Chile WT/TPR/S/28
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II. TRADE AND INVESTMENT POLICY REGIMES: FRAMEWORK AND OBJECTIVES
(1) Trade Policy
(i) Trade policy objectives
1. Chile'smain trade policy objective istocontinue itsintegration intotheglobal economy, in
order toencourage productivity growth andallow local producers greater access totechnology and
capital goods. TheGovernment 'sgeneral tradepolicy hasbeenpursued through multilateral, regional
andbilateral tradenegotiations. Since 1990, therehasbeenanincreasing emphasis onthenegotiation
ofregional agreements which seektoreduce bothtariff andnon-tariff barriers, andtoadopt common
regulations inareas suchastechnical standards, trade inservices, anddispute settlement. However,
theunilateral liberalization which hasserved thecountry sowellinthepastwillcontinue, through
thefurther reduction oftariffs noted inChapter I.Chile willalsocontinue itsactive participation in
multilateral negotiations within theframework oftheWTO.
2. Since thebeginning ofthe1990s, Chile'stradepolicy hasbeencharacterized bytheauthorities
asoneof"open regionalism", which seeks toensure thatnotrade agreement limits thefreedom to
negotiate further agreements orcreates more obstacles vis-à-vis other trading partners. Theauthorities
stated thatafundamental element ofthispolicy isthatregional and/or bilateral agreements should
become astepping stone towards amore open andtransparent trade system; theyconsider trade
liberalization within themultilateral trading system astheirfirstpriority.
3. Intheauthorities 'view, more open international markets arerequired toenable Chile, a
medium-size openeconomy, tocontinue expanding itsvolume oftrade anddiversifying itsmarkets;
thusmultilateral liberalization isofutmost importance. Inaddition, thenegotiation ofbilateral
agreements allows Chile toensure niches foritsexports; theauthorities consider bilateralism and
multilateralism ascomplementary.
4. Atthemultilateral levelChile willensure theimplementation ofitscommitments under the
Uruguay Round negotiations andwilltakeanactive roleinfuture negotiations inorder tofurther
liberalize trade andreduce discrimination.
5. Chile'stradepolicy isbased ontheprinciple ofneutrality, non-discrimination andtransparency;
however, preferential regimes forcertain regions andsectors arestillinforce. Onahorizontal basis
preferential regimes apply todisadvantaged regions. Specific sectoral policies benefit theautomotive
sector,"non-traditional"exportsandcertainagriculturalproducts(ChapterIV).Accordingtogovernment
sources, efforts arebeing made todismantle some ofthese regimes (e.g., prohibited subsidies and
local-content requirements), since, asnotified totheWTO, theyentail policies thatarenotinaccordance
withtheWTO Agreements (Chapter III).
(ii) Institutional andlegalframework
6. Theprocess ofParliamentary approval oflaws, which hasnotchanged since1990, isstipulated
intheConstitution of1980 andtheOrganic Constitutional Law oftheNational Congress,
LawNo.18.981. Abillcanoriginate intheChamber ofDeputies, ortheSenate, byamessage sent
bythePresident oftheRepublic, orbyamotion ofanymember. Once thebillisdiscussed andapproved
intheChamber where itoriginates, itispassed totheother Chamber forapproval. Thelawisthen
submitted tothePresident oftheRepublic, whopromulgates itthrough aSupreme Decree.WT/TPR/S/28 Trade Policy Review
Page 18
7. International treaties presented totheCongress bythePresident oftheRepublic undergo the
same procedures asadomestic bill. Asshown inBoxII.1,international treaties inChile havethe
status ofanordinary law,butcannot beamended unilaterally.
BoxII.1: Ranking ofChilean Laws
1. TheConstitution establishes thepowers andresponsibilities oftheState andtheessential rights
oftheinhabitants.
2. Laws interpreting theConstitution must beapproved, amended orrepealed bythree fifths of
serving deputies andsenators.
3. Constitutional Organic Laws (LOC) areenacted onlyformatters specified bytheConstitution,
andbefore entering intoforce must beexamined bytheConstitutional Court. Thevotes offour
sevenths ofserving deputies andsenators arerequired toadopt, amend orrepeal them.
4. Qualified Quorum Laws maybeestablished, amended orrepealed byanabsolute majority of
serving deputies andsenators.
Ordinary Laws, Decrees withForce ofLaw, Decree Laws, andInternational Treaties allhave thesame
status:
5. Asimple majority ofthevotes castbymembers ofparliament present onthedaywhen abillis
voted isrequired topassordinary laws.
6. Decrees withForce ofLawareissued bytheExecutive Power onthebasis oflaws enacted by
Congress delegating powers tothePresident oftheRepublic.
7. Decree Laws areissued bytheExecutive Power without Congress insituations ofconstitutional
abnormality. They have theforce ofordinary laws.
8. International Treaties have thestatus ofordinary laws, since theyundergo thesame approval
process.
9. Decrees constitute theexercise oftheregulatory power ofthePresident oftheRepublic to
develop theprovisions oflawsorlaydown regulations formatters thatdonothave thestatus of
law,andtherefore theyalways rankbelow ordinary laws. Decrees areissued bythePresident
oftheRepublic with thesignature oftherespective minister orsigned only bytheminister
provided theybearthewording "byorder ofthePresident oftheRepublic". TheOffice ofthe
Comptroller-General oftheRepublic checks these public administration actsbyreviewing their
legality, inother words, bygiving afavourable legal opinion (Article 88oftheConstitution).
Decrees maybesubject toorexempt from suchlegal opinion. "Exempt" means thatthedecree
does notundergo thisprocedure (inorder tospeed upissuance ofthedecree), butthisdoes not
exempt itfrom subsequent review bytheComptroller-General.
10. Resolutions areadministrative actsissued bytheHeads ofPublic Services. Resolutions toomay
beexempt from orsubject totheabove legal opinion.Chile WT/TPR/S/28
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(iii) Trade policy formulation
8. Since1990therehavebeennochangesinthestructureoftradepolicyformulation.ThePresident
oftheRepublic remains incharge oftheformulation andimplementation oftrade-related policies mainly
through theMinistries ofFinance; Economy, Development andReconstruction; andForeign Relations
(through theGeneral Directorate ofInternational Economic Affairs). TheCentral Bank ofChile has
certain trade-related functions, though itsmainmandate ismonetary policy.1There isclosecoordination
between theCentral Bank andtheMinistry ofFinance, which isincharge offiscal policy including
thetariffregime. Theimplementation oftradepolicy fallsmainly under thejurisdiction oftheMinistry
ofFinance, theGeneral Directorate ofInternational Economic Affairs andtheMinistry ofEconomy.2
9. In1992 anInterministerial Committee forInternational Economic Negotiations wascreated
toadvise thePresident inmatters regarding international economic negotiations. TheCommittee is
chaired bytheMinister ofForeign Relations; itsmembers aretheMinister ofFinance, theMinister
ofthePresidency, andtheMinister ofEconomy, Development andReconstruction. Twoadditional
committees werecreated tosupport theInterministerial Committee; theNegotiation Committee and
theCommittee forParticipation ofthePrivate Sector.
