Despite its impetus, economic growth in Chile has not led the nation to lose sight of environmental considerations. Chile's environmental policy is based on the concept of sustainable development: the reconciliation of economic and social demands with the need for environmental protection.

Since 1990, Chile has forged a solid legal and institutional framework to address the issue of the environment from a practical, efficient perspective. In March of 1994, the Law of General Basis for the Environment took force. That legislation is designed to help organize Chile's environmental regulations. Among other components, the law calls for a system of Environmental Impact Assessments to which all investments, both public and private, will be required to adhere.

The banking system offers many of the asset and liability products available in international financial centers. Foreign trade financing and money exchange operations are particularly active and efficient compared to the rest of Latin America.

In early 1996, 37 banks were operating in Chile, high for a country with a 1995 GDP of $72 billion. At September 30, 1995, bank assets were $46 billion, loans totaled $32 billion and deposits $29 billion. Authorities have not allowed new banks to enter the market since the early 1980's financial crisis, except via purchasing existing banks. This restriction applies to domestic as well as foreign banks. Vigorous economic growth in recent years has strengthened bank profits, but restrictions remain on banks' ability to enter several rapidly growing areas of business, including pension fund management, factoring and leasing.

The sector is regulated by the Superintendent of Banks and Financial Institutions, an agency that reports to the Finance Minister. The Central Bank, which is autonomous from the government in conducting monetary and exchange rate policy and regulating international capital movements, also regulates bank operations.

The only state-owned bank (aside from the Central Bank) is the Banco del Estado, Chile's largest bank, which accounts for 15 percent of loans and 19 percent of deposits. Private banks handle nearly all corporate business. The only Chilean banks with a direct presence in the U.S. as of June 1996 are the Banco de Chile, which has branch offices in New York and Miami, and the Banco de Santiago, which has a representative office in New York.

The banking sector has entered a period of consolidation as banks combine to achieve economies of scale necessary to compete internationally. The largest Chilean private banks are the Banco de Chile, the Banco de Santiago, Banco Osorno, and Banco O'Higgins. The largest foreign bank is the Spanish Banco Santander. Banco de Santiago and Banco O'Higgins are both controlled by the same family (Luksic) and are in the process of merging. Banco Santander has purchased Banco Osorno and will merge the two.

U.S. banks operating in Chile ranked by size of deposits in Chile are: Republic National Bank of New York, Citibank, Bank of Boston, Chase Manhattan, American Express, Chicago Continental, and Bank of America. U.S. banks concentrate mostly on corporate lending to small and medium-sized business. Corporate lending is focused on medium-sized businesses, because restrictions on the percentage of a bank's assets that can be lent to a single customer lead firms wanting large loans to resort to international sources of finance.

According to a report by Standard & Poor's, Chile's banking sector is the soundest and most solid in all of Latin America. On the downside, however, the S&P report frowns upon the subordinated debt to the Central Bank, originated by its bailout of banks in the early 1980's financial crisis (the Central Bank "purchased" by means of subordinated debt a large quantity of bad debt owed to the banks, with the provision that the subordinated debt be retired out of future profits), and the restriction of access to international markets. The report adds that foreign banks have captured 20 percent of the domestic market. The report concludes that most of the Chilean banking system, current handicaps and future opportunities (i.e. securitization, bankruptcy insurance, and factoring) are likely to be tackled within the context of a pending reform to the Banking Law.

Foreign Exchange Controls Affecting Trading

Money exchange operations are particularly active and efficient by Latin American standards. As a general rule, currency may be freely traded in two markets, the informal and the formal or inter-bank market. The Central Bank is empowered to require that certain transactions be executed only through the formal market, such as those related to the import or export of goods and services, foreign loans, capital flows and profit remittances. It may also determine that certain operations be subject to prior approval as is the case of foreign loans and investments, repatriation, as well as hedging and other future market operations.

