Abstract
This chapter analyzes the way Chile confronted the period of stagnation after the Asian crisis. It considers two dimensions. The first one is the role of the business associations to pressure the government to, as a way to reinvigorate growth, liberalize the financial market and initiate a new wave of signing trade agreements with the big markets. The second one includes both the United States’ interests in, through negotiating trade agreements, reducing the policy space in the region, and the beginning of the commodity boom. The outcome of the interaction of these dimensions in Chile’s strategy is both a deep deindustrialization and a reduction in the policy space for the state.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
La Nación, March 2, 2000: 6, my translation.
- 2.
Data from UNCTADstat and CIE Chile .
- 3.
The resident of the CPC (the association that represents all the business sectors), Walter Riesco, publicly threatened Ricardo Lagos during the elections. Riesco said that if the government continued with the idea of the labor reform, it would not have the trust of business, and would not be able to make the economy recover (see La Tercera , December 14, 1999: 29). In addition, Fernando Lihn, president of the National Chamber of Commerce, suggested that the obstacle to economic recovery was the threat of labor reform ( Diario Estrategia , June 9, 2000: 7).
- 4.
Instituto Chileno de Administración Racional de Empresa , ICARE (Chilean Institute for the Rational Management of Firms) is an institution focused on business research that organizes an annual meeting between the main business leaders, academics and the government.
- 5.
El Mercurio , April 26, 2000: 6.
- 6.
La Tercera , December 13, 1999: 35.
- 7.
Statements of the CPC , SOFOFA and ABIF (see La Tercera , January 19, 2000: 28 and Estrategia, July 10, 2000: 16).
- 8.
American Repository Receipts (ADRs ) are a kind of stock that is traded in the US but represents shares in foreign corporations.
- 9.
It should be remembered that the right-wing opposition, for the first time since the recovery of democracy, almost won the presidential election, becoming a serious threat to the survival of the center-left coalition . the opposition increased its critiques of the government, accusing it of losing the capacity to manage the economy in less than one year of governing (see El Mercurio , May 11, 2000: 4).
- 10.
Estrategia (very close to the financial sector) indicated that the government’s main goal in the first year had been to provide all the policies necessary to increase business confidence (Estrategia, June 19, 2000: 28).
- 11.
El Mercurio (very close to the business class in general), interpreted these measures as a way for the government to provide an “influx” of optimism to the economic agents in order to facilitate saving and investment ( El Mercurio , April 22, 2001: 1).
- 12.
Estrategia, May 29, 2000: 1 and Estrategia, May 30, 2000: 9.
- 13.
Ibid.
- 14.
El Mercurio , May 31, 2000: 1.
- 15.
As Chile was not receiving the capital inflows at the time that it had during the 1990s, it was considered that the capital control could go down to zero as a way to incentivize inflows. As noted earlier, capital controls are a flexible measure that is activated in times of massive inflows and reduced in times of low inflows.
- 16.
In fact, the economist of Gemines (a consulting firm advising business associations ), Andrés Passicot, indicated that with this move, the Central Bank made clear that it would not use the measure in the future. See Estrategia, April 18, 2001: 4.
- 17.
Ibid.
- 18.
Ibid.
- 19.
This quick debate was not unnoticed by some parliamentarians. Deputy Lorenzini, for example, declared that when it was a reform that favored business there was almost no debate, while when it was for labor it could take years. Besides that, the right-wing opposition voted in favor since the reform was in consonance with its ideas of market and capital liberalization, while the center-left Parliamentarians voted in favor because it was considered to be the only way to encourage investment , reduce unemployment and advance toward economic recovery (see Biblioteca del Congreso Nacional 2001).
- 20.
President Lagos’ speech at the inauguration of the Encuentro Exportador. See El Mercurio , August 29, 2000: 3.
- 21.
Direcon is the Foreign Ministry’s General Directorate of International Economic Relations and ProChile is the institution of the Foreign Ministry in charge of export promotion.
- 22.
See President Lagos’ statements in El Mercurio , August 29, 2000: 3 and La Nación, August 29, 2000: 1.
- 23.