10. TheCommittee fortheParticipation ofthePrivate Sector isapermanent advisory bodywhose
function istoinform theprivate sector oftheprogress ofinternational negotiations andlearntheviews
ofthesector. ThisCommittee ischaired bytheMinister ofEconomy, Development andReconstruction
andcomprisestheMinisterofForeignRelations,theMinisterofFinance,theMinisterofthePresidency,
theMinister ofAgriculture, theDirector General ofInternational Economic Relations oftheMinistry
ofForeign Relations, tworepresentatives oftheprivate sector, tworepresentatives oflabour unions,
andthree experts inthefieldofinternational negotiations.3There arenoindependent bodies that
formally advise theGovernment regarding trade policy.
(iv) Trade lawsandregulations
11. Themost important change inChilean trade lawsandregulations, since 1990, hasbeenthe
adoption oftheWTO Agreements. These wereincorporated intodomestic lawviaaSupreme Decree
issued bythePresident after Congressional adoption, andpublished intheOfficial Journal of
17May1995 (Supreme Decree No.16).
12. Thus, inaccordance withtheconstitutional andstatutory provisions inforce inChile, theset
ofagreements which make uptheFinal ActoftheUruguay Round form anintegral partofnational
legislation withthestatus ofanordinary law. While theWTO Agreements havethesame normative
status asdomestic legislation, theytakeprecedence iftheycontain agreater degree ofspecificity, when
covering thesamesubjects. Moreover, theWTO Agreements wereenacted aftertheprevailing relevant
domestic legislation, thustheprinciple oftacitderogation applies. However, thisdoesnotdetract from
1TheCentralBankprovidestheTechnicalSecretariatfortheCommissioninchargeofinvestigatingdistortions
intheprice ofimported goods forcontingency trade measures (Chapter III).
2TheDirectorateofExportPromotionandMarketingAssistance(PROCHILE)ispartoftheGeneralDirectorate
ofInternational Economic Affairs (Chapter III(3)(xiv).
3Decree No.419, 7April 1995.WT/TPR/S/28 Trade Policy Review
Page 20
thevalidity ofthose provisions ofanexisting lawthatdonotconflict withorcontradict newer laws
(Article 52and53oftheCivil Code). TheWTO Agreements canbeinvoked intheChilean courts
since theyhavetheforce oflaw.
13. Notwithstanding theabove, theauthorities noted thatsomepieces ofnational legislation required
amendment tomake themconsistent withtheWTO Agreements. Tothisend,twobillsarecurrently
before Congress. Oneisaimed atmodifying Law18.525, regarding definitions, criteria, andprocedures
tocarry outanti-dumping investigations, sothatthislegislation would beinaccordance withthe
Agreement ontheApplication ofArticle VIofGATT 1994andtheAgreement onSubsidies regarding
countervailing duties. Another isaimed atmodifying theCompendium ofCustoms Regulations to
adapt ittoCustoms Valuation Code ofGATT 1994. Chilean intellectual property lawwillalsobe
amended toconform totheTRIPS Agreement; Chile hasuntiltheyear2000tomodify thislegislation
(Chapter III).
14. There arenobillstoannul theAutomotive Statute andtheprohibited subsidies thathavebeen
notified totheSecretariat. However, Chile hasuntil2000 and2003 respectively todismantle these
programmes; moreover, some ofthese measures arescheduled toexpire in1998 (Chapter III).
(v) Trade relations
(a) World Trade Organization
15. Supreme Decree No.16oftheMinistry ofForeign Relations, published on17May1995,
enacted theMarrakesh Agreement. Under theSingle Undertaking, theWTO Multilateral Agreements,
became binding onChile;4Chile isnotasignatory ofthePlurilateral Agreements.5When necessary,
Chile ismaking useofthetransition periods available tothedeveloping countries, toamend its
legislation. Forinstance, Chile hasdelayed theapplication oftheprovisions oftheAgreement on
Implementation ofArticle VIIofGATT 1994(customs valuation) forfiveyears andreserved theright
toretain established minimum values onalimited andtransitional basis.6
16. Table II.1shows Chile'scompliance withthenotification requirements under theWTO
Agreements asatJuly1997.
17. Theauthorities considered thatitistooearly toassess theeffects oftheUruguay Round on
Chile; however, theybelieve thattheimplementation oftheWTO Agreements could onlybring benefits
toacountry likeChile, which relies heavily ontrade. This isbecause, ontheonehand, the
implementation oftheWTO Agreements isreducing thetendency toadopt discriminatory protectionist
policies atthesectoral level, while, ontheotherhand, tradeinstitutions andorganizations atthedomestic
levelarebeing reinforced. Theauthorities areconfident thattheimplementation ofthecommitments
accepted intheUruguay Round willstrengthen thebasis forgrowth inChile'strade.
4Under GATT, Chile hadaccepted theTokyo Round Agreements covering Technical Barriers toTrade;
Interpretation andApplication ofArticles VI,XVI, andXXIII oftheGATT (Subsidies Code); Import Licensing
Procedures; andtheAgreement onImplementation ofArticle VIIoftheGATT (Customs Valuation Code).
5ChilehadobserverstatusintheAgreemen tonGovernmentProcurement;theArrangementRegardingBovine
Meat; andtheInternational Dairy Arrangement. Chile didnotparticipate intheAgreement onTrade inCivil
Aircraft (GATT, 1991).
6WTO document WT/LET/1/Rev.1, 28December 1994.Chile WT/TPR/S/28
Page 21
Table II.1
Chile'snotifications under WTO Agreementsa
Agreement Article/instrument
imposing obligationWTO document -date
(lastdocument ifnotification
isperiodic)Description ofrequirement
Agreement onAgriculture Articles 10and18.2 G/AG/N/CHL/1 -04.04.96 Tables ES:2 -Export subsidies (1995).
Articles 10and18.2 G/AG/N/CHL/2 -22.04.96 Tables ES:1 -Export subsidies (1995).
Article 18.2 G/AG/N/CHL/3 -24.06.96 Table DS:1 andasappropriate
supporting tables DS:1 toDS:9 -
Domestic support (1995).
Articles 10and18.2 G/AG/N/CHL/4 -06.02.97 Table ES:2 -Export subsidies (1996).
Articles 10and18.2 G/AG/N/CHL/5 -24.02.97 Table ES:1 -Export subsidies (1996).
Article 18.2 G/AG/N/CHL/6 -21.04.97
G/AG/N/CHL/6/Rev.1 -
07.07.97Table DS:1 andasappropriate
supporting tables DS:1 toDS:9 -
Domestic support (1996).
Anti-dumping (Agreement on
Implementation ofArticle VI
oftheGATT 1994)Article 16.5 G/ADP/N/14/Add.1 -
05.08.96Notification ofcompetent authorities.
Article 16.4 G/ADP/N/22/CHL -20.02.97 Semi-annual reports.
Article 18.5 G/ADP/N/1/CHL/1 -
06.03.95Incorporation ofAgreement innational
legislation.
Article 18.5 G/ADP/N/1 -30.01.95 Notification oflawsandregulations.
Customs Valuation
(Agreement on
Implementation ofArticle VII
oftheGATT 1994)Art20.1 WT/LET/1/Rev.1- 28.12.94 Acceptance ofMarrakesh Agreement
establishing theWTO. Chile is
utilizing themaximum time limits
provided fortheapplication of
Article VIIofGATT 1994.
