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COUNTRY BRIEFS


THE BILATERAL RELATIONSHIP

Australia and Chile have a strong bilateral relationship, based on many shared interests and cooperation in a range of international fora. Both countries are major southern hemisphere mining and agricultural economies, with a distinct Asia-Pacific orientation. As members of the Cairns Group, Australia and Chile work to ensure that agricultural trade reform issues are a priority in the WTO Doha Round. Within APEC, Australia and Chile cooperate to promote trade and investment liberalisation in the Asia-Pacific region. We also share many common interests in regional and global issues ranging from the environment, the Antarctic and illegal fishing, through to disarmament and regional security.

A major development in bilateral relations was the entry into force of the Australia-Chile Free Trade Agreement (ACl-FTA) (http://www.dfat.gov.au/fta/aust-chile-fta/) on 6 March 2009. This followed the conclusion of negotiations by Chile's former Minister for Foreign Affairs, Mr Alejandro Foxley, and the Minister for Trade, the Hon Simon Crean MP, on 27 May 2008 and the signing of the Agreement in Canberra on 30 July 2009 by Mr Foxley and Australia's Minister for Foreign Affairs, the Hon Stephen Smith MP.

Senior government and business visits between the two countries have increased greatly over recent years. The Minister for Foreign Affairs, the Hon Stephen Smith MP, visited Chile on 26 and 27 August 2009. Mr Smith signed Memoranda of Understanding (MOU) on agriculture cooperation and bilateral political consultations. Senior government and business visits between the two countries have increased significantly over the past five years.  The Hon Mr John Murphy MP, the then Parliamentary Secretary for Trade, visited Chile in April 2008. The Hon Ms Maxine McKew MP, Parliamentary Secretary for Early Childhood Education and Childcare, visited Chile in June 2008. In September 2007, the Chilean President, Ms Michelle Bachelet, visited Australia during APEC 2007, while the Chilean Ministers for Finance, Agriculture, Foreign Affairs and Mining & Energy visited Australia during 2006 and 2007. During the visit by the Chilean Minister for Mining and Energy in November 2006, Australia and Chile signed an MOU on cooperation in mining and related services.

In July 2005, Chile's then President, Mr Ricardo Lagos Escobar, along with the Chilean Ministers for Foreign Affairs and Trade, Mining and Agriculture, visited Australia. During the visit by President Lagos, Australia and Chile signed an MOU establishing a work and holiday visa program. This program began with 100 available places, and this has increased progressively to 1500 places for the 2008-09  year, reflecting the popularity of the program. Under the program, young Chileans and Australians with appropriate qualifications and language skills can explore living and working in one another's countries.

Air links between the two countries improved greatly following the introduction of the direct Qantas/LAN Airlines code share flight in July 2002. This has resulted in increased numbers of Australian business people and tourists visiting Chile and neighbouring countries.

About 23,000 Chilean-born people live in Australia, the majority of whom migrated following the 1973 military coup. Australia's Chilean community now includes a network of second and third generation Chilean Australians. Around 10,000 Chileans visited Australia in 2008, of whom 5,400 came for a holiday or to visit family and friends.

Australia and Chile signed a bilateral social security agreement on 25 March 2003 to give improved social security protection to people who have lived and/or worked in both Australia and Chile. The social security agreement also exempts Australian employers from the need to provide Chile social security support for Australian employees sent temporarily to work in Chile, provided the employee remains covered in Australia, by compulsory superannuation arrangements. Further information is available on the Australian Taxation Office website (http://www.ato.gov.au/superprofessionals/content.asp?doc=/content/46340.htm) .

Chile's President Bachelet announced a large new international scholarship program in May 2008 which will be funded from a US$6 billion "bicentennial fund". Australia (and New Zealand) were selected as the two pilot countries for the first tranche of the program. The program will cover postgraduate, technical and English language training, and it is expected that Chilean enrolments in Australia universities and other tertiary institutions will increase significantly as a result.

Australia's Ambassador to Chile is Her Excellency Ms Virginia Greville.

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POLITICAL OVERVIEW

Background

Chile achieved independence from Spain in 1818. Under the current Constitution, the President is head of state and the congress is bicameral. A constitutional amendment in 2005 reduced the Presidential term from six to four years. The Constitution also prohibits the President from serving a second consecutive term. The Chamber of Deputies has 120 members while the Senate is made up of 38 elected members.

The program of state control and nationalisation of key enterprises pursued by the government of Salvador Allende (1970-73) led to severe economic problems, shortages and widespread strikes. In response, the armed forces seized power on 11 September 1973, suspending the Constitution, dissolving Congress, imposing strict censorship and banning all political parties. Under General Augusto Pinochet, the junta subsequently arrested, executed, tortured or forced into exile thousands of political opponents. After 16 years, Chile again held democratic presidential elections in December 1989, won by the Christian Democrat, Patricio Aylwin. The governments of Aylwin, and all subsequent administrations of the centre-left Concertación coalition, have continued the economic liberalisation initiated under Pinochet. Ricardo Lagos Escobar was inaugurated in March 2000 and remained President until March 11 2006, when Michelle Bachelet succeeded him as President.

Bachelet, of the Concertación coalition, was Chile's first female President. As a pragmatic socialist, President Bachelet continued the broad economic policy directions of her predecessors, and placed a strong emphasis on social justice issues. She oversaw an increase in public investment in the health, transport and education sectors. While the Bachelet Government has placed emphasis on relations with Latin America, it has also continued to retain a strong focus on developing and strengthening its economic ties with the Asian region.