See Minister Alvear’s statements in El Mercurio , August 28, 2000: 6.
- 24.
Public statement of the Minister of Finance, Nicolás Eyzaguirre , in http://www.emol.com/noticias/economia/2002/03/15/80945/gobierno-anuncio-primeras-propuestas-de-la-agenda-pro-crecimiento.html.
- 25.
The Trans-Pacific Strategic Economic Partnership Agreement (TPSEP ) is the trade agreement between Brunei, Singapore, New Zeland and Chile .
- 26.
It should be remembered that at the time, Mercosur was deciding its rules on issues such as dispute settlements , common tariffs and macroeconomic approaches.
- 27.
See Rosales’s declaration in La Nación, July 24, 2000: 28.
- 28.
El Mercurio , July 19, 2000: B1, my translation.
- 29.
La Nación, July 21, 2000: 5.
- 30.
Going down to 6% in 2003.
- 31.
Personal interview with Hugo Fazio (2015). See also Rush (2000).
- 32.
As she said, “The agreement with Chile will not only accelerate the FTAA , but will also help to establish higher standards during negotiations. That is why it is important to work with that objective in mind and move now to make sure that the United States and Chile have a leadership role in the FTAA process” (quoted in Estrategia, December 11, 2000: 8, my translation).
- 33.
The top five Chilean exports to the US in 2000 were copper , at 19%; edible fruits and nuts (mainly grapes), at 18%; fish (mostly salmon), at 15%; wood, at 13%; and, beverages, mostly wine, at 4% (see Direcon 2003).
- 34.
For example, cellulose had a tariff of 5.1%; wooden furniture, 18%; and the food industry, between 35 and 350% (see Direcon 2003).
- 35.
As Roberto Matus, Trade Commissioner of the Chilean Embassy in Washington, indicated, the GSP was re-negotiated by the US government and US businesses every year, opening possibilities for modification that were nonetheless dependent on the capacity of the American producers’ lobby and the American export situation. At the same time, the bureaucratic procedure Chilean producers had to go through to get the benefit was extremely cumbersome (personal interview 2016).
- 36.
See Silva (2001) and interviews to business representatives in El Diario , May 15, 2001: 26.
- 37.
Personal interview with Kathleen Barclay, President of the US-Chile Chamber of Commerce, Amcham, 2016. See also interview with Willard Workman, Vice President of the US Chamber of Commerce in Estrategia, April 19, 2001: 10.
- 38.
During the public audience concerning the FTA with Chile , the Research and Manufacturing Association of America accused Chile of having a weak IP regulatory framework (see El Diario , May 31, 2001: 29).
- 39.
As Robert Zoellick , Director of the United State Trade Representative , indicated, ‘With Chile was want an FTA that can serve as a model to the region and the world’ ( El Diario , May 22, 2001: 35, my translation). See also USITC (2003).
- 40.
Between 1994 and 2003, 12 demands from multinational firms to NAFTA members were made under NAFTA Chapter 11 rules. Four of them resulted in monetary payments from Canada and Mexico . See Gantz (2003).
- 41.
Personal interview with Alicia Frohmann (2016).
- 42.
- 43.
Customary international law is a subset of international law. As indicated in the Statute of the International Court of Justice (quoted in Tuck 2009: 580), the latter refers to “international conventions, international custom, general principles of law recognized by civilized nations, and judicial decisions and teachings of the most qualified publicists of the various nations.” Customary law, as defined in the Chile -US FTA, restricts the concept of “fair and equitable treatment” to “the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance to with the principle of due process embodied in the principal legal system of the world” (art. 10.4[2]).
- 44.
For example, the concept of “indirect expropriation” requires a case-by-case analysis (FTA Chile -US, Annex 10.D, art. 4 [a]). By itself, the negative economic impact of a government policy on a foreign investment cannot be considered an indirect expropriation (Annex 10.D, art. 4 [a][i]), and any policy that is based on legitimate objectives of welfare, such as public health, security, or environmental safety, is excluded from the concept (FTA Chile -US, Annex 10.D, art. 4 [b]).
- 45.