General Agreement onTrade
inServices (GATS)Article VII:4 S/C/N/8 -22.12.95 Notification ofrecognition ofdiplomas.
Articles III:4orIV:2 S/ENQ/18 -12.08.96 Notification ofcontact points.
General Agreement onTariffs
andTrade (GATT) 1994Article XXVIII:5 G/MA/24 -08.01.97 Reservation ofrighttomodify schedule
andconcessions.
Agreement onImport
Licensing ProceduresArticles 1.4(a) &8.2(b)) G/LIC/N/1/CHL/1 -31.07.96 Notification ofpublications, lawsand
regulations.
Article 7.3 G/LIC/N/3/CHL/1 -05.06.96 Replies toquestionnaire onprocedures.
Agreement onPreshipment
InspectionArticle 5 G/PSI/N/1 -14.03.95 Firstnotification oflawsand
regulations.
Quantitative Restrictions
(Decisions onNotification
Procedures forQuantitative
Restrictions)Decision oftheCouncil
forTrade inGoods
(G/L/59)G/MA/NTM/QR/1/Add.2 -
09.10.96Initial andbiennial reports
Agreement onRules ofOrigin Article 5.1and
Annex II(4)
Article 5.1and
Annex II(4)G/RO/N/12 -01.10.96
G/RO/N/6 -19.12.95Firstnotification ofnon-preferential
andpreferential rules.
Non-preferential andpreferential rules.
Table II.1(cont'd)WT/TPR/S/28 Trade Policy Review
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Agreement Article/instrument
imposing obligationWTO document -date
(lastdocument ifnotification
isperiodic)Description ofrequirement
Agreement onSafeguards Article 12.6 G/SG/N/1/CHL/1 -26.04.95 Notification oflawsandregulations.
Sanitary andPhytosanitary
Measures (Agreement onthe
Application of)Article 7,Annex B G/SPS/N/CHL/1 -24.05.96 Transparency ofregulations.
State Trading (Understanding
ontheInterpretation of
Article XVII oftheGATT
1994)Article XVII:(4)(a) G/STR/N/1/CHL -22.12.95 Annual state-trading activities.
Article XVII:(4)(a) G/STR/N/2/CHL -05.06.96 Annual state-trading activities.
Agreement onSubsidies and
Countervailing MeasuresArticle 25.11 G/SCM/N/12/Add.1/Rev.1 -
22.04.96Semi-annual report oncountervailing
actions.
Article 25.1- GATT 1994
Art.XVI:1G/SCM/N/16/CHL -23.10.96 Annual report onsubsidies.
Article 25.1- GATT 1994
Art.XVI:1G/SCM/N/16/CHL/Corr.1 -
27.11.96Annual report onsubsidies.
Article 25.1- GATT 1994
Art.XVI:1G/SCM/N/16/CHL/Corr.2 -
15.04.96Annual report onsubsidies.
Article 25.12 G/SCM/N/18/Add.1 -
05.08.96Notification competent authorities.
Agreement onTechnical
Barriers toTradeArticle 15.2 G/TBT/2/Add.16 -22.07.96 Notification oflawsandregulations.
Annex 3(c) G/TBT/CS/N/15 -16.10.95 Acceptance ofCode ofGood Practice
onvoluntary standards.
Agreement onTextiles and
ClothingArticle 3.1 G/TMB/N/78 -01.03.95 Non-MFA restrictions.
Article 6.1 G/TMB/N/125 -30.06.95 Chile willnotavail itself ofitsrightto
usethesafeguard mechanisms.
Agreement onTrade-Related
Aspects ofIntellectual
Property RightsArticle 69 IP/N/3 -14.02.96 Notification ofcontact points.
Agreement onTrade-Related
Investment MeasuresArticle 5.1 G/TRIMS/N/1/CHL/1 -
19.01.96Notification ofTRIMs inconsistent with
theAgreement.
Article 6.2 Nodocument number -
01.04.97Pending acceptance oftheTRIMs
Committee.
a Reflects notifications recorded intheCentral Registry ofNotifications asof4July1997; thussome notifications maynotbe
included duetoprocessing lags.
Source: WTO Central Registry ofNotifications.Chile WT/TPR/S/28
Page 23
18. Inaddition, asmajor outcomes oftheUruguay Round negotiations, theauthorities noted:
(i)availabilityofbetterinformationregardingmarketaccessthroughthecommitmentsofotherMembers
andthenotificationprocedures;(ii)greatertransparencyinthetradingsystemresultingfromtheadoption
ofacommon setofrules, which hasinturndiminished distortions; (iii)strengthening ofthedispute
settlement mechanism, which gives more security toChilean exporters; and(iv)newdisciplines
established fortradeinservices andinintellectual property matters, which willhaveimportant effects
oninvestment flows.
19. However, theauthorities considered thatthelimited degree ofliberalization inimportant sectors
suchasagriculture, andtextiles andclothing, lowers thepotential benefits oftheUruguay Round.
Furthermore, themaintenance ofaweak discipline regarding theimplementation ofanti-dumping
measures isseenasworking against thefullbenefits ofmarket liberalization.
20. Chilehasnodomesticlegislationforconductingconsultationsornegotiationswithtradingpartners
incaseofdisputes. However, thebilateral tradeagreements signed byChile since1990provide dispute
settlement provisions (seebelow), andChile alsoresorts totheGATT/WTO dispute settlement
mechanism, ifrequired. Chile hasusedthedispute settlement mechanism oftheGATT/WTO in
three cases andtheEUrequested consultations withChile inoneinstance.
(b) Chile'sinvolvement inGATT/WTO Dispute Settlement
21. In1993, apanel wasestablished toexamine under GATT Article XXIII:2 Chile'scomplaint
concerningtherestrictionsimposedbytheEuropeanEconomicCommunity(EEC)onimportsofapples.
Chile requested thatthepanel toexamine twoissues: (i)whether theapplication ofthecountervailing
charges linked toreference prices wereconsistent withtheprovisions ofArticles II,XII,XIIIandother
provisions oftheGeneral Agreement; and(ii)whether thesurveillance mechanism forimports ofapples
fromthirdcountries established bytheCommission Regulation (EEC, No.348/93) wasconsistent with
theGeneral Agreement, specifically Articles II,VIII, XI.7However, Chile andtheEEC reached a
mutually satisfactory settlement andtherefore Chile withdrew itscomplaint.8
22. In1993, Chile associated withBrazil, Colombia, ElSalvador, Guatemala, Thailand and
Zimbabwe, wasacomplainant inadispute under GATT Article XXIII:1, which ledtoapanel. The
dispute wasinrelation totheintroduction oflegislation intheUnited States restraining theuseof
imported tobacco inthemanufacture ofcigarettes to25percent,which according tothecomplainants
andthepanel conclusions violated Article III:5andother relevant provisions ofGATT.9
23. In1995, Chile, withPeruandCanada, brought acomplaint totheWTO concerning aFrench
Government Order laying down anofficial name andtrade description forscallops. Theclaim was
thatthisOrder would reduce competitiveness intheFrench market astheimported Chilean scallops
7GATT Document DS39/2, DS41/2, 9July1993.
