more than 9 per cent of total imports, as established
in Article 9.1 of the Agreement on Safeguards.
11. Information on import trends, injury factors and causation in respect of the products
investigated:
Imports
The imports under investigation are mostly concentrated under the tariff heading
corresponding to fructose of heading 1702.6090, which in 2001 accounted for 90 per cent of totalimports.  In the first seven months of 2002, 94 per cent of imports came under the main tariff heading.
It emerges from the information gathered that, under the various headings, the products
specifically competing with sugar, i.e. 42 per cent  fructose and 55 per cent fructose, display different
levels of representativeness.  Under the main tariff heading, i.e. 1702.6090, 55 per cent fructose is
representative, with a share of around 95 per cent, whereas that of 42 per cent fructose does not
exceed 45 per cent in 2001 and 2002 (as at July).
In view of the above, the imports considered correspond to a part of heading 1702.4000
identified on the basis of information contained in the import declarations in order to highlight the
specific situation of 42 per cent fructose, and to heading 1702.6090 as a whole, because of the
representativeness of 55 per cent fructose.
Thus it was noted that imports of 42 per cent fructose (tonnes) declined by 30 per cent in the
first seven months of 2002 in relation to the same period the previous year.  A negative change of
-31 per cent was also recorded in this respect for 2000/2001.  The imports/domestic production ratio
for this product was 0.2 per cent for January-June 2002, i.e. a value similar to that recorded for thesame period the previous year.  The ratio had decreased from 0.5 per cent to 0.3 per cent in
2000/2001.
On the other hand, imports of 55 per cent fructose (tonnes) grew in the period January to July
2001/2002 and between 2001 and 2002, with values of 44 per cent and 65 per cent, respectively.  Theimports/domestic production ratio for this product stood at 8 per cent in the first half of 2002, i.e.
higher than those recorded in the period 1999-2001 and confirming an upward trend.G/SG/N/9/CHL/6/Suppl.1
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Injury and causal link
To ascertain whether there may be injury attributable to the imports at issue in the application,
all the information furnished by the applicant company, such as domestic prices, production costs,production, domestic sales, inventories, financial background, installed capacity and use thereof,
productivity and employment, is analysed.
Domestic prices of sugar in the industrial sector in UF ( unidades de fomento  - Chilean
inflation-indexed monetary units) show 2.5 per cent  growth in the period January to June 2001/2002
and 8.6 per cent in 2000/2001.  US dollar prices declined in the period 1999/2001, and the trend was
maintained in the first half of 2002.  This is reflected by the percentage changes of -6.9 per cent in theperiod January to June 2001/2002 and of -5.2 per cent in 2000/2001.
The unit cost of production in UF rose 3.7 per cent in the period 2000/2001;  expressed in
US dollars, it fell 8.6 per cent in this period.
Sugar production is seasonal and concentrated in the period April to September, which
coincides with the sugar beet harvest.  Sugar for the industrial market and sugar for the household
market are the same product, with an identical production process.  All the sugar, regardless of its
final destination, is stored in bulk in the applicant company's warehouses or silos.  A very small
proportion of the sugar is packaged, this being done as orders flow in.  Hence production cannot beseparated according to destination sector.
The three-month production period April-June 2002 compared with the same period in 2001
shows 11 per cent growth, which seems to confir m the trend towards recovery following the 1999
downturn.  In this connection, ODEPA's July 2002 "Monthly Report on productivity and tradedynamics" points to a significant increase in sugar beet productivity in 2002; domestic sugar
production will thus exceed that of the previous year.
It should also be mentioned that Iansa is both a sugar producer and importer, and sales of
imported sugar as a percentage of total sales dropped from 1999 to 2002 (as at June).
Account was taken of the fact that sales to the industrial sector represent around 53 per cent of
the company's total sugar sales (average for 1999-2002) and that these suffered a decline in both 2000
(-14 per cent) and 2001 (-2 per cent).  The period January to June 2001/2002 also saw a 10 per cent
fall.
Inventories increased by 36 per cent between June 2001 and June 2002, partly as a result of
Iansa's increased production, imports by the company itself and the decline in its sales, inter alia .
Again, given the homogeneity of the product, inventories cannot be separated according to destination
sector (industrial/household).
The contribution margin for sugar and the operating results of the sugar industry, which
encompasses sugar and its by-products, was taken into consideration.  Expressed in Chilean pesos, the
contribution margin for sugar rose by 36 per cent in 2000/2001.  The variation also increased by
18 per cent over the period January to June 2002 in relation to the same period the previous year.
Operating results declined between January and July 2001/2002, although the figures remained
positive in both cases.
It was noted that the installed capacity of Iansa S.A. remained stable between 1999 and 2002.
Conversely, its use has been increasing in recent years, with a rise from 74 per cent in 1999 to 83 per
cent in 2001.G/SG/N/9/CHL/6/Suppl.1
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Total employment (permanent and temporary staff) in the sugar industry grew by 1.3 per cent
in 2001 and stabilized in the wake of the 14 per cent fall in 1999/2000.
Apparent consumption of natural sweeteners was calculated on a global – industrial and
household use – basis (since, owing to its homog eneity, sugar cannot be separated according to
destination sector with regard to production, inventories and imports) and expressed in terms of sugar
equivalent on the basis of the average conversion factors furnished by Iansa and Inducorn.  This
variable increased by 5.4 per cent in the first half of 2002 in relation to the same period the previous
year, reflecting increased production and imports.  The figures indicate a 0.6 per cent decline between
2000 and 2001, which points to a relatively stable level of consumption of around 660,000 tonnes of
sugar equivalents.