The prevailing exchange rate is allowed to float within a 20 percent band around a central rate (a "crawling peg") that is adjusted to compensate for differences between Chilean inflation and that of its trading partners. The band allows for significant fluctuation in the real value of the peso. The peso has appreciated significantly recently (30 percent in the last few years), and has actually risen above the top of the floating band on occasion, leading to speculation that the government would widen or alter the band, effectively revaluing the peso.

General Financing Availability

Companies utilize a variety of financing sources, including retained earnings due to strong profitability, stock, direct investment, bank debt, bonds and, since 1993, through the issue of ADRs on U.S. Stock Exchanges, Eurobonds are also utilized. The larger corporations have evolved from the use of bank debt to public source of funds such as stock and bonds issued locally and also to international capital markets.

The upgrading by Moody's of Chile's investment grade rating from BBB to BBB+ in 1993 and then to BAA-3 (the highest rating of any Latin American country) has opened more opportunities for raising funds abroad. Standard & Poor's raised its rating to A- in July 1995. Even before the changes noted above, the list of companies planning to issue ADRs was growing rapidly.

How to Finance Exports / Methods of Payment

Payment to suppliers is made by an irrevocable letter of credit from a Chilean commercial bank to the supplier. This is fast and simple, with no lengthy delays in the remittance of foreign exchange. Payments are made upon receipt of notice of shipment of goods. Other methods of payment to suppliers include an unconfirmed letter of credit and open account. Suppliers dealing in open account usually have developed a long-standing relationship with the buyer.

Types of Available Export Financing and Insurance

The U.S. Export-Import Bank and the Overseas Private Investment Corporation provide credit and insurance programs for U.S. exporters and investors in Chile. The Inter-American Development Bank is also active. The World Bank's Multilateral Investment Guarantee Agency's (MIGA) first project involved Chile. The Bank is quite willing to provide financing to Chile and has targeted guarantees to private sector investors in infrastructure. The country's currency reserves and balance of payments surplus have made it undesirous of new loans. In fact, Chile has been prepaying its World Bank obligations.

Private companies can take advantage of the World Bank's International Finance Corporation (IFC), which is providing financing to private sector companies for infrastructure. The IFC is particularly interested in green-field projects, non- traditional industries, cross-border operations, and asset securitization, especially in housing and infrastructure finance.

Available Project Financing

Major project financing is available through issue of equity and bonds in the international capital market, and through syndicated loans (see General Financing Availability above). Eximbank now offers project financing in Chile, but only up to 115 percent of the value of the U.S. content of the project.

List of banks with correspondent U.S. banking arrangements

The following U.S. banks operate in Chile:

Bank	Telephone	Fax
.	(56-2)	(56-2)
American Express Bank Ltd.	671 3259	672 3214
Bank of America NT & SA	699 4501	698 8746
Bank of Boston	639 3841	639 1297
The Chase Manhattan Bank, NA	699 0068	690 5177
Chemical Bank	672 1053	699 2089
Citibank, NA	690 8000	690 8505
Republic National Bank of N.Y.	695 2002	698 7512

The following banks, both Chilean and foreign-owned, maintain correspondent banking relationships with U.S. banks:

Chilean Banks	Telephone	Fax
.	(56-2)	(56-2)
.	.	.
Banco BHIF	698 0000	698 4704
Banco BICE	692 2000	696 5324
Banco Concepcion	698 2741	696 0271
Banco de A. Edwards	631 3000	638 0904
Banco de Credito e Inversiones	696 6633	699 0279
Banco de Chile	637 2440	637 2560
Banco de Santiago	692 4000	696 7930
Banco del Desarrollo	698 2901	671 5547
Banco Internacional	638 3894	633 9134
Banco O'Higgins	630 4000	698 3730
Banco Osorno y La Union	696 0414	672 8449
Banco Security	632 5502	633 2156
Banco Sud Americano	692 6000	698 6008
ABN Tanner Bank	671 5776	672 2696
Banesto Chile	698 1873	672 8902
Banco Continental Group:	.	.
Credit Lyonnais	672 2760	671 3307
Banco de la Nacion Argentina	671 2045	698 7341
Banco do Brasil	698 1821	672 7421
Banco do Estado de Sao Paulo	695 1307	672 2459
Banco Exterior	639 4731	639 6095
ING Bank	672 1037	699 1113
The Bank of Tokyo Ltd.	633 2031	633 0742
Banco Real	672 7729	696 5874
Banco Santander-Chile	631 2000	696 0622
Banco Sudameris	638 1514	633 0957

