I.                   INTRODUCTORY REMARKS BY THE CHAIRPERSON

1.                   The third Trade Policy Review of Chile was held on 2 and 4 December 2003.  The Chairperson (H.E. Ms. Mary Whelan) welcomed the delegation of Chile, headed by State Secretary of the Ministry of Foreign Affairs, Mr. Osvaldo Rosales, and the discussant H.E. Mr. Tim Groser (New Zealand).  As usual, the discussant would speak in his personal capacity and, in accordance with established procedures, he had made available in advance a broad outline of the themes he intended to raise (document WT/TPR/D/102).

2.                   The Chairperson recalled the purpose of the Trade Policy Reviews and the main elements of the procedures of the meeting.  The Report by the Government of Chile was contained in document WT/TPR/G/124 and that of the Secretariat in document WT/TPR/S/124.  Copies of advance written questions, submitted by:  Argentina;  Australia,  Brazil;  Canada;  Chinese Taipei;  Colombia;  the European Union;  Hong Kong, China;  India;  Japan;  Mexico;  Switzerland;  the United States;  and Venezuela, had been transmitted to the delegation of Chile.  These questions and the replies provided by the delegation of Chile are reproduced in document WT/TPR/M/124/Add.1.

3.                   The Chairperson noted that both the Government and the Secretariat Reports highlighted Chile's commitment to trade liberalization through multilateral and regional initiatives.  However, while economic reforms had been wide in scope, growth rates had remained modest in recent years.  It would thus be interesting to hear whether Chile's development strategy faced structural problems, or was only undergoing a cyclical downturn.  Also, against the background of the increasing role of regional initiatives in Chilean trade policy, it would be interesting to hear the views of the Chilean delegation on this form of trade liberalization and how the Chilean authorities intended to balance it with its multilateral objectives.

II.                OPENING STATEMENT BY THE REPRESENTATIVE OF CHile

4.                   The representative of Chile (Secretary of State Osvaldo Rosales) recalled recent developments in his country's macroeconomic environment and trade policy.  He noted a marked link between the two issues, with trade liberalization and macroeconomic stability being mutually supportive.  The period under review, from 1997 to 2003, was a critical time, both world-wide and regionally.  It included financial and currency crises in a number of countries, various major corporate scandals, the bursting of the IT bubble, and a strong global downturn in 2000-01.  Chile suffered from a considerable fall in the external demand of its main trading partners, falling prices of its main export goods, high oil prices, and reduced capital inflows.  As a result, growth rates were about 50% lower than during the previous six-year period.  On the other hand, Chile was successful in reducing inflation rates and maintaining fiscal stability.

5.                   Over recent years, Chile's macroeconomic policy environment had been characterized by three major changes.  First, monetary policy had been modified by introducing an inflation goal, currently in the 2% to 4% range.  Second, a floating exchange rate regime had been introduced in September 1999, with a view to increasing Chile's capacity to resist external shocks.  And third, the concept of a structural surplus of 1% of GDP had been introduced in order to allow for counter-cyclical policy.

6.                   Macroeconomic projections for 2004 indicated a recovery with an estimated GDP growth of 4% to 5%, with balanced fiscal and external accounts and inflation rates under control.  Estimates showed particular optimism regarding the impact on economic activity of the entry into force of the free-trade agreement with the United States in 2004.

7.                   The main goals of Chile's trade policy were:  improving access for Chilean goods and services on its main markets;  fostering private, domestic and foreign investment;  increasing Chile's competitiveness and macroeconomic stability;  and contributing to the eradication of poverty.  Additional intermediate objectives included transparency and legal certainty.  Chile pursued these trade policy objectives through unilateral tariff reduction, new free-trade agreements with major trading partners, and an active participation in the WTO.  Chile's trade policy had experienced increased attention over recent years due to the country's difficult external environment, but generally enjoyed broad support among the population.  The low and flat tariff guaranteed transparency and predictability as well as, sectoral neutrality, and minimized the risk of trade diversion.  All these characteristics contributed to a pro-investment and pro-growth environment.

8.                   At the national level, Chile's trade policy over the last six years had been characterized by further unilateral tariff reductions, the introduction of a safeguards regime with stricter provisions than the WTO Agreement, the modification of subsidy programmes to be in conformity with the respective WTO Agreement, and the enactment in November 2003 of an Omnibus Law on WTO Compliance with adjustments related to TRIMs, TRIPS, customs valuation, and technical barriers to trade.