8GATT Document DS39/R, 20June 1994; fordetails ofthesettlement seeGATT Document DS39/4,
20June 1994.
9GATT Document DS44/2, 8September 1993 andformore information onthiscaseseeGATT documents:
DS44/1, 7September 1993; DS44/5, 7December 1993; DS44/9, 15February 1994; DS44/9/Rev.1,
28February 1994; DS44/R, 12August 1994.WT/TPR/S/28 Trade Policy Review
Page 24
would nolonger besoldas"coquille Saint-Jacques ",although there isnodifference between Chilean
scallops andFrench scallops interms ofcolour, size,texture, appearance anduse,i.e.itwasclaimed
thattheywere"likeproducts".10Itwasconsidered thattheFrench measures wereinconsistent with
theprovisions oftheAgreement onTechnical Barriers toTrade (Articles 2.1and2.2)andwithArticles I
andIIIoftheGATT 1994.11Apanel wasestablished todiscuss thecomplaint but,theconcerned parties
came toamutually acceptable agreement.12Scallops must bemarketed inFrance under thename
"Saint Jacques "or"noixdecoquilles Saint Jacques "oranyothercombination ofthetermSaint Jacques
consistent withthenature oftheproduct, followed bythescientific name ofthespecies. Thecountry
oforigin must beindicated inclearly visible lettering onthesame sideofthelabelasthename but
notnecessarily immediately adjacent thereto.13
24. In1994, theEuropean Communities requested consultations with Chile under GATT
Article XXII:1 withrespect tothetaxation ofdistilled spirits inChile (i.e.theadditional tax(impuesto
adicional))of70percentimposedonimportedwhisky,and30percentonimportedliqueurs,compared
withtherateof25percentforpisco.14TheECconsidered thatthisconstituted abreach ofChile's
"national treatment" obligations under Article IIIoftheGeneral Agreement, byproviding discriminatory
protection toadomestic industry.15Theconsultations were interrupted fortheUruguay Round.
However,on11June1997theEuropeanCommunitiesrequestedconsultationswithChileunderArticle4
oftheUnderstanding onRules andProcedures Governing theSettlement ofDisputes andArticle XXII:1
oftheGATT 1994 regarding thespecial salestaxonspirits inChile. Inparticular, Chile appears to
impose alower taxonpisco thanoncertain other likespirits imported fromtheEuropean Community.16
(c) Regional agreements
25. Since 1990Chile hassigned economic complementarity agreements under theLatin American
IntegrationAssociation(LAIA)withMexico(1991),Bolivia(1993),Venezuela(1993),Colombia(1993),
Ecuador (1994), andMERCOSUR (1996); afree-trade agreement withCanada (1996); anda
Framework Co-operation Agreement withtheEuropean Union (1996). Chile isalsoamember ofthe
Asia-Pacific Economic Community (APEC).
10WTO document WT/DS/14/1, 31July1995.
11WTO document WT/DS14/1, G/L/18 G/TBT/D/2, 31July1995.
12WTO document, WT/DS12/12, WT/DS14/11, G/L/94, G/TBT/D/9, 19July1996.
13WTO document WT/DS12/12, WT/DS14/11, G/L/94, G/TBT/D/9, 19July1996.
14These taxes arestilllevied onbothdomestic andimported whisky andliqueurs (Chapter III).
15TheEuropean Community claimed thatwhisky, aswellasother (imported) spirits, andpisco are"like",
oratleastdirectly competitive orsubstitutes. Thus, theapplication ofconsiderably lower internal taxes byChile
onpisco thanonother "like" ordirectly competitive orsubstitute products, hadtrade-distorting effects which
amount to,inter alia,affording protection todomestic production ofpisco (GATT Document DS53/1,
9December 1994).
16WTO document WT/DS87/1, 11June 1997.Chile WT/TPR/S/28
Page 25
Mexico, Bolivia, Venezuela, Colombia andEcuador
26. Thecomplementarity agreements withMexico, Bolivia, Venezuela, Colombia, andEcuador
include regulations regarding rules oforigin, safeguard measures, unfair trade practices, taxation,
investment,governmentprocurement,maritimeandairtransport,disputesettlement,etc.Theagreement
withBolivia alsocontains provisions fortechnical cooperation andthecreation ofacommittee toadvise
enterprises; while those withColombia andEcuador include phytosanitary andzoosanitary measures.
27. Theagreements withMexico, Venezuela, Colombia andEcuador aimatestablishing freetrade
formore than90percentofalltariff linesby1January 2000.17Asshown inTable II.2, inthe
fouragreements goods havebeenclassified insixgroups (fiveinthecaseofMexico) inorder toschedule
theprogramme ofgradual tariff reduction. Themajority ofthegoods areintheGeneral Part. The
Annexes include: (i)sensitive goods withlonger tariff-phase-out periods; (ii)goods covered under
former LAIA preferential agreements; (iii)goods whose tariffs willnotbephased-out; and
(iv)automotive products.
28. Theagreement withBolivia doesnotenvisage freetrade, since thetariffs applied toonly
80products willbereduced to0percentonabilateral basis. Chile will,onaunilateral basis, eliminate
tariffs on12additional products, including refined vegetable oils,ceramics, refined sulphur andcotton
thread. These concessions willbemaintained foraperiod offiveyears andarelimited toanannual
imports value ofUS$30 million.
29. Alltheseagreementsprovideadisputesettlementmechanism;however,whenpossible,disputes
arefirstsubject tobilateral consultations intheAdministrative Commission (thebodywhich administers
theLAIA agreements), without having toappeal toanarbitration tribunal. Forinstance, Chile was
involved inadispute, in1994-95, when Venezuela complained about Chilean exports ofgarlic and
chicken. However thedispute never wentbeyond theconsultation phase. Mexico initiated adumping
investigation regarding Chilean exports offishmeal, buttheinvestigation wasconcluded withnofinding
ofacausal linkbetween asmall degree ofdumping andtheinjury.
MERCOSUR
30. In1996, Chile signed anEconomic Complementarity Agreement withMERCOSUR. Themost
important aspect oftheAgreement istheestablishment offreetrade foratleastthreequarters oftariff
lines, by1January 2006 (i.e.tenyears aftersigning oftheAgreement), andfreetrade foralltariff
linesby2014. Liketheother LAIA agreements, thiscontains regulations regarding rules oforigin,
safeguards,unfairtradepractices,non-tariffrestrictions,competitionpolicy,customsvaluation,technical,
sanitary andphytosanitary standards, export incentive measures, andadispute settlement mechanism.
17Theagreement withMexico envisages freetrade for95percentofthetariff linesby1997. Theagreements
withVenezuela andEcuador envisage freetrade for96percentofalltariff linesby1997 and1999 respectively;
andtheagreement withColombia envisages freetrade for92percentofthetariff lines by1998.WT/TPR/S/28 Trade Policy Review
Page 26
Table II.2
Tariff reduction programmes fordifferent regional agreements
Chile-Mexico (1991) Chile-Venezuela (1993) Chile-Colombia (1993) Chile-Ecuador (1994)
General Part Includes allgoods not
included intheAnnex.
