I OVERVIEW OF TRADE REMEDIES
Chile has been widely recognised as one of the global leaders in economic freedom, constantly fostering international trade. Chile is a party to the Marrakesh Agreement and was one of the founding members of the WTO and has since become an active promoter of free trade.
Therefore, trade defences are exceptional mechanisms that have only been activated after thorough investigations and in consideration of technical arguments.
Except for a few cases, all imports are subject to a most-favoured-nation duty of 6 per cent ad valorem, and used goods shall pay an extra 50 per cent of that duty. In addition, a value added tax of 19 per cent is charged over ad valorem value of products. Preferences are granted only in consideration of country of origin and tariff classification of certain product. Exports, on the other hand, do not pay any tax or duty.
Importers are not subject to any licensing. However, if FOB value of the importation is more than US$1,000, customs clearance shall be made through a customs agent, which is an auxiliary of the public service, in particular the National Customs Service, licensed to represent third parties in the clearance of the imported goods.
Restrictions on certain goods are applicable only based on health, international obligations (such as the Montreal Protocol) or national security reasons.
As a consequence of the above, and other measures implemented by the Chilean authorities, the system effectively promotes worldwide international trade.
However, in order to prevent actual or imminent severe damage to domestic industry and production, safeguards, anti-dumping and countervailing duties are applicable as trade remedies after a regulated proceeding.
Those mechanisms are included in free trade agreements, following WTO Agreement principles, with minor adjustments on a case-by-case basis.
For example, the National Commission in Charge of Investigating the Existence of Price Distortions on Imported Goods (the Commission) has recently finished an investigation on dumping of imports of steel grinding bars with a diameter of less than four inches from China, and the authority decided to apply anti-dumping duties of 5.6 per cent (excluding one specific exporter). The measure will expire on 23 May 2019.
There are no measures currently effective concerning safeguard or countervailing duties.
The procedure to adopt safeguards, anti-dumping or countervailing duties is properly regulated and in accordance with WTO principles.
The procedure can be initiated by complaint by those affected by dumping or subsidies, or by request by those affected by safeguards.
A complaint for dumping or subsidies shall be submitted by the industry of domestic production, whose collective production represents more than 50 per cent of the total production of the similar product. For safeguards, the request shall be submitted by the industry of domestic production affected by serious injury or threat thereof, namely all producers of similar or competitive products, or those whose collective production of similar or directly competitive products constitutes a major proportion of the total domestic production.
In exceptional cases, an investigation may be initiated ex officio by the Commission, when there are grounds to initiate it.
Complaints and requests must be addressed to the President of the Commission and submitted to the Technical Secretariat of the Commission, providing evidence to support that there is:
- distortion on prices causing significant actual or imminent damage to the domestic industry, in case of dumping and subsidies; or
- an increase of imports and how it causes or threatens to cause damage to the similar or directly competitive domestic production, in case of safeguards.
Upon receipt of the claims, the Commission reviews the evidence and determines whether there is sufficient merit to initiate an investigation, publishing an abstract of it in the Official Gazette if declared admissible. Otherwise, the inadmissible decision is notified to the complainant.
Once the Commission has decided to initiate an investigation, it should be notified to the government of the country involved and to the accused companies in case of dumping; to the government of the country involved in case of subsidies; and to the Safeguards Committee of the WTO and to the countries with which Chile has signed trade agreements in case of safeguards.
Investigations of dumping and subsidies must be concluded within one year, and in any event within 18 months, except in exceptional circumstances. On the other hand, the Commission must conclude safeguards investigations within 90 days.
During the investigation, the Commission can recommend to the President of the Republic, through the Minister of Finance, the application of provisional measures. These measures are implemented through the enactment of a presidential decree. Likewise, anti-dumping and countervailing duties may be implemented after 60 days from the date of initiation of the investigation, and cannot exceed four months, or six months in qualified cases. Safeguard measures may be implemented within 30 days of the start of the investigation and cannot exceed 200 days.