9.                   At the bilateral level, there had been a need for bilateral negotiations with key partners, as unilateral liberalization did not provide market access opportunities for national exporters.  Furthermore, multilateral negotiations, which otherwise were the best alternative, had been slow and might converge to the lowest common denominator.  Chile also pursued bilateral negotiations in order to attract foreign investment and to avoid being discriminated against in countries that had already engaged in FTAs.  About 90% of trade with other Latin American countries had been liberalized due to the various agreements Chile had in place with these countries.  Since 1997, Chile had concluded further FTAs with several OECD members (Canada, Mexico, the European Union, the United States, the members of the European Free Trade Association, and the Republic of Korea).  Negotiations for additional FTAs had started with Bolivia, New Zealand, and Singapore.  As a consequence, more than 75% of Chile's foreign trade would be duty-free in 2004.  Chile's FTAs were comprehensive in scope and WTO-consistent;  besides their full or at least substantial coverage of trade in goods and services they dealt with a broad range of themes, including Singapore issues.

10.               At the plurilateral level, Chile had shown a strong commitment to a comprehensive FTAA.  It would chair the APEC meeting in 2004, and it had formally applied to become member of the OECD.

11.               At the multilateral level, Chile was firmly and consistently committed to the WTO.  It had actively participated in the negotiations of the Doha Development Agenda and submitted several proposals.  For Chile, the WTO was the most important forum for addressing trade distortions in agriculture and the abuse of anti-dumping measures.  The Doha Round offered Chile additional market access opportunities, in particular in the big and dynamic markets in Asia.  However, Chile considered the WTO not just as a forum for trade negotiations.  It was a commitment to a rules-based multilateral system, to transparency in international economic relations, and to a dispute settlement mechanism, all of which strengthened trade flows.  The Dispute Settlement Understanding had to be respected by all Members, particularly the bigger ones, in all cases. 

12.               In conclusion, Chile's participation in the WTO was an essential component of its trade strategy.  Chile put high expectations on a successful Doha Round.  Agriculture was the cornerstone of the DDA because of its development implications;  thus, progress in agriculture would facilitate movement in other areas.  The Doha Round was the main economic policy and trade initiative at the beginning of the 21^st century, an opportunity that Members should not lose.

III.             STATEMENT BY THE DISCUSSANT

13.               The discussant (Mr. Tim Groser) called Chile's development over the last ten years an economic success story, which included a successful transformation to a sustained low inflation environment, a very respectable growth record, and a substantial poverty reduction.  Recalling a 1999 World Bank study ("Growth is Good for the Poor"), he underlined the crucial role of growth for poverty reduction.  While there had certainly been a slowdown in Chile's growth rate over the last years, this had to be seen against the background of an unusual combination of negative external factors such as the Asian financial crisis, low growth rates in neighbouring countries, and low commodity prices.  Chile's example demonstrated, however, that a small open economy was better able to adjust to such shocks than closed economies, as witnessed by current IMF growth prospects of about 5% for 2004.

14.               As far as the macroeconomic environment was concerned, Chile had adopted a floating exchange rate regime, the only policy instrument that made sense for a small and open economy.  The independence of Chile's Central Bank and its general non-interference in the foreign exchange market had been key to the overall coherence of economic policy.  Even during the period of peso weakness the Central Bank had been very reluctant to intervene, other than to preserve its liquid foreign assets.  Chile's diversification strategy, its prudent management of public debt, and its transparent public accounts had also contributed to increased resilience in the face of the various external shocks.

15.               Turning to trade policy, the discussant noted that Chile was a remarkable example for the superiority of open versus closed economies.  Moreover, it had been one of the first countries to put in practice the idea of a uniform tariff, thereby reducing effective protection rates and increasing allocative efficiency.  Chile's adjustment to any conceivable outcome from the Doha Development Agenda would be vastly facilitated by the significant and continued unilateral reforms of the past.  However, with Chile's applied MFN tariffs approaching zero and a high number of FTAs in place, the tariff as a policy instrument might have run its course.