Business people who come to Chile usually travel on a regular tourist visa, which is issued by immigration officers at the airport upon arrival. American citizens must pay a fee of $20.00 at the international check-in point, and must be prepared to pay the exact amount in dollars. Tourist visas are valid for 90 days and can be extended by the Ministerio del Interior, Oficina de Extranjeria (Moneda 1342, Santiago, Chile), or the Gobernacion Provincial outside of the capital at a cost of $100.00 per person.

Individuals who intend to stay in Chile for more than 90 days but less than a year for business purposes can be granted a visa from a Chilean consulate in the U.S. Holders of this visa should register at the Policia Internacional in Chile, where they will be issued a Certificado de Registro.

All areas of Santiago are affected by a high index of pollution which appears as a heavy smog in the winter and dust in the summer. Pollution levels rise to unacceptable levels (PM-10 levels of 240 MCG./M3) on an average of five to six times per year. The major health effects include difficulties with breathing, respiratory problems and aggravation of existing respiratory, cardiovascular, allergic and asthmatic diseases. This is particularly true for the elderly and children, and for those with confirmed asthmatic and allergic symptoms. The most severe pollution occurs during the months of May to October.

Those persons considering scientific, technical or mountaineering activities in areas classified as border areas are required to obtain authorization from the Chilean government (Direccion de Fronteras y Limites). Requests for authorization must be presented to Chilean authorities at least 90 days prior to the beginning of the expedition.

For those business persons who intend to make sizeable investments in a business, a temporary resident visa may be advisable. This visa is valid for one year, and can be extended for a second year. It may be obtained at the Ministerio del Interior, Oficina de Extranjeria (Moneda 1342, Santiago, Chile).

Business persons may also be granted a Resident Subject to Contract (Sujeto a Contrato) visa. This visa is issued to those who have been contracted to carry out a specific job, requiring certain qualifications. It is valid for up to two years, and its holders are allowed to have their spouses and children also reside in the country. A new visa is required if the holder changes companies. This visa is also obtained at the Ministerio del Interior, Oficina de Extranjeria (Moneda 1342, Santiago, Chile).

For current information concerning entry and customs requirements for Chile, travelers can contact the Chilean Embassy in Washington, D.C.

A stable legal framework, with clear rules and permanent over time, based on solid principles, such as non-discrimination, neutrality, transparency and national treatment for foreign investment, has truly been an incentive for investors who have perceived an environment for total safety and certainty for the development of their projects. On the other hand, a social market economy, which has the support of almost all political, social and economics sectors, creates an environment highly favourable for foreign investors, who, like Chileans, may freely invest in any sector of the economy in accordance with the existing laws and regulations.

FOREIGN INVESTMENT STATUTE

In effect since 1974, the Foreign Investment Statute (D.L.600) has become in recent years the principal way to attract capital. Based on the Constitution, this law has created a framework of confidence and credibility in the international economic community (currently there are more than 60 countries with investments registered in the country) which identifies Chile as a safe place to invest. The stability of the regulations has proven to be an important factor for foreign investors that currently operate in the country because they value clear, stable rules, rather than the discretion of public agents to modify or to interpret a given rule.

INVESTMENT CONTRACT WITH THE GOVERNMENT

Although there are alternative ways to invest in Chile, the Foreign Investment Statute offers a framework of special guarantees. By means of this mechanism, the investor signs a legally binding investment contract with the Government. This constitutes a most important guarantee for the investor because the Government, even if it subsequently passes a law, cannot unilaterally modify the terms of the contract.

Between 1985 and 1990, foreign investors responded fundamentally to the incentives offered by the privatization of government owned companies and foreign debt conversions. Although these conditions are currently no longer relevant, foreign investment in Chile continues to increase steadily. Given the stability assured by the new political, economic and institutional environment, the country has presented better internal conditions since 1990, which has had a positive effect on its risk rating, which has greatly stimulated the flow of capital into the economy.