During the course of the investigation, the Commission sends a questionnaire to the interested parties with details of the information required and how answers should be structured. Moreover, the Commission may require additional information from the complainant or petitioner, and other interested parties, which may submit additional information for a better resolution of the case.
The Commission shall protect confidential information provided during the process, if there are grounds to grant that status. To disclose such information, the Commission shall request express permission of the party that has provided it.
Public hearings may be organised whenever the parties request to present arguments, expose opinions and discuss the information provided by other parties. However, any information given orally must be submitted in writing and made available to other interested parties.
In dumping or subsidies investigations, and in accordance with Annex 1 of the Article VI GATT Agreement and Annex VI of the Subsidies and Countervailing Measures Agreement, the Commission may carry out investigations in a foreign territory to verify information provided or to obtain further details, if the foreign country authorises it.
Based on the information collected during the investigation, the Secretariat prepares a technical report, which is confidential, that provides the necessary elements for the Commission decision regarding the existence of price distortions or increased imports and how they affect domestic production. In addition, specialised studies may be requested if necessary.
To allow participation and for transparency purposes, the Commission will publish every preliminary decision, but without affecting confidential treatment of the relevant information.
To conclude the investigation, the Commission may recommend not to apply a measure because there is no distortion or excess of imports. In this scenario, the Commission issues a resolution ending the investigation, which is published in the Official Gazette. On the other hand, if the Commission recommends the application of a definitive measure, it should submit its recommendation and its background to the President of the Republic, through the Minister of Finance, for a decision. The President, if in agreement with the recommendation, shall enact a presidential decree instructing the implementation of the recommended measure, publishing it in the Official Gazette.
Regarding the duration of measures, it depends. Anti-dumping and countervailing duties cannot exceed one year from the publication of the presidential decree in the Official Gazette. Moreover, the recommended measure cannot exceed the margin of distortion. On the other hand, safeguard measures cannot exceed two years from the publication of the presidential decree in the Official Gazette, and are renewable for a maximum of two years. If provisional measures were applied during the investigation, the period of two years is counted from the date of publication of the decree that ordered such measures.
There is no specific appeal procedure against trade remedy decisions. However, general administrative regulation applies, according to which the affected party has several available actions to dispute the measure.
First, there are administrative actions to be submitted before the Commission or its superior, the Minister of Economy. Both actions (reconsideration and hierarchical appeal, respectively) may consider legal or policy issues and must be submitted within five days of the publication of the measure. Another administrative action would be a presentation made by anyone before the General Comptroller (an independent entity) to discuss the legality of a resolution. It is a short procedure where the controller agency requests information from the affected agencies and renders a decision.
It is also possible to exercise jurisdictional actions. The action for annulment is an action before a civil judge (Ordinary Courts of Justice). The trial will follow the rules of the general procedure, and is therefore a long discussion that could take years. However, the plaintiffs may ask for precautionary measures to avoid the effects of the contended act.
The argument for the claim in this case would be an administrative act against the law or the Constitution, therefore it is just a legal claim and not a policy issue. Even though theoretically there is no statute of limitation for this action, the courts have said that the general rules should be applicable, hence the statute of limitation is five years.
A constitutional claim is a claim before a Court of Appeals for a breach of some of the constitutional rights established in Article 19 of the Chilean Constitution. The claim must be filed within 30 days of the publication of the administrative act. This a simple and short procedure where the Court decides after receiving the report of the affected agency.
Finally, it is possible to file an economic constitutional claim within six months of an act's publication before a Court of Appeals, claiming an infringement of the constitutional right to develop legitimate economic activities established in Article 19 No. 21 of the Constitution.
All of the above-mentioned actions (except for the one before the General Comptroller) require an affected right or a legitimate interest of the plaintiff.
II LEGAL FRAMEWORK
Customs procedure and rules can be found mainly in the Customs Ordinance, the Chilean Customs Rules Compendium and the Chilean Tariff Code, which is based on the Harmonised Commodity Description and Coding System.