Annual tariff reduction
of2.5percentage points
starting in1992 from a
tariff of10%(i.e.0%
tariff by
1January 1996).Includes allgoods not
included intheAnnex.
Tariff reduction started
in1993.
0%tariff by
1January 1997.Includes allgoods not
included intheAnnex.
Reduction oftariffs
started in1994.
0%tariff by
1January 1997.Includes allgoods whose
tariffs were reduced to
0%since 1January 1995.
Annex 1 Includes 183items for
Chile and340for
Mexico which willhave
0%by1January 1998.Includes products which
willhave0%tariff by
1January 1999.Includes products which
willhave0%tariff by
1January 1999.-
Annex 2aIncludes goods with
preferential tariffs which
hadbeenpreviously
negotiated under the
LAIA framework.
0%tariff by
1January 1996.Includes goods with
preferential tariffs which
hadbeenpreviously
negotiated under the
LAIA framework.
0%tariff by
1January 1997.Includes goods with
preferential tariffs which
hadbeenpreviously
negotiated under the
LAIA framework.
0%tariff by
1January 1997.Includes 31products.e
0%tariff by
1January 2000.
Annex 3 Includes allproducts
which areexempt from
tariff reduction.bIncludes allgoods
which areexempt from
tariff reduction.cIncludes allgoods
which areexempt from
tariff reduction.dIncludes 238products
which areexempt from
tariff reduction.fThese
goods willbesubject to
them.f.n. tariff.
Annex 4 Includes automotive
products. Asof
1January 1996 alltaxes
andnon-tariff barriers on
these products should be
eliminated.Includes automotive
products. Asof
1July1993 alltaxes
andnon-tariffs barriers
onthese products
should beeliminated.Includes automotive
products. Asof
1January 1994 alltaxes
andnon-tariffs barriers
onthese products should
beeliminatedIncludes automotive
products.
0%tariff by
1January 1997.
Annex 5 - Includes automotive
products.Includes automotive
products.Includes automotive
parts.
0%tariff in
1January 1997.
Non-tariff
barriersEliminated asof
1January 1992 for
goods included inthe
programme oftariff
reduction.Eliminated asof
1July1993 forgoods
included inthe
programme oftariff
reduction.Eliminated asof
1January 1994 for
goods included inthe
programme oftariff
reduction.Eliminated asof
1January 1995 forgoods
included inthe
programme oftariff
reduction.
a Products included inAnnex 2willbesubject tothesame programme ofgradual reductions asthose intheGeneral Part, when
tariffs inAnnex 2exceed those applied inthegeneral part.
b Chile'sAnnex 3includes products suchasfishproducts, oil,sugar, clothing andfootwear, while Mexico 'slistincludes mainly
foodstuffs andfuels.
c Annex3includesgoodssuchasfoodproducts,oils,sugar,tobacco,fuels,woodandmotorcycles.Thelistappliesforbothcountries.
d Annex 3includes goods suchasfoodproducts, oils,sugar, fodder products, tobacco, wood products, textiles andclothing, glass
products andcatles. Thelistapplies tobothcountries.
e Thelistapplies tobothcountries.
f Annex 3includes goods suchasfoodproducts, fuels, leather andcotton thread. Thelistapplies tobothcountries.
Source: Government ofChile.Chile WT/TPR/S/28
Page 27
31. Goods areclassified infivegroups toschedule theprogressive reduction oftariffs. Thefirst
group includes some70percentofallgoods traded among Chile andtheMERCOSUR members whose
tariff willbephased-out bytheyear2004. Thesecond contains goods included informer LAIA
preferential agreements. These benefit fromapreference of50or100percentsince thesubscription
oftheAgreement. Thelistofproducts included byMERCOSUR inthisschedule contains some
1,000 items suchascattle forreproduction, dairy products, salmon andother fish,crustacea and
molluscs, some fruit, fodder seeds andseeds forvegetables, chemical products, wood andcellulose,
copper blister andinbars,andmanufactures. Chile'slistcontains some 500products, including fish,
corned beef,tea,cocoa, hearts ofpalm, some non-metallic minerals, pigments andcolourants, chemical
products, medicines, essential oils,cotton, aluminium, andmachinery.18
32. Thethird group includes items classified as"sensitive" and"specially sensitive products";
tariffs applied tothese goods willbereduced overamaximum oftenyears. Tariffs for"sensitive
products" willbereduced initially by30percent, continuing afterathree-year grace period upto
amaximum ofseven years. Chile included alistof290sensitive goods, andMERCOSUR alistof
311products. For"specially sensitive products", tariffs willnotbereduced during thefirstthreeyears;
thephasing outwillbemade overthefollowing seven years.
33. Tariffs onthefourth group willbeeliminated over15years, beginning aftertenyears. Chile's
listof151items includes goods suchas:bovine meat, rice,edible oil,sugar by-products, wines, soya
oilcake, cars,trucks, andbuses, while MERCOSUR 'slistcontains 139items suchas:fruit, wines,
peach preserves, paper bagsandboxes, informatic products, cars, andbuses.
34. Some ofthese products aresubject topreferential tariff quotas. TheMERCOSUR countries,
onaplurilateral (i.e.asagroup) orbilateral basis (i.e.between individual MERCOSUR countries
andChile), grantpreferential entrance under thisquota system toChilean raisins, apples, pears, peaches,
wines, tomato paste andautomotive vehicles. Chile grants preferential quotas forbovine meat, rice,
soyaoilcake, trucks, buses andchassis, which areapplied onabilateral basis.19These quotas have
beenapplied since theAgreement came intoforce (October 1996).20
35. Thefifthgroup includes sugar, wheat andwheat flour. Tariffs forsugar willbeprogressively
eliminated onareciprocal basis overfiveyears afteran11-year grace period Tariffs onwheat and
wheat flour willonlybereduced byChile andtheprocess willtake18years.
36. Chile became onlyanassociate toMERCOSUR inorder tomaintain itsindependence regarding
trade policy formulation towards thirdcountries. Becoming amember would alsohaveentailed the
adoption oftheMERCOSUR common tariff, forwhich Chile would havehadtomodify itsuniform
tariff structure.
18This second group iscalled Historic Patrimony, since these products were partofother preferential
agreements.
19Import quotas areonlyapplied inChile within theframework ofpreferential trade agreements negotiated
within LAIA andother recently negotiated free-trade agreements; otherwise, import quotas areprohibited in
Chile (Chapter III(2)(ix)).
20Itseems thatChilean agriculture producers areconcerned about thepossible negative effects thatimports
through these preferential quotas (cupos conpreferencia arancelaria )might have upon thesector, since they
claim nottobeprepared forthisincrease incompetition (Diario Estrategia ,April 1997).WT/TPR/S/28 Trade Policy Review
Page 28
37. Theauthorities stated thattheagreement withMERCOSUR wasofutmost importance forChile,
because ofthesignificance oftheLatin American markets, andespecially MERCOSUR countries.
Chilean exports toLatin America increased from12.4to18.9percentduring 1990-95; andexports
toMERCOSUR increased from 7.7to11.2percentduring thesame period, duemainly toexports
ofmanufactured goods. Moreover, some 40percentoftradewithMERCOSUR hadtaken place under
preferential bilateral arrangements negotiated under LAIA.