INVESTMENT PROTECTION & PROMOTION AGREEMENTS

The increasing emphasis on the strategy of the promotion of exports and the insertion in the world economy by means of an active policy of bilateral economic agreements, including trade and the promotion & protection of investments, has created an increasingly favourable environment for foreign investors. In accordance with this foreign investment policy, Chile has signed various Investment Promotion & Protection Agreements. These agreements represent a new stimulus for foreign investors because, in addition to the guarantees offered by the country, they establish a framework of greater reciprocity and non-discrimination between the parties. Currently, Chile has signed a total of 20 Investment Promotion & Protection Agreements, and another 13 are in the process of negotiation.

FOREIGN INVESTMENT REPRESENTS 6% OF GDP

In an environment of great certainty and ample guarantees, foreign investment has made a significant contribution to the development of the Chilean economy. Thus, the share of GDP average 6% in recent years, one of the highest rates in the world; direct foreign investment averaged close to 20% of GDP, excluding variations in inventories; exports generated by foreign investment projects currently represents 25% of the total; and finally, it is estimated that during the period 1993 - 1997 materialized foreign investment will contribute more than 7% of the total new employment.

COUNTRY RISK RATING

The success of the Chilean economy has greatly increased its competitiveness in world markets. The prestigious World Economic Forum / IMD ranked Chile 5th among emerging economies, which placed it ahead of South Korea. On the other hand, the rapid reinsertion in international financial markets has also helped diversify the sources of foreign financing. Thus, given Chile's current low country risk ( A- according to the international rating firm Standard & Poors ), many local firms have issued significant amount of financial instruments abroad, principally American Depository Receipts.

CHILE - GATEWAY TO LATIN-AMERICAN MARKETS

As part of a long-term development effort, Chile has simultaneously succeeded in substantially improving its infrastructure and domestic services. One of the most important successes is the telecommunications sector. At the same time, due to its geographical and economic situation, this small country has become a gateway to Latin-American markets. Chilean trade with and investment in the region have experienced rapid growth, much of which has taken place in joint-ventures with American, European and Asian investors.

FOREIGN INVESTMENT OUTLOOK

Finally, the outlook for foreign investment is highly favourable because everything points towards strong medium and long term growth. During 1994, materialized foreign investment totalled almost USD4.7 billion, a 70% increase over the same period last year. This dynamism demonstrates that Chile continues to be a very attractive market for foreign investors.

Foreign Investment by Region
Period : 1974 - 1994

( Millions of USD )

Foreign Investment by Country
Period : 1974 - 1994

Source : Foreign Investment Committee

Chile belongs to the World Intellectual Property Organization, and patents, trademarks, industrial designs, models and copyrights are protected in Chile by the provisions of the International Convention for the Protection of Industrial Property (the Paris Convention). Chile's intellectual property regime is generally compatible with international norms, with a few exceptions. Industrial designs and models are protected for a non-renewable period of 10 years. The registration of trademarks is also valid for renewable periods of 10 years. In 1992, the Chilean Congress approved legislation that extends the term of copyright protection from 30 to 50 years. Despite the presence of copyright protection, however, industry sources estimate that copyright infringement in Chile cost U.S. firms $24 million in 1991, $15 million of which was associated with the piracy of computer software. An estimated 60 percent of all software installed in Chile is pirated. Software piracy should decline as local suppliers adopt more vigorous legal strategies to protect their rights.

A common problem faced by foreign companies that wish to begin operations in Chile is that foreign trademarks may already be registered by other individuals or companies. Chilean courts have been supportive in cases where the trademark has been "stockpiled" but gone unused, but less so in cases where investments were made in use of the trademark. In either case, proceedings can be lengthy and expensive. The foreign firm should make a business decision whether to take legal action or negotiate with the party who registered the trademark. A trademark should be registered as soon as the exporter/investor has any intention of doing business in Chile. Ownership of the trademark is not prejudiced by lack of use in cases where the registered party makes use of the mark in other countries, and trademarks may be perpetually registered in periods of ten years at a time. Firms wishing to register their trademarks should do so at the Ministry of Economy, Departamento de Propiedad Industrial, Teatinos 120, piso 1, Tel: (56-2) 672-5522.