On the other hand, the legal framework on trade defence is based on the WTO Agreements. Moreover, Supreme Decree No. 16 enacted in 1995 incorporated into Chilean legislation the Anti-dumping Agreement, the Safeguards Agreement, the Agreement on Subsidies and Countervailing Measures, and GATT Articles VI and XIX.
In addition, the main Chilean legislation includes Law No. 18,525 on Importation of Goods enacted in 1986, and its subsequent amendments of 1999, 2001, 2003 and 2011.
Moreover, Decree No. 1,314 of 2012, of the Ministry of Finance, regulates the procedure to claim and request safeguards, anti-dumping and countervailing measures.
Finally, Chile is part of 28 trade agreements where trade remedies are included, and those agreements, once approved by the Congress, will be incorporated in the Chilean legal system.
III TREATY FRAMEWORK
Considering the necessity of having clear rules and principles of international trade, Chile is a founding member of the WTO and the Marrakesh Agreement was adopted through Decree No. 16. In addition, Chile is member of other WTO Agreements such as the Trade Facilitation Agreement and the Agreement on Government Procurement.
On the other hand, Chile has subscribed to four categories of commercial agreements, which differ in coverage and in the degree of commitment. The first kind of agreement would be the partial scope agreement, which refers to a limited group of goods with preferential tariff treatment, which is the case for the agreement with India. The second group is the economic complementation agreement, which liberalises trade in goods and has deeper obligations, such as the case of the agreements with Bolivia, Ecuador and MERCOSUR, among others. The third kind of agreement is the free trade agreement, which aims at establishing a free trade zone between countries, which is the case for the agreements with the United States, Canada, Thailand, China and Mexico, among others. Finally, there are strategic association agreements in which other matters are included besides trade, such as social and technological cooperation, and this is the case for the agreements with the European Union and Japan.
Chile has subscribed commercial agreements with the following countries: Australia, Bolivia, Canada, China, Colombia, Cuba, Ecuador, Hong Kong, India, Japan, South Korea, Malaysia, Mexico, Panama, Peru, Thailand, Turkey, the United Kingdom, the United States, Venezuela and Vietnam. Moreover, Chile has concluded negotiations for another partial scope trade agreement with India, and is currently conducting negotiations for a strategic association agreement with Indonesia.
Furthermore, Chile is member of the following regional agreements:
- Centro América (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua);
- EFTA (Iceland, Liechtenstein, Norway and Switzerland);
- MERCOSUR (Argentina, Brazil, Paraguay, Uruguay and Venezuela);
- P4 (Brunei Darussalam, New Zealand and Singapore);
- European Union (Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden); and
- Pacific Alliance (Colombia, Mexico and Peru).
IV RECENT CHANGES TO THE REGIME
Law No. 18,525, enacted in 2011, which refers to trade remedies, has recently been amended, as well as the new regulation for trade remedies proceedings, established in Decree No. 1,314, which replaced Decree No. 575 of 1993 for anti-dumping and countervailing duties, and replaced Decree No. 909 of 1999 for safeguard measures.
The amendment to Law No. 18,525 increased the period of time in which a safeguard may be implemented. The WTO Agreement establishes a maximum period of eight years, considering extensions. Formerly, Law No. 18,525 allowed only for one year with an extension for the same period (i.e., two years maximum). Currently, safeguards may be implemented for two years, renewable for two more years.
Regarding the regulation, the new Decree No. 1,314 systematised the rules for trade remedies, giving more certainty to interested parties; and improved the proceedings for adopting measures and the faculties of the Commission.
V SIGNIFICANT LEGAL AND PRACTICAL DEVELOPMENTS
As of 2010, specialised courts were implemented in Chile for tax and customs disputes. The new Tax and Customs Courts seek to benefit private investors through the possibility of disputing Tax or Customs Authority resolutions, in an independent and expert court.
Proceedings are regulated to be transparent, efficient and modern, in order to provide justice effectively.
