The International Trade Law Review: Chile
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 World Trade Organization (WTO) and it has since become an active promoter of free trade.
Therefore, trade defences are viewed as exceptional mechanisms and have only been activated after thorough investigation and full 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 pay an extra 50 per cent on that duty. In addition, a value added tax of 19 per cent is charged on the ad valorem value of products. Preference is granted only in consideration of the country of origin and tariff classification of certain products. Exports, on the other hand, do not pay any tax or duty.
Importers are not subject to any licensing. However, if the 'free on board' (FOB) value of the importation is more than US$1,000, customs clearance must be made through a customs agent that is an auxiliary of the public service, namely the National Customs Service, and must be licensed to represent third parties in the clearance of the imported goods.
Certain goods are subject to restrictions on the basis of health and 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, to prevent actual or imminent serious damage to domestic industry and production, safeguards and 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 Distortions in the Price of Imported Goods (the Commission) 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 was in force from 11 December 2019 in relation to steel grinding bars from Chinese company Goldpro New Materials Co Ltd and expired on 23 May 2020.
Similarly, on 16 April 2020 the Commission initiated an investigation concerning alleged dumping of imports of forged steel grinding balls of a diameter of less than four inches originating from China, which is currently under way.
There are no safeguarding or countervailing duty measures currently in effect.
The procedure to adopt safeguards or anti-dumping or countervailing duties is properly regulated and in accordance with WTO principles.
The procedure can be initiated by a complaint by those affected by dumping or subsidies, or upon request by those affected by safeguards.
A complaint about dumping or subsidies must be submitted by industry representatives whose collective production represents more than 50 per cent of the total production of the relevant domestic industry. For safeguards, the request must be submitted by industry representatives of the relevant seriously damaged or seriously threatened domestic industry, 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 warrant it.
Complaints and requests must be addressed to the President of the Commission and submitted to the Technical Secretariat of the Commission, providing supporting evidence of the following:
- in the case of dumping and subsidies, distortion on prices causing significant actual or imminent damage to the domestic industry; and
- in the case of safeguards, an increase in imports and how this causes or threatens damage to similar or directly competitive domestic production.
Upon receipt of the claims, the Commission reviews the evidence and determines whether there is sufficient merit to initiate an investigation and publishes an outline for the investigation in the Official Gazette if the claims are declared admissible. Otherwise, a decision of inadmissibility is notified to the complainant.
Once the Commission has decided to initiate an investigation, in cases of dumping, notice should be given to the government of the country involved and to the companies accused; in the case of subsidies, notice should be given to the government of the country involved; and, in the case of safeguards, notice should be given to the Safeguards Committee of the WTO and to the countries with which Chile has signed trade agreements.
Investigations into dumping and subsidies must be concluded within one year, and in any event within 18 months, except in special circumstances. In contrast, safeguard investigations must be concluded by the Commission 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. Similarly, 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, who 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 must request express permission from the party that has provided it.
Public hearings may be organised whenever the parties request to present arguments, state 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 Article VI of the General Agreement on Tariffs and Trade (the 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 an investigation, the Secretariat prepares a confidential technical report, which provides the necessary elements for the Commission's 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 compromising the confidential treatment of relevant information.
On concluding an investigation, in the absence of a lack of distortion or excess of imports, the Commission may recommend not to apply a measure, in which case the Commission issues a resolution ending the investigation and this is published in the Official Gazette. Conversely, if the Commission recommends the application of a definitive measure, it will submit a recommendation and background report to the President of the Republic, through the Minister of Finance, for a decision. If in agreement with the recommendation, the President shall enact a presidential decree instructing the implementation of the recommended measure and publishing it in the Official Gazette.
The duration of measures depends on the matter at issue. The term of anti-dumping and countervailing duties cannot exceed one year from the publication of the presidential decree in the Official Gazette. Moreover, the effect of the recommended measure cannot exceed the margin of distortion. 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 ordering the provisional measures.
