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it determines to have been dumped at below.market prices. As of late 1994, only imports of certain textiles and garments from selected 'Asian countries and imports of one industrial chemical are subject to these duties. low world prices have led Chile to establish minimum customs values for milk, spun cotton, and wheat Nour.
Animal Health and Phytosanitary Requirements: Chile occasionally uses animal health and phytosanitary requirements in a nontransparent manner that has the effect of impeding imports. No public comment process or announcement of proposed rule changes precedes the promulgation of these requirements. U.S. exporters have expressed concern about the application of phytosanitary requirements to poultry. Chilean authorities have in some instances eliminated or liberalized specific require ments when presented scientific evidence by U.S. animal health or phytosanitary of. ficials.
Government Procurement Practices: The government has a "buy Chile” policy only when conditions of sale of locally produced goods (price, delivery times, etc.) are equal to or better than those of equivalent imports. In practice, given that many categories of products are not manufactured in Chile, purchasing decisions by most state-owned companies are made among competing imports. Requests for public and private bids are published in the local newspapers, Government officials have on occasion urged some government agencies to buy Chilean coal on a preferential basis. 6. Export Subsidies
With minor exceptions, the Chilean Government does not provide exporters with direct or indirect support such as preferential financing or export promotion funds. The Chilean Government does, however, offer a few nonmarket incentives to exporters. For example, paperwork requirements are simplified for nontraditional exporters. Small nontraditional exporters also qualify for the government's simplified duty drawback system. Through this mechanism, the government returns to producers an amount equivalent to three to ten percent of their exports' value. This figure represents an estimate of the duties actually paid for imported components in the exported merchandise. Alternatively, qualifying exporters can apply for the return of all paid duties. The government also provides exporters with quicker returns of VAT paid on inputs than other producers receive.
All Chilean exporters may also deser tarill payments on capital imports for a period of seven years. If the capital goods are used to produce exported products, deferred duties can be reduced by the ratio of export sales to total sales. If all production is exported, the exporter pays no tariff on capital imports.
In order to encourage forestation of land that would be of marginal agricultural use, the government subsidizes approximately 75 percent of planting costs as well as certain management costs for the first generation of trees, which in practice are almost always nonnative species. The value of the subsidy is adjusted for inflation and treated as taxable income when the trees are harvested. Forestry industry representatives say the subsidy, when allocated over the life of plantations, amounts to about five percent of total costs. Both foreign investors and Chileans are eligible for the subsidy. The law which established the subsidy in 1974 (D.L. 701) expires in March of 1995, and discussions are ongoing about its possible renewal or revision. 7. Protection of U.S. Intellectual Property
Chile's intellectual property regime is basically compatible with international porms, and industry representatives have welcomed government enforcement efforts. Continuing deficiencies in patent protection, however, have kept Chile on the USTR Special 301 watch list since 1989. Efforts to enforce intellectual property rights in Chilean courts have been successful. Chile does not have an explicit statute for protecting the design of semiconductors nor does it have comprehensive trade secret protection. Chile belongs to the World Intellectual Property Organization. Contracts may set fees and royalties only as a percentage of sales, and pay. ments for the use of trade secrets and proprietary processes are usually limited to three percent.
Patents: The Industrial Property Law promulgated in September 1991 substantially improved Chile's protection of industrial patents, but it falls short of international standards. The law provides a patent term of 15 years from the date of grant. (The term in the United States is 17 years.) The law also does not consider plant and animal varieties or surgical methods to be patentable. Most importantly, the law does not provide pipeline protection for pharmaceutical patents filed abroad before the law's promulgation. Because of the lack of pipeline protection and the long lead times involved in the marketing of new pharmaceutical products, the law will not prevent local companies from pirating foreign pharmaceutical patents of products introduced into the market for several more years. In addition, the reg. istration procedures required by the health ministry to market new drugs are more
onerous for first-to-file firms, which tend to be foreign firms. Payments for the use of patents may not exceed five percent of sales.
Copyrights: Piracy of video and audio tapes has been subject to criminal penalties since 1985. Chilean authorities have taken aggressive enforcement measures against video, video game, audio, and computer software pirates in recent years, and piracy has declined in each of these areas. In the mid-1980s, the software piracy rate was believed to be around 90 percent; it is currentiy estimated at around 70 percent. The decline is in part the result of a campaign by the industry, with the cooperation of the courts and the government, to suppress the use of pirated software. Improved access to authorized dealers and service has also helped to reduce the rate of piracy. Industry sources say that penalties remain low relative to the potential earnings from piracy and that stisser penalties would help to deter poten. tial pirates. In 1992, the Chilean Congress approved legislation that extended the term of copyright protection from 30 years to 50 years. U.S. recording industry officials have said that the copyright law grants producers less favorable treatment visa-vis authors than is the international norm.
Trademarks: Chilean law provides for the protection of registered trademarks and prioritizes trademark rights according to filing date. Local use of the mark is not required for registration. Payments for use of trademarks may not exceed one percent of sales.