Another significant legal development relates to the transfer pricing approach by Chilean authorities. Transfer pricing is gaining increasing relevance in Chile, especially after 2012's tax reform, which strengthened the existing rules on methods to calculate values in related-party transactions, in accordance with OECD rules and principles. The Tax Authority is consistently investigating and requiring information in order to apply transfer pricing adjustments, which includes import valuation investigations too.
One of the improvements of the tax reform was the inclusion of the advance pricing agreement mechanism, which consists of an agreement with the Tax Authority or with the Customs Authority in case of imported goods, on the determination of price, value or regular market profit in said operations with related parties. This agreement lasts for three years and may be renewed.
The transfer pricing regulation will certainly bring more control and audits by the authority, but the system of specialised and independent courts improves the chances of a fair defence of taxpayers, importers and exporters.
VI TRADE DISPUTES
Chile has been involved in several WTO disputes. In particular, it has been involved in 10 disputes as a complainant, 13 as a respondent and 43 as a third party.
In these disputes, a regular counterparty is Argentina and the products involved are those related to agriculture such as milk, wheat, wheat flour and edible vegetable oils. Often, Argentine industries participate in the Commission of Distortions investigation proceedings, expressing their disconformity with the eventual measures to be proposed and declared by the government.
One of the most prominent cases between Chile and Argentina related to a price band system maintained by Chile. According to such scheme, the tariff rate for wheat, wheat flour, sugar and edible vegetable oils from Argentina could be adjusted if the price fell below a lower price band or rose beyond an upper price band.
This scheme was challenged by Argentina before the WTO and before the Panel and the Appellate Body.2
The Appellate Body reversed two Panel findings. The first one was referred to a matter brought by Argentina that was not raised in its panel request, depriving Chile of its due process rights under the Dispute Settlement Understanding, Article 11. The second reversed finding was related to the Panel's understanding of Chile's price band system as an ordinary custom duty, assessed on the basis of exogenous price factors.
Notwithstanding the above, the Appellate Body concluded that Chile's price band system was inconsistent with Article 4.2 of the Agreement on Agriculture and upheld the Panel's finding that it was a border measure that is similar to variable import levies and minimum import prices.
Chile amended its price band system, and the total amount of duties imposed on imports of wheat, wheat flour and sugar would vary in two ways: through the imposition of additional specific duties or through the concession of rebates on the amounts payable. When the reference price determined by the Chilean authorities fell below the lower threshold of a price band, a specific duty was added to the ad valorem tariff. On the contrary, when the reference price was above the upper threshold of the price band, imports would benefit from a duty rebate.
Argentina referred to the original Panel to claim for the insufficient measures adopted by Chile. The Panel concluded that Chile had failed to implement the recommendations and rulings of the Dispute Settlement Body in the original dispute, and that the system, even with the amendment, continued to be a border measure similar to a variable import levy and a minimum import price, inconsistent with Article 4.2 of Agreement on Agriculture. For judicial economy, the Panel considered that an additional finding based on GATT Article II:1(b) and WTO Agreement Article WVI:4 was not necessary. The Appellate Body upheld the finding of the Panel.
Chile subscribed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with Australia, Brunei Darussalam, Canada, Japan, Malaysia, New Zealand, Peru, Singapore and Vietnam. The CPTPP is the consequence of the United States' decision to withdraw from the Trans-Pacific Partnership Agreement (TPP), and includes all the countries that negotiated the TPP except for the United States, and includes all the terms of the TPP except for 20 sections that were suspended and that mostly referred to intellectual property. The CPTPP has not entered into effect yet, because it must be approved by the Congress (it was already approved by the House of Representatives and is now being discussed by the Senate), but it is expected that the agreement will bring opportunities to Chile and those investing in Chile.
Moreover, the legal reform enacted in 2017, regarding the authorised economic operator (AEO), in accordance with the WCO's SAFE Framework of Standards, was fully implemented through Resolution No. 246 in January 2018. This programme, in which companies or customs brokers will be certified as AEO by the Customs Service, will allow them to make improvements in efficiency of processes, including time and cost reductions.