The international courts are UNCITRAL, ICSID and ICSID additional facility.
- 46.
Personal interview with Alicia Frohmann (2016).
- 47.
This is open for interpretation. It can be interpreted as renewable for periods of one year during crises (for example, the crisis in Chile in the 1980s lasted more than three years), or only useful for one year per crisis . From Chile’s perspective , the first one is the correct interpretation, permitting the state to use the encaje for more than one year during crisis (personal interviews with Alicia Frohmann [2016] and Kathleen Barclay [2016]), while from the US perspective, the second one is the correct interpretation (see Weintraub 2004).
- 48.
See FTA Chile -US, Annex 10-C (1 [a], [c], [e], [f], 2).
- 49.
Personal interview (2014).
- 50.
This is exactly why during the boom of the 1990s, Chile used the encaje extensively, while during the Asian financial crisis , Chile reduced it to 0%. As capital controls must be flexible and adapt to changing situations, in times of capital outflows, encaje was not used.
- 51.
The Institute of Public Health (ISP) is in charge of, among other things, providing drug-marketing approval for foreign medicaments entering the national market. After obtaining this registration, a firm can immediately begin the marketing process. If the firm violates a registered patent, provided by the Department of Intellectual Property (DPI), the patent owner can sue the firm in the state courts. However, the linkage mechanism was intended to place the ISP in charge, not only of sanitary registration, but also of IP registration, making a linkage between the ISP and the DPI. Chile’s major critique of the linkage measure was that it would transform the ISP into an organization that protects not only the health of the population but also the IP of foreign patent holders, bypassing the state courts.
- 52.
- 53.
See the President Lagos’ statement to Parliament in BCN (2003: 13–26).
- 54.
In fact, the EU ambassador in Chile , Lorenzo Antón Santos, said that the process of consolidation of the FTAA had been considered a challenge to the dominant role of the EU in Latin America , accelerating the EU’s trade agreements with the region ( El Mercurio , April 26, 2001: 4).
- 55.
Alberto van Klaveren, personal interview 2015.
- 56.
See the declaration of EU negotiators, El Mercurio , March 16, 2001: 6.
- 57.
Personal interview with Hugo Baierlein, Foreign Commerce Manager of SOFOFA 2014.
- 58.
For example, before the FTA, agroforestry products were subject to average tariffs of 22.4% (with a range of 0 to 30%). In the forestry sector, wood panels, which were among the higher value-added goods in the sector, had tariffs between 4 and 10%, while paper had 7% tariffs (see analysis of Jorge Awad in La Segunda, December 30, 2004: 16).
- 59.
Interview in Estrategia, October 4, 2004: 11.
- 60.
In 2009, China signed an FTA with Peru, in 2010 it signed one with Costa Rica, and it is currently negotiating with Colombia .
- 61.
See the pro-FTA declarations of the forestry and the agro-industry business associations (Corma and Fedefruta, respectively) in El Mercurio , December 22, 2003: 6.
- 62.
For the open critiques made by the textile business associations , see La Tercera , November 14, 2004: 50.
- 63.
Declaration of Abraham Ducasse, President of ASIMET (Diario Financiero, February 9, 2005: 23).
- 64.
See declarations of Luis Schmidt, President of SNA ( El Mercurio , September 16, 2005: 1).
- 65.
According to Gachúz (2012), Chile’s ability to impose its demands on China was the result of China’s need for resource security, which Chile used as a way to increase its power during the rounds of negotiation.
- 66.
In 2008, Chile and China signed a supplementary agreement on service and investments, which entered into force in 2010. However, it just confirmed the WTO norms (TRIPS and TRIMS ), as well as the mechanism for resolution of state-investor disputes and the notion of “direct and indirect expropriation.”
- 67.
According to ECLAC (2013), almost one third of FDI to Chile in 2012 was later “exported” to the rest of the region by subsidiary companies in order to take advantage of the preferential access that Chile has with the region.
- 68.
La Tercera , December 11, 2010: 62.
- 69.
La Segunda, April 29, 2011: 35.
- 70.
La Tercera , April 15, 2011: 38.
- 71.
Ibid.
- 72.