Chile's intellectual property regime is generally compatible with international norms, but its protection of patents remains deficient. Efforts to enforce intellectual property rights in Chilean courts have been successful. Chile does not have a sui generis statute for protecting the design of semiconductors, nor does it have comprehensive trade secret protection. Chile belongs to the World Intellectual Property Organization.

The Industrial Property Law promulgated in 1991 substantially improved Chile's protection of industrial patents, but falls short of international standards. The law provides a patent term of 15 years from the date of grant. This will have to be changed to 20 years by the year 2000 as a result of the Uruguay Round agreements. The law also does not consider plant and animal varieties as patentable subject matter. Most importantly, the law does not provide transition (or "pipeline") protection for pharmaceutical patents filed before the law's promulgation. Because of the long lead times involved in the marketing of new pharmaceutical products, the law will not prevent local companies from pirating foreign pharmaceutical patents for several more years. In addition, the registration procedures required by the health ministry to market new drugs are more onerous for the first-to-file, which tend to be foreign firms. Finally, the Central Bank reserves the right to disallow access to the inter-bank foreign exchange market for payments for the use of patents that exceed five percent of sales. These shortcomings have kept Chile on the U.S. Trade Representative's "Special 301" Watch List of countries with deficient intellectual property rights protection regimes since 1989.

Chile's copyright law grants recording companies the right to authorize the use of a work for 50 years. U.S. recording industry representatives have said that the law grants more power to authors relative to producers than is the industry norm.

Chilean law provides for the protection of registered trademarks and prioritizes trademark rights according to filing date. Local use of the mark is not required for registration. Payments for use of trademarks may not exceed one percent of sales.

Regulatory System - Laws and Procedures

Chile has an anti-monopoly law, different elements of which are administered by three quasi-judicial commissions. These commissions have the authority to issue judgments concerning trade remedies, price regulation, and ownership structure. Their rulings can be appealed to the courts. Under the law, size alone is not objectionable, but the abuse of dominant position is. Recent decisions by the commissions and the courts have blocked allegedly anti-competitive behavior in telecommunications and civil aviation. Despite this record, enforcement is uneven, and several industries are characterized by high concentration and oligopolistic behavior.

Trade Barriers

Chile generally has few barriers to imports or investment. Foreign firms operating in Chile enjoy the same protection and operate under the same conditions as local firms. The Chilean tariff rate is currently 11 percent on nearly all products from most countries, although many products from Latin American countries with which Chile has trade agreements enter with lower duties. Imported automobiles are also subject to luxury taxes based on value (85 percent on the value above $10,000, which is adjusted annually for U.S. inflation) and engine size (a sliding scale). Other imported luxury goods such as yachts, some types of jewelry, furs, and others are also subject to luxury taxes. Duties on capital goods purchased for use in export production may be deferred for a period of seven years and waived under some circumstances. Imports are subject to the same 18 percent Value-Added Tax (VAT) as are domestic goods.

Chile's most significant nontariff barrier is the import price band system for certain agricultural commodities, which currently applies to wheat, wheat flour, vegetable oils, and sugar. Variable duties are levied on imports of these commodities in order to keep domestic prices above the five-year average of international prices. Imports of U.S. fruits and uncooked or unprocessed poultry are restricted as a result of Chilean phytosanitary regulations.

Certain industries also claim that aspects of Chilean law hurt their sales. For example, U.S. pharmaceutical companies say that current law does not provide effective patent protection, and U.S. whisky producers say that the Chilean tax system discriminates against their products.

Customs Valuation

Chilean customs valuation is based on the normal value of merchandise, without special discounts, plus freight and insurance (CIF). Used goods are valued by the customs service according to the current new value of similar merchandise, discounting 10 percent per year of use, up to a 70 percent discount.