16.               Chile's trade policy demonstrated the relevance of the WTO for smaller countries, as certain policy instruments could only be adjusted multilaterally.  But Chile's example also showed that small countries should follow a multi-dimensional strategy by maintaining complementarity with regional and unilateral initiatives.  At the multilateral level, Chile was indeed a very active participant in the WTO.  The WTO represented the rule of law;  in its absence, power alone would prevail.  While power was certainly present in the organization, this would not allow the conclusion that small countries such as Chile would be better off without a multilateral legal framework, as demonstrated by a dispute case Chile had brought successfully against the European Union in the early 1980s.

17.               Although it had actively pursued regional trade agreements, Chile had obviously not removed political attention from the multilateral level, obviously it had concluded that both were necessary.  Furthermore, trade diversion might play a minor role in view of Chile's relatively low MFN tariffs.  It was, however, a paradox that many of the countries with which Chile had bilateral investment treaties were adamant opponents of even considering this issue multilaterally.

18.               Chile did not believe in having a set of independent sectoral policies;  there was broad policy coherence across sectors.  Its flat tariff policy was itself a statement of Chile's wish to reduce the sectoral bias in terms of resource allocation;  and it had reduced most of its subsidies programmes.  As a result of all these policy adjustments, Chile could today be considered one of the most open economies in the world 

IV.              STATEMENTs BY MEMBERS OF THE TRADE POLICY REVIEW BODY

19.               The representative of the United States underlined the close trade ties between the economies of the U.S. and Chile, which were expected to integrate even more with the implementation of the bilateral FTA on 1 January 2004.  Recalling bilateral trade and investment levels, she expected U.S. direct investment to increase with the implementation of the FTA, thereby further stimulating trade flows.  Following trade liberalization, Chile had achieved significant progress in poverty reduction through a combination of strong growth and social programmes.  Prudent fiscal and monetary policy had allowed Chile to control inflation.  Trade represented a significant and increasing portion of Chile’s GDP, accompanying Chile’s policy of open markets and increasing commercial ties through trade agreements.  Chile had been a strong supporter of the Free Trade Area of the Americas negotiations, and likewise, it had worked toward a successful conclusion of the WTO Doha round, looking for a far reaching agreement that would bring the benefits of trade liberalization to all.

20.               Chile’s trade agenda included negotiation of bilateral trade agreements with a diverse group of trading partners, including the United States.  This reflected Chile’s reliance on trade as an engine of economic growth, as well as the energy and expertise of its team of trade negotiators, and illustrated the complementarity of bilateral and multilateral agreements.  While the representative applauded Chile’s approach to economic growth and trade policy, she encouraged it to notify its legislation on customs valuation and the WTO Checklist to the WTO Committee on Customs Valuation.  These notifications would increase transparency, which was particularly important in the customs valuation process.   The United States also requested information on Chile's revision of its price band system and on new legislation on intellectual property rights, and expressed concerns regarding the potential effect of new Chilean legislation on U.S. investors in the electricity sector. 

21.               The representative of Japan recalled the level of bilateral trade and investment flows between the two countries, and Japan's role as a principal donor for technical assistance through the Japan - Chile Partnership Program.  The two governments had agreed to hold consultations on a regular basis, which should contribute to closer economic relations.  Japan expressed appreciation for Chile's GDP growth rates and its unilateral trade liberalization, hoping that Chile would make further commitments for liberalization in the on-going Doha negotiations.  Regarding FTAs, Japan expressed concerns that these agreements might adversely affect the interests of those not party to the agreement and asked Chile to ensure that the provisions in its FTAs were fully WTO-compliant.  Noting the difference between bound and applied rates in Chile's tariff schedule, Japan requested Chile to further reduce its bindings.  It welcomed Chile’s efforts to enhance the protection of IPRs, such as revising the existing legislation on industrial property and copyrights, and hoped that Chile would enhance IPR-protection through full implementation of the TRIPS Agreement.

22.               Regarding agriculture and fisheries, certain issues seemed to require clarification in terms of the WTO-conformity and transparency of Chile's policies.  Being one of the major importers of agricultural and fisheries products from Chile, Japan hoped that Chile would maintain its fair and transparent policies.  Turning to financial services, Japan believed that the public-interest test contained in Chile's Schedule of Commitments as well as the solvency and liquidity criteria were too vague and should be specified to ensure more transparency.  In telecommunications and maritime services, Japan encouraged Chile to expand its commitments in the current round of multilateral negotiations.  Both countries were members of APEC and Japan looked forward to further cooperating with Chile in this forum as well as in the current WTO round.