Impact of Chile's Intellectual Property Practices on U.S. Trade: Although it is difficult to accurately estimate damages, most observers believe that the U.S. pharmaceutical industry has suffered most from the infringement of its intellectual property (in this case, patent) rights in Chile. U.S. software industry sources have estimated that some $65 million worth of pirated software was used in 1993, although only a fraction of this amount would go directly to U.S. exporters if piracy were eliminated. 8. Worker Rights
a. The Right of Association.—Most workers have a right to join unions or to form unions without prior authorization, and around 11 percent of the work force belongs to unions. Government employee associations operate like unions in some ways, but they do not have the same gal protection as unions. Legislation has been introduced to give them the same rights as unions.
Reforms to the labor code in 1990 removed significant restrictions on the right to strike. Those reforms require that a labor inspector or notary be present when union members vote for a strike. Employers are required to show cause whenever they fire workers, but “needs of the enterprise" is a permissible cause. Observers believe that some employers invoke this cause to fire employees for trying to form unions.
b. The Right to Organize and Bargain Collectively.—The climate for collective bargaining has improved, and the number of contract negotiations has grown steadily, but only 17 percent of eligible workers had collective bargaining agreements as of the end of 1992. The process for negotiating a formal labor contract is heavily regulated, a vestige of the statist labor policies
of the 1960's. However, the law permits (and the Aylwin and Frei governments have encouraged) informal union-management discussions to reach collective agreements outside the regulated bargaining process. These agreements have the same force as formal contracts.
Temporary workers—defined in the labor code as agricultural, construction, and port workers as well as entertainers may form unions, but their right to collective bargaining is restricted. Some 700,000 workers, including most agricultural workers, are limited to informal negotiations.
c. Prohibition of Forced or Compulsory Labor.–Forced or compulsory labor is prohibited in the constitution and the labor code, and there is no evidence that it is currently practiced.
d. Minimum Age for Employment of Children. Child labor is regulated by law. Children as young as 14 may legally be employed with permission of parents or guardians and in restricted types of labor. Economic factors have forced many children to seek employment in the informal economy, which is more difficult to regulate. A UNICEF study concluded that 107,000 minors (seven percent of their age group) held jobs, mostly in the countryside, and that many of them worked with their parents,
e. Acceptable Conditions of Work.—Minimum wages, hours of work, and occupational safety and health standards are regulated by law. The legal workweek is 48 hours. The minimum wage, currently around $125 per month, is set by government, management, and labor representatives, or by the government if the three groups cannot reach agreement. Lower-paid workers also receive a family subsidy. Poverty rates have declined dramatically in recent years, and real wages have risen, although not as rapidly as the overall GDP has grown.
f. Rights in Sectors with U.S. Investment.-Labor rights in sectors with US. in. vestment are the same as those specified above. US. companies are involved in vir. tually every sector of the Chilean economy and are subject to the same laws that apply to their counterparts from Chile and other countries. There are no export processing zones or other special districts where different laws apply. Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993
(Millions of U.S. dollars)
Income, Production and Employment:
Other Sectors ....
Money Supply (M2: an. pct. gwth.)
Key Economic IndicatorsContinued
(Millions of U.S. dollars unless otherwise noted]
Exchange Rate (USD/Peso)
811.8 917.3 988.0 Market Rate
738.0 802.7 865.0 Balance of Payments and Trade: Total Exports (FOB)
6,909 7,111 8,333 Exports to U.S.
2,466 2,641 3,833 Total Imports (CIF)
6,513 9,841 10,609 Imports from U.S.
2,434 3,469 3,712 Aid from U.S.
1 Aid from Other Countries
N/A N/A N/A External Public Debt ......
13,601 13,206 12,600 Debt Service Payments (paid)
3,451 3,141 3,667 Gold and Foreign Exch. Reserves
7,728 7,932 8,381 Trade Balance
-2,730 -2,275 Trade Balance with U.S.
32 -828 -879 NIA-Not available. 1 Preliminary
Data for 1994 are estimates based on latest reports from Colombian Government sources. *U.S. aid is for fiscal years 1992, 1993 and 1994. 1. General Policy Framework
The Administration of President Ernesto Samper took office in August 1994, fol. lowing the four-year term of President Cesar Gaviria. The Gaviria Administration was responsible for a profound economic liberalization program known as "apertura." That program made great strides in opening the Colombian economy to international trade and investment by reforming foreign exchange and tax legislation, the labor code and the foreign investment regime. In addition to slashing tariffs from an average of 42 percent in 1990 to 12 percent in 1992 and eliminating many nontariff barriers, apertura also led to great strides in the privatization of state enterprises such as ports and railroads. Although President Samper has said he will take no backward step in the apertura process, he will try to reduce some of the economic dislocations, especially in agriculture, caused by the rapid economic policy changes. Colombia has ratified the Uruguay Round agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995.