There is no specific appeal procedure against trade remedy decisions. However, under the applicable general administrative rules, there are several administrative and jurisdictional actions available to the affected party to challenge measures of this kind.
There are two administrative actions that can be lodged with either the Commission or its superior, the Minister of Economy. Both types of action (reconsideration and hierarchical appeal) may concern legal or policy issues and must be submitted within five days of the publication of the relevant measure. Another option for administrative action (open to anyone) is a presentation made before the Comptroller General (an independent entity) to challenge the legality of a resolution. This is a short procedure in which the Comptroller General requests information from the affected agencies and renders a decision.
It is also possible to pursue jurisdictional actions. The affected party may present an annulment claim before a civil judge in the ordinary courts of justice, in which case the trial follows the rules of general procedure; however, this is generally a long procedure and could take years. However, the plaintiff may request precautionary measures to prevent the effects of the contended act.
The argument for the claim in this case would be that an administrative act was in breach of the law or the Constitution, and therefore would simply be a legal claim and not a policy issue. Even though theoretically there is no statute of limitations for this action, the courts have said that the general rules should apply, hence the statute of limitations is five years.
Another option is to file a constitutional claim, which is a claim submitted to court of appeal for a breach 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 in which the court considers a report from the applicable agency before issuing its decision.
Finally, it is possible to file an economic constitutional claim with a court of appeal within six months of an act's publication, claiming an infringement of the constitutional right to develop legitimate economic activities established in Article 19 No. 21 of the Constitution.
All the above-mentioned actions (except for the Comptroller General procedure) require the plaintiff to have an affected right or legitimate interest in the matter.
Customs procedure and rules are mainly found in the Customs Ordinance, the Compendium of Customs Regulations and the Tariff Code, which is based on the Harmonized Commodity Description and Coding System of the World Customs Organization (WCO).
The legal framework for 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 Articles VI and XIX of the GATT Agreement.
In addition, the main Chilean legislation includes Law No. 18,525 on Importation of Goods, enacted in 1986 and amended in 1999, 2001, 2003 and 2011.
The procedure to claim and request safeguards and anti-dumping and countervailing measures is regulated by Decree No. 1,314 of 2012 of the Ministry of Finance.
Finally, Chile is party to 29 trade agreements that include trade remedies and those agreements, once approved by the National Congress of Chile, will be incorporated into the Chilean legal system.
Recognising the necessity for clear rules and principles of international trade, Chile was a founding member of the WTO and a party to the Marrakesh Agreement, which was adopted in Chile through Decree No. 16 of the Ministry of Foreign Affairs. In addition, Chile is party to other WTO agreements such as the Trade Facilitation Agreement and the Agreement on Government Procurement.
Furthermore, Chile has subscribed to four categories of commercial agreements, which differ in coverage and in the degree of commitment. The first kind of agreement is the partial scope agreement, which applies to a limited group of goods with preferential tariff treatment, which is the case for the agreement with India. The second is the economic complementation agreement, which liberalises trade in goods and entails deeper obligations, as with Chile's agreements with Bolivia, Ecuador and Mercosur, among others. The third kind of agreement is the free trade agreement, 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, which include other matters as well as trade, such as social and technological cooperation, and this is the case for the agreements with the European Union and Japan.
Chile has entered into commercial agreements with the following countries: Australia, Argentina, Bolivia, Canada, China, Colombia, Cuba, Ecuador, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Mexico, Panama, Peru, Thailand, Turkey, the United Kingdom, the United States, Uruguay, 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 party to regional free trade agreements with the following:
- Central America (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua);
- EFTA (Iceland, Liechtenstein, Norway and Switzerland);
- Mercosur (Argentina, Brazil, Paraguay, Uruguay and Venezuela (Venezuela's membership is currently suspended));
- P4 (Brunei, 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).
Recent changes to the regime
Law No. 18,525 on trade remedies was amended in 2011 and new regulations for trade remedy proceedings were established in Decree No. 1,314 in 2013, replacing Decree No. 575 of 1993 on anti-dumping and countervailing duties, and Decree No. 909 of 1999 on safeguard measures.