Production and employment figures for the sugar industry show that average productivity
increased between 1999 and 2001 and indicate a 29 per cent variation over this period.
For causation purposes, the share in apparent consumption of imports and a trends analysis of
domestic production prices versus import prices were taken into consideration.
As regards the share of imports of 55 per cent fructose and 42 per cent fructose in apparent
consumption of natural sweeteners, calculated using figures in sugar equivalent based on average
conversion factors, an increase from 0.6 per cent in 1999 to 5.3 per cent in 2001 was observed for thefirst product.  This upward trend is confirmed by the 6.3 per cent value recorded in the first half of
2002.  The share of imports in the second product is smaller, consistently standing at under 0.5 per
cent over the period 1999 to June 2002.
The average import prices in US dollars c.i.f. for the products under investigation fell 2.7 per
cent for tariff heading 1702.4000 and 1.2 per cent for tariff heading 1702.6090 in the first seven
months of 2002 in relation to the previous year.  In 2000/2001, the price trend was not homogeneous,
given that tariff heading 1702.4000 saw a 3.5 per cent increase, whereas tariff heading 1702.6090 fell
by 0.7 per cent.
Furthermore, the price series of the products imported under tariff headings 1702.4000 and
1702.6090 and the domestic price of sugar in the industrial sector, expressed as a ratio, can be seen tofollow similar courses of development, that is to say, in general terms, relative stability from 1999 to
2000, followed by growth in 2001 up until the last qua rter, when the trend began to reverse.  This is
corroborated by the high correlation coefficients obtained in measuring both series of import prices
against the price of domestic industrial sugar.
The relationship between the domestic prices of industrial sugar and the import prices of the
products under investigation (c.i.f. plus tariffs and estimated import costs) was also taken into
consideration for the period 1999 to May 2002 in US dollars/tonne of sugar equivalent, based on an
average of the conversion factors provided by Iansa and Inducorn.  The results show that the price
gaps have diminished over time, the price of 55 per cent fructose in 2002 remaining below the price ofsugar, unlike the price of 42 per cent fructose, which has exceeded the price of sugar since 2001.  A
similar comparison was made between the domestic price levels of industrial sugar and the sales price
in Chile of the imported 55 per cent fructose.  In this case, the price of fructose was also lower, but the
gap was smaller than in the previous case and, having diminished over time, closed in 2002.
It was also considered appropriate to analyse factors other than the increase in the imports
under investigation and which could also have affected the domestic industry.
In this framework, the pattern of imports of refined sugar was assessed.  In the first seven
months of 2002, they rose by 50 per cent in relation to the same period the previous year to total justG/SG/N/9/CHL/6/Suppl.1
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over 128,000 tonnes.  The level of activity of some sweetener user industries was also studied, in
particular ANBER's physical production indices for the "beverages" and "juices" sectors, which
reflect a relatively stable trend in the period January 1999 to June 2002.
The investigating authority recommended the safeguard measure because the information
gathered in the course of the investigation enabled it to determine an increase in imports threatening
to cause imminent serious injury to the sugar industry.  As regards 100 per cent fructose, this product
was reported as not directly competing with sugar in  the industrial sector, as explained in the general
background section.
The nature of the threat of injury is based on the fact that domestic sugar is an industrial
by-product of sugar beet, which is an agricultural product and, as such, subject to an unavoidable
climatic cycle:  soil preparation from May to July, sowing at the beginning of August and harvesting
as from the following March.  As a result, at the end of May, the beginning of each production season,
the sugar industry ensures the supply of its main input by way of contracts with producers, which are
subject to negotiation and determination of the price payable at the time of harvesting.
It ensues that the loss from any fall in the pr ice of sugar on the market at the time of the beet
harvest in relation to the values of the industrial product agreed upon when the contracts were signed,
has to be absorbed by the industry.
Such is the situation currently facing the a ppellant company, owing to the significant and
growing increase in imports of fructose at a price lower than that of sugar – an unexpected
phenomenon triggered by Argentina's current economic situation, and in particular by the export
pressure generated by the depreciation of its currency.  In addition, there is the expectation of higher
sugar production levels in 2002 according to ODEPA estimates, a situation programmed in the first
half of 2001 at a time when it was impossible to foresee the recent rhythm of increase in these
imports.
The aforementioned context would point to an oversupply of natural sweeteners, given the
relative stability in consumption levels, causing the lower price of imported syrup to prevail in the
market over that of domestic sugar and thus creating an imminent risk of the sugar industry not being
able to sell its product at the prices needed to co ver its costs.  The industry would thus be faced with
making an economic loss by selling below cost or postponing the sale of the product for a
considerable length of time and bearing the burden of the storage costs, with much the same result.
The available information reveals that the alternative of stockpiling to prevent prices falling
below cost level would force the company to have a greater amount of sugar than normal in storage atthe beginning of the next harvest, thereby incurring high costs, as pointed out above.  In fact, by June
2002 already, stocks exceeded those of the past few years (1999/2001) by more than 30 per cent, with
further growth anticipated over the rest of the year.  Moreover, the sale of surplus sugar – at a lower
price – would entail substantial losses for the sugar company.
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