23.               The representative of Canada viewed Chile as a key regional partner and one of the most open and stable economies in Latin America, with a dynamic trade policy at the bilateral, regional, and multilateral levels.  Canada was the first G7 nation to sign an FTA with Chile, which formed the cornerstone of bilateral trade and investment relations.  A current government-led trade mission to Santiago and the launch of a direct flight between Toronto and Santiago underlined Canada's strong interest in the Chilean market.  Chile has made great efforts to unilaterally lower import barriers, and to become more transparent in both its regulatory and legal frameworks.

24.               Canada commended Chile on its overall level of transparency, but expressed concerns with the lack of clarity regarding customs procedures and the appeal of customs decisions.  Noting Chile's very positive contribution in trade negotiations in the WTO, Canada stated that both countries benefited from a strong, rules-based multilateral trading system, and underlined that bilateral and regional trade negotiations should not detract from the WTO.  Canada shared many common interests with Chile in the Doha Development Agenda on the core issues of fundamental agricultural trade reform, market access for goods and services, and trade rules.

25.               The representative of Hong Kong, China stated that there was good potential for further expansion of currently moderate bilateral trade volumes, as the two economies had open trade and investment regimes.  Chile and Hong Kong, China were also close partners in promoting trade liberalization and economic cooperation in the APEC forum.  Hong Kong, China congratulated Chile on its success in maintaining resilience and steady economic growth in spite of the difficult external environment, and expressed appreciation for Chile's unilateral tariff reduction over the last years.  However, Chile could effect improvements by narrowing the gap between bound and applied rates and restricting the use of specific duties on agriculture goods under the price band system.

26.               Hong Kong, China commended Chile on its new Government Procurement Law, suggesting that, to facilitate trade, the contents of the public procurement web sites might also be provided in English, and encouraged Chile to join the WTO Agreement on Government Procurement.  Hong Kong, China shared with Chile the disappointment on the setback in Cancún, but appreciated Chile's commitment to the Doha Development Agenda.  The two economies also shared the goal of further liberalization of trade in services in this Round;  in this regard Hong Kong, China appreciated Chile’s contribution to the ongoing services negotiations. By the same token, both economies were friends of anti-dumping negotiations and shared the goal of improving and tightening rules and the disciplines on anti-dumping.  Turning to Chile’s regional and bilateral trade initiatives, Hong Kong, China hoped that Chile's FTA initiatives would contribute to multilateral liberalization efforts and would be fully consistent with the WTO rules.

27.               The representative of Australia noted the substantial reform and liberalization initiatives carried out by Chile since its last Review, and recalled the significant level of Australian investment in Chile, concentrated primarily in the mining industry.  The two countries shared a common and long-standing commitment to trade liberalization at the multilateral level and cooperated to promote the reform of international agricultural trade in the Cairns Group.  Australia shared Chile’s concerns about the failure of the Cancun Ministerial conference and welcomed Chile's constructive and thoughtful contribution across the entire Doha work programme.  Turning to Chile's engagement in free-trade agreements, Australia underlined that regional and bilateral agreements should strengthen and complement the multilateral system. 

28.               The representative of Colombia highlighted the continuity in Chile's economic and trade policy since its last Review in 1997.  While the slowdown in Chile's growth rates could be an indication of vulnerability, growth remained higher than in Latin American and developing countries as a whole.  Like other developing countries, Chile was affected by the global crisis and low international prices.  The introduction of a floating exchange rate in September 1999 may have increased the flexibility of Chile's economy, while the concept of a structural fiscal surplus was an example be studied by other developing countries.  Chile was an active participant in the DDA negotiations and had a strong commitment to its successful completion.  Colombia commended Chile on the continuity in its tariff reduction, the streamlining of customs procedures, and the recent approval of a law on miscellaneous WTO issues.  Agricultural trade played a special role for Chile, consistent with its position with regards to greater liberalization in this area.  Chile's trade agreements with other Latin American countries were an important source of growth for the Chilean economy, as witnessed by the evolution of bilateral trade between Colombia and Chile.

29.               Turning to the sugar sector, Colombia was concerned about the high number of trade measures imposed by Chile in this area, such as a safeguard, the renegotiation of the bound rate, the introduction of a tariff quota without acknowledging Colombia as a main provider, and the tariff classification of sugar products.  These measures lacked transparency and introduced a clear bias against Colombian sugar.  Therefore, Colombia urged Chile to reverse these measures and to correct the discrimination against its sugar producers.