Canada
38. InNovember 1996, Chile signed aFree-Trade Agreement withCanada (CCFTA). This
agreement, entered intoforceinJuly1997.21Theagreement, largely modelled ontheNorth American
FreeTrade Agreement (NAFTA), callsfortheimmediate elimination oftariffs onabroad range of
products. Duties onsome industrial andresource-based goods willbephased outoveramaximum
offiveyears. However, fortextiles andapparel, asix-year period isprovided forCanada andfiveyears
forChile.22Footwear tariffs willbephased-out oversixyears bybothparticipants.
39. Foragricultural products, themajority oftariffs willbeeliminated by1January 2003. Canada
willretain itsover-quota tariffs fordairy, poultry andeggproducts, while Chile willretain itsduties
forthesamecommodities. Allother Canadian agriculture tariffs willbeeliminated by1January 2003,
while some Chilean rates willhavealonger phasing-out period. Chile willprovide Canada with
immediate duty-free access forspecific quantities ofpork, canola oilandbeef,however, theover-quota
tariff forporkandvegetable oilswillbephased outovertenyears while theover-quota tariff onbeef
willbephased outover15years. Other Chilean agricultural tariffs tobephased outovertenyears
include potato products, cornflour andcertain sugar products; longer phasing-out periods apply to
sugar (16years), milling wheat andwheat flour(17years). Allfishandfishproducts arescheduled
toreceive duty-free treatment upon implementation oftheCCFTA.
40. Inaddition, theagreement guarantees further liberalization forasubstantial segment ofthe
services sector; andincludes provisions onrulesoforigin, competition, safeguards dispute settlement,
andinvestment andtwoside-agreements regarding environmental andlabour issues. TheCCFTA also
provides forreciprocal exemption fromanti-dumping investigations andmeasures onceaproduct enters
dutyfreeintoeither market. Itisthemostcomprehensive free-trade agreement thatChile hassigned.
41. Chile andCanada haveagreed tomaintain theirrespective dutydrawback programmes, which
allow fortherefund ofcustoms duties levied onimported materials andcomponents incorporated into
exported goods. TheCCFTA alsocommits theparties tomaintain provisions against anti-competitive
business conduct, andtotakeappropriate action asrequired. However, theagreement affirms the
rights ofbothParties todesignate monopolies andstateenterprises.
European Union
42. InJune1996, Chile signed aFramework Co-operation Agreement withtheEUaimed at
generating thenecessary conditions tocreate freetrade ingoods andservices between Chile andthe
EU. However, forthisagreement tobeimplemented itrequires approval bythelegislatures ofthe
21WTO document WT/REG38/1, 10April 1997.
22Theagreement alsoprovides foraspecial safeguard provision toguard against import surges during the
phase-out period.Chile WT/TPR/S/28
Page 29
15EUmembers. Besides itstrade component, theagreement alsopromotes investment, cooperation
among enterprises, andtechnological andscientific cooperation.
43. TheAgreementprovidesforthecreationoftwoinstitutions:theJointCommissiononCooperation
andtheTrade Sub-commission. Thelatter, which metforthefirsttimeinJune1997, isincharge
of:(i)studying theperspective forareciprocal trade liberalization programme andthepossibility of
establishing aschedule forandstructure ofnegotiations; (ii)assessing theexistence ofnon-tariff barriers
applied bybothparties; (iii)studying theexisting tariff structure; (iv)identifying thepossibilities
fortariff reductions andtheelimination ofnon-tariff barriers; (v)determining thesensitive products
forbothpartners; (vi)exchanging information about different service sectors; (vii)monitoring
uncompetitive practices; and(viii)ensuring theimplementation ofrulesoforigin thatwould promote
theuseofregional (i.e.Chile-MERCOSUR) inputs soastostimulate further integration.23
APEC
44. Chile'strade policy isinaccordance withAPEC 's"open regionalism" approach totrade
liberalization. TheChilean authorities interpret thistomean thatAPEC isvoluntary andeacheconomy
willimplement itscommitments toliberalize tradeandinvestment through themeans itconsiders most
appropriate.24However, theChilean authorities havestated thatinorder toensure theimplementation
ofAPEC members 'commitments, theco-operation agreement should haveastronger institutional
framework.25Thisinitiative hasbecome more important forChile, because ofitsincreasing trade
withsome APEC members, particularly Japan (Chapter I).
(d) Preferences
45. Chile grants tariff preferences tothemembers ofLAIA either through Regional Agreements,
inwhich allLAIA members participate, through Partial-scope Agreements (APP) orthrough Economic
Complementarity Agreements. Forinstance, Chile asasignatory ofRegional Agreement No.4,grants
tariffpreferences toLAIA members according totheirstage ofdevelopment asstipulated intheTreaty
ofMontevideo, 1980; thusa28percenttariff preference isgranted toless-developed countries,
20percenttomedium-developed countries, and12percenttothemore-developed countries.26An
additional mechanism, which allows fortheprovision ofunilateral preferential treatment towards the
less-developed countries, iscontemplated intheRegional Agreements.
46. Inaddition totheaforementioned bilateral Economic Complementarity Agreements, Chile also
grants unilateral preferences toPeruwithin theframework ofthePartial-scope Agreement; however,
thetwocountries arepresently negotiating anEconomic Complementarity Agreement.
23Theobjective istodesign rules oforigin thatinclude theaccumulation principle, inanticipation ofafuture
trade agreement between theEUandMERCOSUR.
24APEC waslaunched in1989 topromote closer linksamong countries intheAsia-Pacific Rim. Themembers
besides Chile areAustralia, Brunei Darussalam, Canada, China, Chinese Taipei, Hong Kong, Indonesia, Japan,
Korea, Malaysia, NewZealand, Papua NewGuinea, thePhilippines, Singapore, Thailand, andtheUnited States
(WTO, 1995 andWTO, 1996).
25ElMercurio (International Edition), 21-27 November 1996.
26Theless-developed countries areBolivia, Ecuador andParaguay; medium-developed countries areChile,
Colombia, Peru, Venezuela andUruguay; andmore-developed countries areArgentina, Brazil andMexico.WT/TPR/S/28 Trade Policy Review
Page 30
47. Chile alsogrants preferential access totenproducts under theGlobal System ofTrade
Preferences (GSTP),27however atpresent (1997) themargin ofpreference seems tobeonly1percent,
since theChilean applied tariff is11percent. Theimpact ofthisprogramme onChile'strade has
beenalmost negligible, since imports under thispreferential regime during 1990-95 haveamounted
tosome US$5.1million andhaveoriginated inseven ofthe47countries thatcould benefit fromthese
concessions (Table II.3).