See Diario Financiero, July 23, 2010: 27 and El Mercurio , September 25, 2010: 3.
- 73.
Interview in El Mercurio , April 11, 2011: 4.
References
Abugattas, L., & Paus, E. (2008). Policy space for a capability-centered development strategy for Latin America. In K. Shadlen & D. Sánchez-Ancochea (Eds.), The political economy of hemispheric integration. New York: Palgrave Macmillan.
Altemir, A. (2005). Los tres pilares del acuerdo de asociación Chile-Unión Europea: diálogo político, cooperación y comercio. Revista de Estudios Internacionales, 38(151), 73–116.
Díaz, A. (2008). América Latina y el Caribe: propiedad intelectual después de los tratados de libre comercio. Santiago, Chile: ECLAC.
Dumbaugh, K., & Sullivan, M. (2005). China’s growing interest in Latin America (CRS Report for Congress, Order code RS2219). United States.
Economic Commission for Latin America and the Caribbean (ECLAC). (2013). La inversión extranjera directa en América Latina y el Caribe. Santiago, Chile: UN-ECLAC.
Economic Commission for Latin America and the Caribbean (ECLAC). (2014). La inversión extranjera directa en América Latina y el Caribe. Santiago, Chile: UN-ECLAC.
Edwards, S. (1999, June 4). Chile’s “new socialist” bids for the presidency. The Wall Street Journal.
Fermandois, J. (2006). Peace at home, turbulence abroad: The foreign policy of the Lagos administration. In L. Oppenheim & S. Borzutzky (Eds.), After Pinochet: The Chilean road to democracy and the market. Gainesville, FL: University Press of Florida.
Ffrench-Davis, R. (2015). Entre el Neoliberalismo y el Crecimiento con Equidad. Santiago, Chile: JC Saez Publisher.
Gachúz, J. (2012). Chile’s economic and political relationship with China. Journal of Current Chinese Affairs, 41(1), 133–154.
Gallagher, K. (2008). Trading away the ladder? Trade politics and economic development in the Americas. New Political Economy, 15(1), 37–59.
Gallagher, K. (2011). Regaining control? Capital controls and the global financial crisis (Working Paper Series No. 250). Political Economy Research Institute, University of Massachusetts Amherst.
Gantz, D. (2003). The evolution of FTA investment provisions: From the NAFTA to the United States-Chile free trade agreement. American University International Law Review, 9(5), 680–767.
Guardia, A. (2015). La Experiencia Democrática Chilena: de sus fundamentos y su economía política (1990–2009). México: Fondo de Cultura Económica.
Hornbeck, J. (2003). The US-Chile free trade agreement: Economic and trade policy issues (CRS Report for Congress, United States Congressional Research Service).
Jablonski, S. (2004). ¡Sí po! Foreign investment dispute resolution does have a place in trade agreements in the Americas: A comparative look at Chapter 10 of the United States-Chile Free Trade Agreement. The University of Miami Inter-American Law Review, 35(3), 627–659.
Muñoz, O. (2007). El Modelo Económico de la Concertación: 1990–2005, ¿Reformas o Cambios? Santiago, Chile: Catalonia Publisher.
Organization for Economic Cooperation and Development (OECD). (2011). Globalization, comparative advantages and the changing dynamics of trade. Paris, France: OECD Publishing.
Palma, J. G. (2008). De-industrialization, ‘premature’ de-industrialization and the Dutch disease. In S. Durlauf & L. Blume (Eds.), The new Palgrave dictionary of economics. Basingstoke, UK: Palgrave Macmillan.
Paus, E. (2014). Latin America and the middle income trap (Series Financing for Development, No. 250). ECLAC.
Pérez Caldentey, E. (2012). Income convergence, capability divergence and the middle income trap: An analysis of the case of Chile. Studies in Comparative International Development, 47(2): 185–207.
Porras, J. I. (2003). La estrategia chilena de los acuerdos comerciales: un análisis político. Chile: ECLAC, Division of International Trade and Integration.