30.               The representative of Uruguay highlighted the intelligence and consistency of Chile's trade policy, which had contributed to growth and development as well as to Chile's efficient regional and global integration.  Chile's active and constructive participation in all WTO fora, and its firm commitment to the multilateral trade system deserved special mention.  As a member of the Cairns Group, Chile worked for the legitimate interests of efficient agricultural exporters.

31.               The representative of the European Union noted that Chile was a young democracy which had managed to get back on the track of economic prosperity even with a troubled political past.  The EU and Chile enjoyed good and strong relations, as witnessed by their full-fledged association agreement.  The active opening-up of Chile's economy was an important reason for its success.  While bilateral and regional trade arrangements were important tools for promoting trade and growth in Chile, they could not replace the benefits of global trade and the need for continuing liberalization in the context of the WTO.  A number of developing countries that were substantially poorer than Chile might require greater preferences and assistance.  The EU shared, with Chile, a full commitment to the DDA. 

32.               The representative of Switzerland stressed Chile's macroeconomic stability despite financial crises in the region.  Lower copper and higher oil prices as well as other adverse external factors had affected the Chilean economy, but thanks to prudent fiscal and monetary policies the confidence of investors and consumers had returned.  Switzerland congratulated Chile on its considerable efforts in the reform of the public administration and on the unilateral reduction of tariffs, the streamlining of customs procedures, the lifting of capital controls, and the floating of the exchange rate.  Intersectoral neutrality, the almost uniform applied MFN tariff, and the granting of national treatment in government procurement to foreign investors were the right steps towards an open trade and investment regime.  Therefore, Chile should consider joining the WTO Government Procurement Agreement.  Chile's strong involvement in a wide range of FTAs enhanced market access and increased Chilean competitiveness.  As a member of EFTA, Switzerland was pleased about the recently signed FTA and looked forward to its entry into force at the beginning of 2004.  Moreover, a bilateral investment agreement entered into force in May 2002 and negotiations for an agreement on double taxation should be concluded soon. 

33.               Switzerland expressed appreciation for Chile's low average tariff of 6% and hoped that the Chilean Congress would soon approve new legislation on industrial property and copyrights.  Chile's commitment to the multilateral trading system and its ratification of the Fourth and Fifth Protocols to the GATS were important contributions to the advancement of the multilateral liberalization of services.

34.               The representative of Chinese Taipei commended Chile on the unilateral reduction of its tariffs, the streamlining of its customs procedures, and the lifting of capital controls.  Recalling current bilateral trade volumes, Chinese Taipei believed that there was a great potential to strengthen the bilateral economic relationship in the years ahead.  Turning to restrictions on the transfer of capital in Chile's horizontal commitments in its Services Schedule, Chinese Taipei enquired whether Chile might consider bringing its commitments into line with its more liberal applied regulations.  Moreover, Chinese Taipei asked Chile to explain the consistency of its terms of patent protection and industrial design with the WTO TRIPS Agreement.  In light of the many FTAs that Chile had signed, Chinese Taipei was interested in knowing whether these resulted in any other preferential treatment in terms of taxes, fees, and customs procedures, and also whether Chile planned to liberalize its services market by way of FTAs in the future.

35.               The representative of Argentina stated that Chile's trade achievements were the result of policies with a high degree of continuity over the several decades, complemented by the negotiation of FTAs during the 1990s.  However, this had led Chile's proportion of MFN trade to shrink and may have increased the complexity of Chile's trading system.  It also raised general questions on the impact of the expansion of preferential agreements on the multilateral trade negotiating process.  Argentina and Chile shared one of the longest frontiers in the world;  their bilateral relations were based on shared political values, which were rooted in similar cultural and social backgrounds.  Since the early 1990s, bilateral trade had grown strongly as a consequence of the economic complementarity agreement between Chile and MERCOSUR, which had taken both countries to an important position in the league tables of their trade partners.

36.               The representative of Mexico, underlining the importance his country attached to the relationship with Chile, stated that Chile had succeeded in consolidating its institutions and trade policies.  Chile represented an economic model in the region.  Chile's macroeconomic stability and the openness of its trading system both promoted growth and employment, and were crucial to fight poverty.  Mexico recalled the FTA it had in place with Chile and its role for bilateral trade flows.  Mexico requested Chile to address the issue of its high bound tariff rates and expressed concerns about the price band system with regard to sugar.