Concurrent with the economic reform program, the Colombian government has continued its policy of gradually reducing inflation. Inflation, as measured by the CPI, was brought down to 22.6 percent in 1993; it was 32.4 percent in 1990. Govern. ment economists forecast that the inflation rate will be between 21 and 22 percent in 1994. The CPI has not dropped more quickly in recent years primarily because of inflationary pressures stemming from the strong inflows of foreign capital, the policy of indexing the wages of Colombian workers, and the desire of the government to avoid the adverse impact on the economy a shock treatment would have. In 1990 and 1991
the government resorted to restrictive monetary and fiscal policies to cope with inflation. In late 1991 monetary policy was directed at overcoming the effect of large inflows of foreign capital while maintaining the stability of the peso. Monetary policy in the period between 1990 and 1992 was impacted by developments in the foreign exchange sector. The high domestic interest rates caused by restrictive monetary policies boosted the expected yield from Colombian assets. The large capital inflows that followed would have caused the money supply to increase, complicating monetary policy, if the Central Bank had not taken action. That action came in the form of a June 1991 decree mandating that foreign exchange receipts would be redeemed for exchange certificates, denominated in V.S. dollars. Government authorities also increased the tax on unilateral transfers of foreign exchange to residents of Colombia from abroad to 10 percent in mid-1992.
The exchange certificate system was discontinued in January 1994. In March 1994 the Central Bank announced regulations to limit internal and external credit availability to private Colombians. The measures were aimed at reducing inflation. ary pressures.
Monetary policy in the Samper government will be aimed at the further gradual reduction of inflation while avoiding abrupt movements in the exchange rate of the peso. The Samper administration is sympathetic to complaints by Colombian exporters that the strong peso has adversely affected the price competitiveness of Colom. bia's exports, especially nontraditional exports. Days Afler President Samper took office the Central bank amended regulations to discourage the public and private sectors from incurring more short-term debt in foreign currencies
Colombia's fiscal policy over the last four years has been designed to achieve four principal objectives: (1) the establishment of a macroeconomic foundation for sustainable growth, (2) the direction of public resources to those sectors of the economy which can best support the social development and competitiveness of the nation, (3) the restructuring of the budgetary system to increase constitutionally-mandated transfers to states and municipalities, and (4) the decrease in reliance on import tariffs as a source of revenue. 2. Exchange Rate Policy
In January 1994 the Central Bank moved to free market exchange rates for Colombia's peso. Since that time the duily quotation is set by the Banking Superintendency, and is based on quotations from certain commercial banks and financial corporations.
Colombia's exchange rate policy underwent significant reforms following the introduction of the apertura program in 1990. In 1991 Colombian residents were permitted to hold foreign currency and maintain foreign bank accounts. Furthermore, the Central Bank relaxed the total control over the foreign exchange regime it had exercised; the primary aim was the development of a foreign exchange system gov. erned by market forces. Also, the crawling peg system, introduced in 1967, was replaced by a soating rate system under the control of the Central Bank.
In September 1993 the foreign exchange system was further liberalized by the introduction of streamlined administrative procedures and the reduction of the number of transactions that had to be done through commercial banks or other sanctioned intermediaries. In January 1994 the Central Bank moved to the free market exchange system in which the peso may move within a band 7.5 percent above or below the daily quotation. The Central Bank may intervene by buying or selling its instruments in order to keep the currency within the band. The strength of the peso in recent years has improved price competitiveness of U.S. exports to Colombia and has resulted in a significant shift in the balance of bilateral trade. 3. Structural Policies
Taxes: Part of the apertura program consisted of the reform of Colombia's tax system. Tax reform legislation passed in 1990 and 1992 reduced the dependence of the central government on import tariffs as a source of revenue. As a result, import tariffs fell from 42 percent in 1990 to 12 percent in 1992 while the VAT increased from 10 percent to 14 percent in the same period. The Colombian government imposes a "war tax" on producers of crude oil and minerals, two sectors with heavy foreign participation. Tax collection showed improvement in recent years because of better enforcement and administrative changes (i.e., introduction of simpler forms and permitting taxpayers to make payment at local bank branches).
Privatization: The Colombian government initiated an ambitious privatization plan beginning in 1991. Since that time the nation's ports, its railroad system, cellular telephone service and domestic long-distance service, five banks, eight chemical firms, three shipbuilding companies, six agroindustry enterprises, a fishing company, and a retail gasoline chain, among others, have been sold to private owners. In early 1994 a court decision made ito mandatory that all shares of firms being privatized thereafter must be offered first to the employees of those firms and to such institutions as pension funds, cooperatives, and unemployment funds.
Regulatory Policy: Performance requirements exist in the automotive assembly sector in the form of local content requirements, as outlined in Decree 2642 of December 23, 1993. This decree requires the following local content: passenger vehicles carrying up to 16 persons and cargo vehicles up to 10,000 pounds, 30 percent; all other vehicles, 15 percent.
Government Procurement: Government procurement is subject to the norms established by Law 80 of October 1993. Certain articles contained in the legislation have been problematic to potential foreign investors, including some U.S. companies. Article 20 of Law 80 requires that foreign firms without an active local headquarters document that Colombian companies enjoy reciprocity in similar bids under the foreign firms' countries' procurement legislation. The law suggests that reciprocity be confirmed through bilateral or multilateral treaties or accords, or that it be certified by an "authorized" government entity. The American Embassy has been in contact with the Colombian government to attempt to find a mutually satisfactory resolution to these issues. However, no resolution had been reached as of late December 1994.