Riesco, M., & Draibe, S. (2006). Estado de bienestar, desarrollo económico y ciudadanía: algunas lecciones de la literatura contemporánea. Mexico: Unit of Social Development, ECLAC.
Rush, C. (2000). Brazil is the target of Chile-US trade accord. Eire Economics, 27(50): 4–5.
Sanhueza, G., Bello, J., & Rosenberg, K. (2013). Propuestas para el Desarrollo de la Industria Metalúrgica-Metal-Mecánica. Chile: Econsult-Asimet.
Santa Cruz, M., & Roffe, P. (2006). Los derechos de propiedad intelectual en los acuerdos de libre comercio celebrados por los países de América Latina con los países desarrollados (Series Comercio Internacional, No. 70). ECLAC.
Shadlen, K. (2005). Exchanging development for market access?: Deep integration and industrial policy under multilateral and regional-bilateral trade agreements. Review of International Political Economy, 12(5), 750–775.
Silva, E. (2002). Capital and the Lagos presidency: Business as usual? Bulletin of Latin American Research, 21(3), 339–357.
Silva, V. (2001). Estrategia y agenda comercial chilena en los años noventa. Series, from the Division of International Trade and Integration, ECLAC.
Solimano, A. (2012). Chile and the neoliberal trap: The post-Pinochet era. Cambridge, UK: Cambridge University Press.
Stallings, B. (2009). Chile: A pioneer in trade policy. In M. Solís, B. Stallings, & S. Katada (Eds.), Competitive regionalism: FTA diffusion in the Pacific Rim. Basingstoke, UK: Palgrave Macmillan.
Tuck, A. (2009). United States-Chile FTA chapter 10: Lessons from NAFTA chapter 11 jurisprudence. Law and Business Review of the Americas, 15(3), 575–600.
United States International Trade Commission (USITC). (2003). U.S.-Chile free trade agreement: Potential economy wide and selected sectoral effects. Investigation No. TA-2104-5.
Wehner, L. (2011). Chile’s rush to free trade agreements. Revista de Ciencia Política, 31(2), 207–226.
Weintraub, S. (2004). Lessons from Chile and Singapore free trade agreements. In J. Shott (Ed.), Free trade agreements: U.S. strategies and priorities. Washington, DC: Institute of International Economics.
Wilson, J. (2012). Resource security: A new motivation for free trade agreements in the Asia-Pacific region. The Pacific Review, 25(4), 429–453.
Wise, C. (2016). Playing both sides of the Pacific: Latin America’s free trade agreements with China. Pacific Affairs, 89(1), 75–100.
Official Documents
Biblioteca del Congreso Nacional. (2000). Mensaje Presidencial 21 de mayo 2000. Republic of Chile.
Biblioteca del Congreso Nacional (BCN). (2001). Historia de la Ley No. 19.768. Republic of Chile.
Biblioteca del Congreso Nacional (BCN). (2002). Mensaje Presidencial 21 de mayo 2002. Republic of Chile.
Biblioteca del Congreso Nacional (BCN). (2003). Historia del Decreto Supremo No. 312. Republic of Chile.
Biblioteca del Congreso Nacional (BCN). (2006). Historia del Decreto Supremo No. 317. Republic of Chile.
Direcon. (2003). Tratado de Libre Comercio Chile-Estados Unidos. Ministry of Foreign Affairs, Chile.
Direcon. (2009). Chile: 20 años de negociaciones comerciales. Ministry of Foreign Affairs, Chile.
Direcon. (2016). Intensidad tecnológica del intercambio internacional de bienes chilenos. Ministry of Foreign Affairs, Chile.
Ministry of Finance. (2000). Exposición sobre el Estado de la Hacienda Pública. Republic of Chile, Chile.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2019 The Author(s)
About this chapter
Cite this chapter
Ahumada, J.M. (2019). Chile in the Road to the Commodity Boom: Deindustrialization Without Policy Space. In: The Political Economy of Peripheral Growth. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-10743-7_6
Download citation
DOI: https://doi.org/10.1007/978-3-030-10743-7_6
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-10742-0
Online ISBN: 978-3-030-10743-7
eBook Packages: Economics and FinanceEconomics and Finance (R0)