Table II.3
Preferences under GSTP
a)Products
(Percent)
HScode Description M.f.n. tariff
1997Customs duty
under GSTPa
1302.14.00 Vegetable sapsandextracts, exclusively ofpyrethrum 11 10
2941.90.40 Antibiotic (clindamycine phosphate) 11 10
2941.90.90 Antibiotic (neomycine) 11 10
4001.10.00
4002.80.10Latex 11 10
4001.30.00 Other natural gums 11 10
6305.10.00 Sacks andbags, ofakindusedforpacking ofgoods, ofjute,
exclusively sacks11 10
7102.21.00
7102.29.00Precious stones andsemi-precious stones, whether ornotworked or
graded, notmounted orset,including temporarily strung for
convenience oftransport, forindustry purposes
exclusively diamonds11 10
8106.00.00
8107.10.00Bismuth andarticles thereof
Unwrought cadmium11 10
8407.10.00 Internal combustion engines, foraircraft 11 10
8602.10.00
8602.90.00Other raillocomotives andlocomotive tenders 11 10
b)Value ofimports benefiting from theGSTP bycountry, 1990-1995
(US$ thousands)
Country 1990 1991 1992 1993 1994 1995
Argentina n.a. n.a. n.a. n.a. n.a. 462
Bangladesh 5 28 n.a. n.a. n.a. 12
Brazil 670 1,376 682 1,282 141 1
Mexico n.a. n.a. 17 99 66 n.a.
Peru n.a. 9 n.a. 8 n.a. n.a.
Thailand n.a. n.a. 26 121 29 n.a.
Venezuela 29 25 n.a. n.a. n.a. n.a.
Total 704 1,438 725 1,510 236 475
n.a. Notapplicable.
a Tariff preference consists inapercentage point reduction ontheapplied tariff.
Source: Government ofChile.
27Supreme Decree No.537, Official Journal, 7March 1990.Chile WT/TPR/S/28
Page 31
(2) Foreign Direct Investment
(i) Investment policy
48. Chile maintains agenerally liberal foreign direct investment (FDI) regime, recognizing its
importance fortransfer oftechnology andknow-how. Policy toward FDIisbased onprinciples of
theConstitution guaranteeing therightofevery person, national orforeign, todevelop anyeconomic
activity thatisnotcontrary tomorals, public order ornational security, abiding bythelegalregulations
norms andtherighttonon-discriminatory treatment which maynotbearbitrarily imposed bytheState
anditsbodies ineconomic matters.28During thelasttwodecades, therefore, theforeign investment
regime hasbeengenerally based ontheprinciple ofnon-discrimination between nationals andforeigners.
Nospecific incentives areprovided toforeign investors; however, foreigners areeligible forallexisting
regional andtaxincentives. Anyrestrictions normally apply equally toforeigners andnationals; for
instance, exploitation ofhydrocarbon resources isrestricted forboth nationals andforeigners
(Chapter IV).
49. Themainexceptions toequality oftreatment forforeign investment isinthefollowing sectors:
international landtransport (registration requirement andrestrictions toforeigners intheprovision of
localtransportation, Chapter IV);localmaritime transportation (cabotage); fisheries (where 51percent
ofthecapital ofvessels must beChilean, Chapter IV); andradio andprint media (where foreign
investment isallowed aslongassenior personnel and85percentofthecapital areofChilean origin).
Land owned bytheState, within adistance of10kilometres fromtheborders andfivekilometres from
thehigh-water line,cannot besoldtoforeigners.29
50. Since March 1993 foreign investors havebeenallowed torepatriate capital afterholding it
foroneyearinChile, instead ofthree years aspreviously.
51. TheChilean authorities have notified totheWTO theexistence oftrade-related investment
measures intheautomotive sector (Chapter III(4)(vi)). Those investors (national orforeigners) who
wishtoreceive thebenefits oftheAutomotive Statute must comply withthismeasure.
52. Inorder topromote andprotect investment, Chile hassigned andratified several bilateral
agreements facilitating inward aswellasoutward investment (Table II.4). Chile hasadouble taxation
agreement withArgentina, themost important destination forforeign investment; Chile hasbeena
member oftheMultilateral Investment Guarantee Agency (MIGA) since198830,andbecame amember
oftheWorld Bank'sInternational Center fortheSettlement ofInvestment Disputes in1991, thus
guaranteeing Chile'sacceptance ofinternational arbitration inthesettlement ofinvestment-related
disputes.31
28TheConstitution, Article 19,Paragraph 21.
29Interamerican Development Bank (1996).
30Supreme Decree No.381oftheMinistry ofForeign Relations, Official Journal, 11June 1988.
31Supreme Decree No.1304/91 oftheMinistry ofForeign Relations, Official Journal, 9January 1992. See
alsoMeller (1997).WT/TPR/S/28 Trade Policy Review
Page 32
Table II.4
Agreements onpromotion andprotection ofinvestment
Situation oftheagreement Latin America Europe Asia-Pacific
Under negotiation Peru Austria
Holland
Hungary
Lithuania
Russian Federation
TurkeyIndonesia
NewZealand
Singapore
Signed Costa Rica
Cuba
ElSalvador
Guatemala
Honduras
Nicaragua
Panama
Paraguay
UruguayGermany
Greece
Poland
Portugal
Romania
Switzerland
Ukraine
United KingdomAustralia
Philippines
Republic ofKorea
Approved bytheCongress Bolivia
BrazilBelgium
Inforce Argentina
Ecuador
VenezuelaCroatia
Czech Republic
Denmark
Finland
France
Italy
Norway
Spain
SwedenChina
Malaysia
Source: Government ofChile.
(ii) Legal framework
53. TheexistenceofcontrolsoncapitalflowsintoChilerequiressomeformofregistrationprocedure
forinward investment. Atpresent, there aretwoinstruments through which foreign investment is
channelled; theForeign Investment Statute of1974 (Decree LawNo.600)andChapter XIVofthe
Compendium ofForeign Exchange Regulations. Investment channelled through D.L. No.600has
tobeapproved bytheForeign Investment Committee andthatchannelled through Chapter XIVis
registered attheCentral Bank. Theinvestor maychoose which mechanism touse.Investment through
theD.L. 600during 1974-96 amounted tosome 68percentoftotalFDIflows intoChile.32
54. TheForeign Investment Statute (D.L. 600)establishes aspecial regime toattract long-term
capital investment. Authorization tomake aninvestment inChile through thischannel isgranted by
theForeignInvestmentCommittee,apublicautonomousbody.ThisCommitteeconsistsoftheMinisters
ofEconomy (Chair), Finance, Foreign Relations, andPlanning andCooperation, andthePresident
oftheCentral Bank. TheCommittee isincharge ofestablishing investment policy (inaccordance
withthelaw), ofaccepting orrejecting foreign investment applications; andestablishing theterms
andconditions fortherelevant investment contracts. Inaddition, theCommittee hasthepower torestrict
32Athird channel, Chapter XIXoftheCompendium ofForeign Exchange Regulations, which relates to
debt-equity swaps, ceased tobeoperational intheearly 1990s when theprice oftheChilean debtinthesecondary
market became unattractive toinvestors.Chile WT/TPR/S/28
Page 33
investment incertain activities onanMFN basis. Investment projects insectors oractivities normally
operated bytheState, inpublic services, inmasscommunication media, orundertaken byforeign legal
persons under public law,aswellasthose exceeding US$5 million aresubject totheapproval ofthe
Committee; while investments oflessthanUS$5 million maygenerally beapproved bytheExecutive
Vice-President oftheCommittee subject totheconsent ofitsPresident.33
55. According totheauthorities, thecriteria foraccepting foreign investment under theD.L.600,
asmentioned above, arethose stipulated intheConstitution (1980), which guarantees therightofany
localorforeign person todevelop anyeconomic activity, aslongastheyrespect thelegalregulations
thatgovern thatactivity, anddonotharm morals, public order ornational security. TheCommittee
alsoaimstoensure thatonlylong-term capital enters through thischannel. In1996, 400applications
weresubmitted totheCommittee, ofwhich fourwererejected because theywereconsidered short-term
speculative investments. However, iftheCommittee doesnotapprove anapplication foracontract,
thecapital mayenter Chile through theCentral Bank under Chapter XIV(seebelow).