Import Licenses

All imports require a license, but, according to legislation governing the Central Bank since 1990, import licenses are granted as a routine procedure for nearly all goods. Licensing requirements are maintained largely as a statistical gathering mechanism, not as a control. More rigorous licensing procedures apply for pharmaceuticals and weapons.

Export Control

Chile applies export controls through the requirement of an export license, as well as phytosanitary and quality controls on certain products controlled by the National Health Service (Servicio Nacional de Salud, SNS), the Agricultural and Livestock Service (Servicio Agricola y Ganadero, SAG), and the National Fishing Service (Servicio Nacional de Pesca, SERNAP). Again, the licenses are required more as a means of gathering statistics.

Import/Export Documentation

Chile's Central Bank requires importers to obtain a registration certificate for goods valued over $3,000. Exporters must fill out a registration certificate when exporting goods valued over $2,000 FOB. This is to help the government gather trade data. Other commercial forms used by both local importers and exporters are: commercial invoice, certificate of origin, bill of lading, freight insurance and packing list.

Temporary Entry

Temporary imports of goods are authorized for government-approved exhibitions and for temporary demonstration purposes. For Chilean government-approved exhibitions, no duty or VAT is levied, and goods may remain in the country up to six months, but must be kept in a warehouse. Goods imported for temporary demonstration purposes require the resident end-user or potential purchaser to obtain a temporary admission certificate from Chilean customs authorities, and are taxed based upon the number of days they are in the country.

Labeling, Marking Requirements

Imported products customarily consumed by the public must display the country of origin on them before being sold in Chile. Packaged goods must be marked to show the quality, purity, ingredients, or mixtures, as well as the net weight or measure of the contents.

Canned or packaged foodstuffs imported into Chile must bear labels in Spanish for all ingredients, including additives, manufacturing and expiration dates of the products, and the name of the producer or importer. All sizes and weights of the net contents also must be converted to the metric system. Goods not complying with these measurements may be imported but not sold to consumers until conversion is made. Thus, foodstuffs labeled in English have to be re-labeled in Chile before they can be sold.

Prohibited Imports

The importation of used passenger and cargo transportation vehicles is prohibited. Exceptions to this import restriction are: used ambulances, armored cars, mobile homes, prison vans, street and highway cleaning vehicles, and cement-making vehicles. Importers of these goods pay 11 percent import duty plus the VAT. Fire-fighting vehicles are not subject to import duty, and VAT is paid on their CIF value only.

Special laws allow new/used car imports by persons returning from exile, returning after working or studying abroad for a number of years, or domiciled in domestic free trade zones. These imports are also tax-exempt.

Standards

The National Standards Institute (Instituto Nacional de Normalizacion, or INN), has included the ISO 9000 standards as part of Chilean standards, and is in charge of their promotion among local manufacturers. The chemical industry is one of the few industries that has incorporated the ISO 9000 standards to its industrial processing lines.

In general, standards are not mandatory, but companies can voluntarily comply with them, especially in industries where such compliance constitute a sort of "seal of approval." However, certain imported products, such as those pertaining to industrial safety, building and construction materials, and the gas and electricity industries must comply with specific resolutions applying to the supervising entity.

Free Trade Zones/Warehouses

Chile's two free trade zones are the Free Zone of Iquique (ZOFRI) in the northern tip (Region I) of Chile, and the Free Zone of Punta Arenas in the southern tip (Region XII). ZOFRI encompasses the free ports of Arica and Iquique. Punta Arenas also has a free port. Modern facilities for manufacturing, packaging and exporting exist in each zone.

Duties and VAT requirements are as follows:

(a) imports entering and remaining in Chile's free trade zones pay no duty or VAT; (b) imports leaving the free trade zones, but remaining in regions I or XII, which are considered "extended" duty-free zones, pay a six (6) percent import duty, but no VAT; (c) imports leaving the free trade zones to enter the greater Chilean market pay full tariff and VAT charges; (d) subject to negotiations with Chilean customs officials, imports can remain in-bond for extended periods while awaiting for transshipment to other countries.