37.               The representative of Venezuela recalled bilateral trade relations within the complementation treaty between the two countries, which covered 97% of the tariff lines.  Venezuela hoped that this agreement could be updated to further improve market access and pointed to numerous links and cooperation projects between the countries.

38.               The representative of Brazil noted that Chile had continued the process of liberalization of its already open foreign trade and investment regimes.  Among the measures carried out by the Chilean government, he highlighted the further reduction of MFN tariffs, the adoption of WTO-based rules on customs valuation, the granting of national treatment in government procurement and to foreign investors, the elimination of capital controls, and the floating of the exchange rate.  Chile had shown commitment to the multilateral trading system and played an active role in the ongoing WTO negotiations.  Brazil and Chile had been working together in many spheres of the negotiations, in particular the Cairns Group and the G-20, and shared a strong common interest in the prompt resumption of the negotiations on the central issue of agriculture.  Brazil commended Chile on the reforms undertaken and, in particular, on the considerable reduction of poverty.  Brazil enquired about the impact of the uniform tariff on the Chilean economy and, underlining the concerns raised by Colombia in this regard, on Chile's intention to eliminate the price band system.

39.               The representative of India noted the significant slowdown of Chile's GDP over the last six years compared with the early 1990s, resulting from a difficult regional and international environment.  Its open trade and investment regimes, as well as the important role of bilateral and regional trade arrangements, were a noteworthy element in Chile’s economic strategy.  He was interested to learn how Chile administered the multiplicity of preferential rules of origin.

40.               The representative of the Republic of Korea noted that the high bilateral trade volumes and the recently signed FTA were clear examples of a friendly relationship between the two countries.  The Republic of Korea commended Chile for its efforts to liberalize its economic and trade regime, including the reduction of tariffs and the adoption of a flexible exchange-rate system.  This should lead to increased resilience of the Chilean economy. 

41.               The representative of Norway expressed his appreciation for Chile's very open and liberal trade and investment regime, which was an important reason for the strong growth of the Chilean economy over many years.  Chile placed significant weight on the role of international trade in maintaining this trend.  Despite limited bilateral trade, many Norwegian companies were represented in Chile.  The recently negotiated FTA between Chile and EFTA should further liberalize and expand bilateral trade.  Chile played a very active and constructive role in WTO.  Norway appreciated the cooperation with Chile in the negotiation on rules and hoped that the work by the friends of anti-dumping negotiations would prevent the abusive use of anti-dumping measures. In the negotiations on agriculture, a successful outcome would only be reached if the legitimate interests of all Members were duly taken into account. 

42.               The representative of China noted that Chile had been adopting open economic development policies since the 1970s.  This included unilateral tariff reductions, active participation in the multilateral trading system, as well as the conclusion of free-trade agreements.  China evaluated the performance of Chile's overall foreign trade policy and investment environment highly.  Recalling bilateral trade volumes, China noted that Chile had been an important trade partner for many years.

43.               The representative of El Salvador highlighted the great success of the Chilean economy, which was linked to its foreign trade and reform policies.  Both economic growth and social programmes developed by Chile had had a positive impact on the reduction of poverty.  El Salvador commended Chile for opening up its trade regime, for its commitment to the multilateral trading system, and for implementing a number of trade-related legal reforms.

44.               The representative of the Slovak Republic noted that it was hard to find points to criticize in Chile's trade policy regime.  Chile's economy , despite a number of external shocks, managed to keep modest GDP growth rates, while inflation rates and the current account deficit remained low.  Chile was committed to the multilateral trading system and trade liberalization, as witnessed by the unilateral reduction of tariffs, streamlined customs procedures, the quasi-absence of import licensing, limited use of non-tariff barriers, and an open services sector.  The Slovak Republic was interested in obtaining more information on the price band system and the steps Chile planned to undertake in this regard.

45.               The representative of the Czech Republic commended Chile's authorities for being able to maintain the process of reforms and liberalization of its trade and investment system and expressed appreciation for the reduction of applied MFN rates.  Recalling various characteristics of Chile's trade policy, the Czech Republic hoped that the two countries could intensify trade and economic cooperation.  Chile's continued commitments to open and free trade, and to multilateral rules were important for maintaining the liberalization momentum in the multilateral trading system. 