The amendment to Law No. 18,525 increased the term for which a safeguard may be implemented. Under the WTO Safeguards Agreement, a maximum period of eight years is permissible, including extensions. Formerly, Law No. 18,525 allowed only one year with an extension of the same duration (i.e., two years maximum). Currently, safeguards may be implemented for two years, renewable for two more years.
Decree No. 1,314 systematised the trade remedy regime by introducing rules for remedies, thus giving more certainty to interested parties; by improving the proceedings for the adoption of measures; and by establishing the functions of the Commission.
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 by offering the option to dispute tax or customs authority resolutions in an independent and expert court.
Proceedings are regulated to be transparent, efficient and modern, and to provide justice effectively.
Another significant legal development relates to the approach to transfer pricing taken by Chilean authorities. Transfer pricing is gaining increasing importance in Chile, especially after 2012's tax reform, which strengthened existing rules on methods for calculating values in related-party transactions, in accordance with Organisation for Economic Co-operation and Development rules and principles. The Tax Administration has been consistent in conducting investigations and requiring information to support the application of transfer pricing adjustments, and this extends to 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 Administration, or with the National Customs Service in the case of imported goods, on the determination of price, value or regular market profit in these operations with related parties. This agreement lasts for three years and may be renewed.
The transfer pricing regime will certainly result in the exercise of more control and audits by the authorities, but the system of specialised and independent courts improves the chances of a fair defence for taxpayers, importers and exporters.
Chile has been involved in several WTO disputes. Specifically, it has been involved in 10 disputes as a complainant, 13 as a respondent and 48 as a third party.
In these disputes, Argentina has been a regular counterparty and the products involved are those related to agriculture, such as milk, wheat, wheat flour and edible vegetable oils. Often, Argentine industries participating in Commission investigation proceedings express their disagreement with the measures proposed and those ultimately stipulated by the government.
One of the most prominent cases between Chile and Argentina concerned a price band system maintained by Chile. According to this system, the tariff rate for wheat, wheat flour, sugar and edible vegetable oils from Argentina could be adjusted if the price fell below or rose beyond set price band thresholds.
This system was challenged by Argentina at the WTO, where the case was heard by a WTO Dispute Settlement Body (DSU) panel and by the WTO's Appellate Body.2
The Appellate Body reversed two of the panel's initial findings, the first of which concerned a matter brought by Argentina that had not been raised in its panel request, thus depriving Chile of its due process rights under Article 11 of the Dispute Settlement Understanding.3 The second reversed finding concerned the panel's understanding of Chile's price band system as an ordinary customs 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 similar to variable import levies and minimum import prices.
Chile amended its price band system such that the total amount of duties imposed on imports of wheat, wheat flour and sugar varied in two ways: either through the imposition of additional specific duties or through concessionary rebates on the amounts payable. When the reference price determined by the Chilean authorities fell below the lower price band threshold, a specific duty was added to the ad valorem tariff. Conversely, when the reference price was higher than the upper threshold, imports would benefit from a duty rebate.
Argentina subsequently referred a claim to the original panel to the effect that the measures adopted by Chile were insufficient. The panel concluded that Chile had failed to implement the recommendations and rulings of the DSU 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 the Agreement on Agriculture. For judicial economy, the panel considered an additional finding based on Article II:1(b) of the GATT Agreement and Article XVI:4 of the WTO Agreement to be unnecessary. The Appellate Body upheld the finding of the panel.
Chile has entered into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) along 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 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 has still to be approved by the National Congress (it has already been approved by the Chamber of Deputies and is now being considered by the Senate), but the agreement is expected to bring opportunities to Chile and those investing in Chile.
Moreover, the legal reform enacted in 2017 regarding the authorised economic operator (AEO) programme, in accordance with the WCO's SAFE Framework of Standards, was fully implemented through Resolution No. 246 in January 2018. Through this programme, the Customs Service will certify companies or customs brokers as AEOs, allowing them to improve the efficiency of their internal processes, resulting in both time and cost savings.