Imported goods may remain in customs warehouses for 90 days. If said goods are unclaimed after the 90-day period, the goods will be declared abandoned by Customs and sold at public auction. Special Import Provisions

Animal Health and Phytosanitary Requirements: Chile occasionally uses animal health and phytosanitary requirements in a non- transparent manner which often impedes imports. No official announcement of proposed rule changes precedes these requirements. U.S. exporters criticize the application of phytosanitary requirements to poultry and fresh fruit as non- tariff barriers meant to discourage imports. Chilean authorities have in some instances eliminated or liberalized specific requirements when presented scientific evidence by U.S. animal health or phytosanitary officials.

Firearms can be imported, but they require a special permit from a military authority in Chile.

The import of pharmaceutical specialties, cosmetics, and most biological and bio-chemical preparations require prior registration with the Institute of Public Health (Instituto de Salud Publica), and may be subject to special labeling and other requirements, depending on the nature of the individual product. Imported goods that are considered inconsistent with Chilean "morals, public health, national security, or environment" require special authorization to enter into Chile. These include certain personal security products such as mace sprays, certain chemicals/processes, and some media products which face review and possible censorship. It should be noted that all films, videos, and TV programs, imported or locally produced, are reviewed for suitability. Membership in Free Trade Arrangements Chile has free trade agreements with Mexico, Colombia, Venezuela, and Ecuador that provide for duty-free trade in most products by the late 1990s. Chile also has a trade liberalization agreement with Bolivia. It signed in mid-June 1996 a free trade agreement with the Mercosur nations (Brazil, Argentina, Paraguay, and Uruguay) to replace its less important bilateral trade agreements with those nations. The agreement takes effect on October 1, 1996.

Chile is a firm believer in free trade. Imports are levied a flat 11% duty, making it one of the most open economies in the world.
Leading Exports Destinations (By region: 1997) Asia 34.0 % UE 24.3 % NAFTA 18,9 % South America 17.5 % Others 6.4 % Source: Central Bank of Chile	Exports have spiraled from US$4.2 billion in 1986, to US$17.0 billion in 1997. The products sold overseas have been greatly diversified. Copper -- which in 1973 accounted for 80% of total exports -- saw its participation plummet to 42,0% by 1997.
Market diversification has accompanied the expansion in export products: Chile now sells some 3,500 products in almost 140 nations. This diversification process is based on research and development. The government, private organizations and universities work hand-in-hand to adapt and cultivate new agricultural and marine species. The challenge lies in adding value to products, reducing the intensity of use of natural resources and substantially increasing the export of manufactured products, services and technology.
CHILEAN EXPORT ACCORDING TO PRINCIPAL COUNTRIES OF DESTINATION: 1997 (US$ Millions) Country Amount Participation% USA 2,710.5 15.9 Japan 2,675.8 15.7 United Kingdom 1,061.6 6.2 South Korea 989.7 5.8 Brazil 957.2 5.6 Taiwan 785.6 4.6 Argentina 780.9 4.6 Germany 747.0 4.4 Italy 499.5 2.7 France 458.0 2.7 Others 5,359.0 31.6 TOTAL 17,024.8 100 Source: Central Bank of Chile	CHILEAN IMPORT ACCORDING TO PRINCIPAL COUNTRIES OF ORIGIN: 1997 (US$ Millions) Country Amount Participation% USA 4,332.6 22.9 Argentina 1,837.2 9.7 Brazil 1,242.8 6.6 Mexico 1,076,2 5.7 Japan 1,054.7 5.6 Germany 842.7 4.5 Italy 699.7 3.7 China 659.1 3.5 Spain 621.1 3.3 South Korea 588.8 3.1 Others 5,933.4 31.4 TOTAL 18,888.3 100 Source:Central Bank of Chile

Direct Marketing

Direct marketing is well-established in the services sector, mainly in banking and financial institutions, seminar organizers, telecommunication services, etc. Direct marketing or catalog sales are not yet common in the market. The low interest shown by Chilean consumers is mainly based on mistrust of warranty claims and promises of after-sales services. The most usual way is to hire personnel for telemarketing or mailing campaigns or to contract the services of a firm specialized in this type of service. Data base listings are not easily acquired and commercial firms are cautious in keeping its customers' privacy. However, some firms such as DICOM and Public Mail do sell data base listings or offer complete telemarketing and mailing services. Public Mail can also provide customized sales prospects listings and up-dating upon request.