46.               The representative of Singapore noted that bilateral trade relations with Chile were improving and stated that intensive efforts were under way to increase the profile of Chilean products in Asia.  Chile had maintained its trade liberalization efforts despite difficult economic circumstances.  Chile had continued its unilateral tariff reductions, streamlined its customs procedures, ceased capital controls, introduced a flexible exchange rate system, and played an active role in the WTO.  Like Singapore, Chile was a strong advocate of free trade and had been an avid contributor to APEC discussions on how regional and bilateral agreements could serve as a mechanism to achieve the WTO goal of global trade liberalization.  Chile’s extensive FTA network had been comprehensive in its ambition to liberalize all aspects of trade, and complemented multilateral trade liberalization efforts. 

47.               The representative of New Zealand applauded Chile’s continuing commitment and efforts to open its trade and foreign investment regime and noted that Chile’s sound policies helped to explain the resilience of the its economy in the face of various external shocks over the past few years.  New Zealand welcomed the passing of a law on miscellaneous WTO-related matters in August 2003, and underlined the common interest of Chile and New Zealand in the further liberalization of world trade.  The two countries shared an important trading relationship, and very close and friendly working relations.  With regard to the WTO and the current round of negotiations, Chile and New Zealand had similar interests in reforming agricultural trade and further liberalizing trade in non-agricultural goods.  Both economies were strong supporters of the multilateral trading system, but also recognized the benefits that could be gained through bilateral trade liberalization measures.  To this end, New Zealand, Chile and Singapore were negotiating a wide-ranging and high quality FTA called Closer Economic Partnership Agreement (CEP). 

V.                 REPLIES by THE REPRESENTATIVE OF Chile AND ADDITIONAL COMMENTS

48.               The Chairperson invited the representative of Chile to focus his responses on three main themes:  (i) economic and institutional environment, (ii) trade policies by measure, and (iii) sectoral policies.

(i)         Economic and institutional environment

49.               The representative of Chile (H.E. Alejandro Jara) referred to the impact of Chile's trade liberalization on fiscal policy and noted that there had been a reduction in fiscal income as a result of trade liberalization.  However, at the same Chile had successfully and responsibly managed its public accounts with a resulting fiscal structural surplus, which was one of the pillars of Chile's macroeconomic policy.  So, whilst there had indeed been an increase in domestic taxes in order to compensate for the shortfall of fiscal income, the amount of the increase was less than the respective tariff reductions.  This allowed reconciliation of the objectives of trade liberalization and public investment to meet the needs of development. 

50.               Chile's foreign investment regime provided for two principle means for channelling foreign investment capital.  The first and more important one was the so-called Foreign Investment Law, which set up the means of authorizing and registering investment through the foreign investment committee.  The second was Chapter XIV of the Foreign Exchange Compendium of the Chilean Central Bank.  The Foreign Investment Law set up a one-year period before the repatriation of capital, which was intended to prevent the entry of speculative monies.  Chile's GATS commitments, by contrast, provided for a three-year period before the repatriation of capital (two years in the case of financial services).  Furthermore, Chile had enacted in November an omnibus bill on WTO-related matters for which implementing regulations would be adopted within six months.

(ii)        Trade policies by measure

51.               Regarding its bilateral agreements, Chile noted that these would have no effect on its WTO commitments.  They might have increased complexity and administrative costs, but major efforts had been made to modernize the customs service.  Moreover, with an increasing number of agreements the rules of origin would become more standard.  The Free-Trade Area of the Americas would further increase uniformity and avoid costs.  Trade diversion should be minor in view of Chile's low MFN tariff of 6%.  Thus, Chile's agreements should rather be generating trade and investment.

52.               With regard to concerns voiced about its customs procedures, Chile referred to its written replies and noted that decisions could be appealed before an independent authority. This system should satisfy the standards of the Customs Valuation Agreement.  On the difference between its bound and applied tariffs, Chile was prepared to enthusiastically negotiate the reduction of its bound tariffs during the current negotiations, but this would depend on the outcome of the agriculture negotiations.  Turning to questions on specific taxes, Chile stated that the tax applicable to luxury cars would be phased out over four years starting January 2004.  The entry into force of the omnibus bill on WTO-related issues would lead to improved transparency in the field of standards and technical regulations, including better administration and application of TBT rules.  With respect to government procurement, Chile was not intending to become party to the Government Procurement Agreement, which was too conditional at certain levels and only had a limited coverage.   Chile had notified its export promotion measures and subsidies, of which some long-standing programmes had been adjusted or eliminated.  Regarding intellectual property, Chile had made considerable progress by drafting new and significantly improved legislation, which should be approved at the beginning of 2004. 