56. Under Decree Law600,acontract (contrato ley)isestablished between theinvestor andthe
StateofChile, authorizing theinvestment. Thecontract isindefinite induration, protecting theinvestor
from thestartoftheproject, butsome ofthebenefits granted through D.L. 600arelimited intime
(e.g.theinvariable taxregime). Theforeign investment contract mayonlybemodified withtheconsent
ofthebothparties; according totheauthorities, itcannot bemodified bytheState alone, evenby
passing alaw.34
57. Thecontract states theperiod within which foreign investors must bring inthecapital; this
cannot exceed eight years forinvestments inmining andthree years forallother investments. The
Committee may, byunanimous agreement, extend thisperiod to12years inthecaseofmining
investments when prior exploration isrequired, taking intoaccount thenature andestimated duration
oftheproject; andforindustrial ornon-mining extraction investment projects ofatleastUS$50 million
oritsequivalent inforeign currency, theperiod maybeextended toeight years when warranted by
thenature oftheproject.35
58. Thecontract allows foreign investors tooptforasystem ofinvariable taxation. Thus, a
company 'soperations maybesubject toafixedoverall income tax.Theforeign investor mayrenounce
thisright andbetaxed according totheordinary taxregime.36However, inthiscase, theinvestor
would forfeit theagreed fixed ratedefinitively.37Taxinvariability maybeextended forupto20years
onindustrial andextractive projects whose value exceeds US$50 million.38Certain contracts covering
33Interamerican Development Bank (1996).
34Meller (1997).
35Decree LawNo.600, Article 3.
36Decree LawNo.600, Article 4.
37Decree Law No.600, Article 7.
38Decree LawNo.600, Article 11bis.WT/TPR/S/28 Trade Policy Review
Page 34
investment through imported physical goods, mayalsoinclude aclause providing fornochanges in
salesandservice taxesorcustoms duties during theperiod inwhich theauthorized investment isbeing
carried out.39
59. Foreigninvestmentandfirmsinwhichsuchinvestmentismadearesubjecttothesamelegislation
applicable todomestic investment; under thelaw,there maybenodiscrimination, either directly or
indirectly.40Forexample, thecontract doesnotensure thataninvestment willnotbeexpropriated,
butitdoesguarantee thatincaseofexpropriation, thesame regulations willapply tobothnational
andforeign nationals. Theonlyexception tothisprinciple ofnon-discrimination concerns possible
restrictions onaccess todomestic credit. However, thisrestriction applies onlytoinvestors under
D.L. 600andnottoinvestments which entered Chile under Chapter XIV.
60. There arenogeneral limitations onprofit orcapital remittances, otherthantheone-year holding
restriction orcapital repatriation mentioned above, andthewithholding tax(35percentbasic rate)
levied onprofit remittances. However, access totheFormal Exchange Market forremittances of
capital orprofits abroad require theauthorization oftheExecutive Vice-President oftheForeign
Investment Committee.
61. Chapter XIVoftheCompendium ofForeign Exchange Regulations oftheCentral Bankdefines
theregulations relating toinvestments, capital contributions andforeign credit.41Unlike D.L. 600
which onlycovers FDI, Chapter XIVmayalsoinclude portfolio investment. TheCentral Bank is
notentitled toreject aninvestment; itmayonlyimpose conditions based onitsmonetary policy on
thetransfer offunds intoandoutofChile (e.g.theoneyearretention requirement). Thecompanies
constituted withforeign capital thatentered Chile under Chapter XIVaresubject tolocallegislation
andenjoy national treatment; however, theyareexcluded fromthebenefits oftheforeign investment
contracts possible under theD.L. 600.
62. ForeigninvestmententeringChilethroughChapterXIVhastoberegisteredattheCentralBank.
Thisprocedure maybecarried outatanycommercial bank, priortoconverting thecapital intoChilean
pesos.Theprofits generated bytheinvestment mayberepatriated atanytime, without restriction,
afterpayment ofthewithholding tax.However, capital mayberepatriated onlyayearafterthedate
ofliquidation.
Portfolio investment
63. Portfolio investment isregulated byLawNo.18.657, andChapter XXVI oftheCompendium
ofForeign Exchange Regulations.
64. LawNo.18.657 allows foreign capital investment funds toinvest inshares inChilean
corporations, instruments guaranteed bythebanking system, letters ofcredit, bonds andothersecurities
approved bytheSecurities Commission, provided suchfunds meetcertain portfolio diversification
requirements andhaveaminimum paid-up capital ofnotlessthan6,000 UF(1UF on30April 1997
39Decree LawNo.600, Article 8.
40Decree LawNo.600, Article 9.
41TheCompendiumofForeignExchangeRegulationsoftheCentralBankofChileregulates,interalia,foreign
exchange operations, capital remittances andaccess totheforeign exchange markets.Chile WT/TPR/S/28
Page 35
wasequivalent toUS$32).42Repatriation ofcapital from salesofsuchinstruments isallowed only
afterfiveyears. Norestrictions apply totheremittance ofprofits generated bythesefunds. These funds
haveaccess totheofficial foreign exchange market forrepatriation ofcapital, andprofits earned on
thiscapital.43
65. ChapterXXVIoftheCompendiumofForeignExchangeRegulationsallowsChileancorporations
withaminimum specified international credit rating, andwhich arelisted onforeign exchanges, to
issue shares orshare-backed instruments forpurchase abroad. TheCentral Bank ofChile keeps a
record oftheinvestors andtheinvestments thattakeplace through thismechanism.
Outward investment
66. Chilean corporations areallowed toinvest abroad through Title IofChapter XIIofthe
Compendium ofRules onInternational Exchange. Chilean banks mayinvest upto25percentoftheir
capital andreserves abroad, ofwhich 20percentmaybeinequity offoreign financial institutions.
Thisinvestment mustbeapproved bytheCentral Bank andtheOffice oftheSuperintendent ofBanks
andFinancial Institutions. Pension funds, lifeinsurance companies, general insurance companies, and
mutual funds arealsoallowed tomake foreign investments; thepercentage ofassets allowed tobe
invested, aswellasthetypeofinvestment, varies ineachcase. Except formutual funds, foreign
investment must meetcertain minimum riskcriteria. Foreign investment forthese transactions can
bepurchased intheofficial market forforeign exchange, except formutual funds.44
42AUF(unidad defomento )isavalue ofreference which ispublished daily bytheCentral Bank onadaily
basis andislinked totheconsumer price index withalagofonemonth.
43IMF (1996).
44IMF (1996).