Chilean consumers prefer to window-shop, walk and browse in shopping malls or shopping districts and personally choose the goods rather than purchase through catalogs. Exchange of products in Chile is a complicated matter for vendors, who are not inclined to return the money due to VAT complexity.

Distribution and Sales Channels

Establishing a local subsidiary or branch office gives the best guarantee that the exporter will receive efficient service and appropriate promotion of his/her products. Any corporation legally constituted abroad may form, under its own name, an authorized branch (Agencia) in Chile. This method of market penetration may involve a considerable investment, but can be justified if sales are made in large volume or when local service support and/or inventory are necessary.

Another practical method is to appoint an agent or representative with good access to relevant markets and with technical structure. The various geographic regions in Chile are far apart and their economies depend on diverse natural resources. Larger representatives usually have branch offices in different regions. Some large end-users, e.g. mining and forestry enterprises, demand quick service and specialized technical support.

In spite of the elongated Chilean territory, its population of 14 million is very centralized: 40 percent of the inhabitants live within 100 miles of the capital in the Metropolitan Region, which covers 5,927 square miles. Most of the manufacturing, trade, and service activities are located in Santiago, the capital. It is common in Santiago that importers and manufacturers dealing in mass distribution items distribute directly to large wholesalers or retail stores.

Sales outlets are mainly the traditional store fronts, but large department stores have penetrated the market. During the past decade, several large department stores and supermarkets have been built. Well-designed shopping malls have recently been a booming business, not only in Santiago, but also in larger cities throughout Chile. These shopping malls are anchored by one or two large department stores surrounded by attractive specialty stores or boutiques. This is a suitable way to display and market textile products, electronic appliances and devices, sporting goods, cosmetics, office supplies, kitchen utensils, etc.

It should be noted, however, that no discount general merchandisers operate in Chile. Only one general merchandiser operates, and it is neither discount nor very comprehensive. This means that most products found in U.S.-style stores (e.g., Walmart, Kmart, Target, Venture, Caldor, etc.) are still sold through more specialized retailers.

Although the Chilean government has had for the last 10 years a high priority to decentralize the country, Santiago is the place for establishing businesses. Santiago is near two major ports, Valparaiso and San Antonio, and possesses the largest Chilean airport, Comodoro Arturo Merino Benitez, which is by far the most important international airport.

Use of Agent/Distributor Service - Finding a Partner

Currently, there are nearly 3,000 importers operating in Chile; some of them also act as export agents. Most are small-to-medium size firms. Several large firms handle different lines of products and are large wholesalers. Almost all the firms have their main offices in Santiago. The larger ones have branch offices throughout the country, including in the free-trade zones. Other firms employ specialized traveling salespeople.

In general, foreign suppliers enter the Chilean market by appointing an agent, distributor or wholesaler. This local representative, to be effective, must be aggressive, knowledgeable about the product, and well-connected with decision-makers at end user firms. The representative will need to promote the products through newspapers, specialized magazines, radio and TV commercials. Agent/representative commissions normally range from 5 to 10 percent depending on the product. (For contract requirements, see "Need for a Local Attorney" in this Chapter.)

The U.S. firm should be thorough in selecting the agent or representative. For this purpose, it may wish to make full use of the several services offered by the U.S. Department of Commerce or its local Commercial Service District Offices. These services include the Agent/Distributor Search (ADS), which helps identify interested agents and distributors; the Customized Market Analysis (CMA) market reports which can identify potential representatives and supplies a profile of the product in the market; and the Gold Key Service, which can assist exporters in arranging appointment schedules and support services that optimize their time and travel expenses.