(iii)       Sectoral policies

53.               Chile stated that it would be willing to expand its GATS commitments, provided that progress was achieved in the agricultural negotiations, in particular with respect to the elimination of subsidies.  With regard to the price band system, Chile had adopted a law to make some significant adjustments to the system, including the elimination of the system for oil seeds and edible oils, and changes in the calculation of the price band.  On the questions regarding sugar and high-sugar-content products raised by Colombia, Chile abstained from answering them, since the Colombian Government had initiated a dispute under the Colombia-Chile free-trade agreement, which was a purely bilateral process.  Chile recalled the bound rates for the products subject to the price band system and added that the bound rate for sugar had been renegotiated recently, also in view of lacking domestic support or any other subsidy. 

54.               The representative of Colombia expressed disappointment on not obtaining answers with regard to Chile's measures in the sugar sector, underlining that Colombia's questions were with regard to WTO commitments.  Therefore, Colombia reiterated its interest in raising this issue in this multilateral forum and requested Chile to answer to the questions.

55.               The representative of Chile shared the sentiments of the Colombian delegation, regretting that he was not able to answer all the questions that Colombia raised;  he stressed that Chile did not initiate this bilateral difference. 

VI.              CONCLUDING REMARKS BY THE CHAIRPERSON

56.               This third Trade Policy Review of Chile has been highly informative.  Through our dialogue with the Chilean delegation we have obtained a better understanding of the trade-related policies and practices in place and of changes affecting them over the last six years.  We owe this in considerable measure to the presence of a large Chilean delegation, led by Vice-Minister Rosales and Ambassador Jara, to the incisive comments of our discussant, Ambassador Groser, and to the active involvement of many Members.

57.               Members expressed support for Chile's liberalization policies since its last Review in 1997.  They welcomed Chile's generally transparent and sector-neutral trade policies, sound macroeconomic strategy, and strong progress in reducing poverty.  Chile's economy has thereby become more resilient and closely integrated into global markets, which allowed it to cope well with a number of external shocks over the last six years.

58.               The various autonomous, preferential and multilateral initiatives Chile has taken to liberalize its trade and investment regimes have been key elements in its economic strategy.  Members highlighted Chile's active and constructive participation in the multilateral trading system, but encouraged it to improve predictability by enhancing its tariff and service commitments in WTO.  Members sought further information on preferential initiatives, with some also raising concerns about the increased complexity and effects on third parties of Chile's growing number of preferential agreements.

59.               Members noted Chile's almost uniform applied MFN tariff, and welcomed the unilateral steps to reduce it to 6%.  However, a number of Members expressed concerns about possible distortions induced by the price band system, which grants special protection to a small number of agricultural goods.  Several Members also requested details on changes to bring the system into compliance with Chile's WTO obligations.

60.               Questions were posed on customs procedures and valuation, with some Members suggesting that Chile effect improvements and notify its legal framework to the WTO.  Members requested information on other measures affecting imports, such as domestic taxes, contingency measures, and technical regulations.  Members also sought clarification on the omnibus law on WTO compliance;  the foreign investment regime;  incentive schemes;  state-owned enterprises;  government procurement;  specific activities such as electricity, maritime transport, and financial services;  and the protection of intellectual property rights.

61.               On sectoral policies, Members highlighted the sharp contrast between Chile's general aim to foster efficiency through sector-neutral policies, and the high assistance granted to the sugar industry.  They also sought information on other primary industries and on several service activities.

62.               This brings us to the conclusion of our Review of Chile.  I was encouraged to hear that trade policy is at the heart of Chile's development strategy, and that further reforms are sought through a multi-dimensional strategy that has the WTO at its core.  A process of continuous reforms has served Chile's interests well, and I trust Chile will continue to take advantage of the multilateral trading system to lock-in past changes, and as a catalyst for future reforms.  This will of course depend in good part on the success of our collective efforts in the ongoing Doha Development Agenda, to which I note Chile is making a very valuable contribution.

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