Outlook

On 17 January 2010, centre-right candidate Sebastian Piñera defeated Concertación candidate Eduardo Frei in the presidential elections, taking 52.62 per cent of the second-round vote.  Piñera's victory marks the first transition from Concertación to centre-right government since Chile returned to democracy in 1990.  President Bachelet will complete her four-year term and Piñera  take office on 12 March 2010.

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ECONOMIC OVERVIEW

At a glance

For the latest economic data refer to the Chile fact sheet (http://www.dfat.gov.au/geo/fs/chle.pdf) .

Policy directions

Chile retains an open economy and liberal trade regime, including a floating exchange rate, inflation targeting and a structural fiscal surplus rule, all geared towards reducing economic volatility. The Chilean Government has responded to the challenges posed by the global financial crisis by introducing a $US 4 billion stimulus package including additional financing for the state-owned copper producer CODELCO, new infrastructure spending and new welfare spending. Higher government expenditure in 2009 will be partly funded through accessing its sovereign wealth fund. The IMF forecasts GDP to contract by 1.7 per cent in 2009, owing partly to fiscal stimulus measures.

Most trade distortions and non-tariff barriers have been eliminated and Chile has introduced a flat tariff structure that currently stands at 6 per cent. Due to its network of FTAs, the average tariff applied is well under that 6 per cent figure. The Central Bank of Chile maintains an independent monetary policy aimed at maintaining inflation at OECD standards. The peso was floated in September 1999. Privatisation over the past two decades has meant that few state-owned enterprises remain. Much of Chile's highway infrastructure was transferred to private enterprises under build-operate-transfer concessions. CODELCO – the Chilean Copper Company and Chile's largest company – remains state-owned with no consensus on privatisation.

Chile's strong push to engage economically with the Asia-Pacific region and to build strategic alliances along the eastern seaboard of South America is reflected in its busy Free Trade Agreement (FTA) agenda. Chile has 20 preferential trade agreements in place with 56 countries (including with 10 other APEC members – the US, Canada, South Korea, Mexico, New Zealand, Singapore, Brunei, Japan, China and Peru). It is currently negotiating with Malaysia, Vietnam and Thailand. Chile is an associate member of Mercosur (the Customs Union involving Argentina, Brazil, Paraguay and Uruguay). It has also recently become an associate member of the Andean Community (comprising Colombia, Ecuador, Peru and Bolivia). It strongly supports trade and investment liberalisation within APEC. Chile pursues its market access objectives within the WTO and is a member of both the Cairns Group and the G20 group of developing countries.

Chile's recent economic success and its liberal economic policies were significant factors in its accession to the Organisation for Economic Cooperation and Development (OECD) in January 2010. Australia has strongly supported Chile's membership of the OECD.

Economic outlook

Chile has registered solid economic growth in recent years (4.3 per cent in 2006, 5.1 per cent in 2007, and 3.4 per cent in 2008) on the back of record world copper prices. The Chilean Government's strong fiscal position allowed for the repayment of debt, and placed the Government in a net creditor position. Between 2004 and 2008, Chile's total external debt decreased from 45.8 per cent to 35.6 per cent of GDP. Lower prices for copper in 2008 led to the fiscal surplus declining to an estimated 5.5 per cent of GDP in 2008 (from 9.4 per cent in 2007).

In recent years, the strong performance of the mining sector, economic growth and a favourable domestic investment climate contributed to a reduction in unemployment to around 7.8 per cent in 2008 (from a level in excess of 11 per cent in 2004. In 2009, however, unemployment increased, reaching a four-year high. Inflationary pressures evident in late 2008 have eased (inflation peaked at a 14-year high in October 2008 at 9.9 per cent, and quickly declined to 6.3 per cent in January 2009). The Chilean peso has gradually strengthened since its recovery began in late 2008, owing largely to dollar inflows from the repatriation of US$4 billion from Chile's sovereign wealth funds.

Chile, a major commodity exporter, has been significantly affected by the financial crisis. Low external demand has weakened industrial production, raising unemployment and reducing investment. Nevertheless, its strong public-sector financial position, flexible exchange rate regime and relatively well-capitalised and well-regulated banking sector, put it in a better position than many countries to respond to the crisis.

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BILATERAL ECONOMIC AND TRADE RELATIONSHIP

Chile and Australia share a healthy and growing economic and trade relationship. Chile is Australia's third largest trading partner in Latin America, with two-way trade totalling $1.275 billion in 2008-09. Total merchandise trade reached $883 million in 2008-09 (up 14.2 per cent from 2007-08). Major exports to Chile include coal ($136 million in 2008-09), beef, civil engineering equipment, and specialised machinery and parts. Australia's imports from Chile totalled $552 million in 2008-09 and included copper ($295 million), lead ores and concentrates, pulp and waste paper and wood. Two-way trade in services in 2008-09 totalled $413 million, of which Australian exports of services to Chile were $170 million.

Australian companies are significant investors in Chile, and its relatively open business environment has made it an ideal base for Australian companies looking to expand into Latin America. About 120 Australian companies are actively trading with Chile. More than half of the Australian or Australian-affiliated companies with offices in Chile are related to the mining industry, though this has diversified in recent years. ABS figures show that in 2008, total Australian investment in Chile was $2 billion. Significant Australian private-sector investors include BHP Billiton (mining) and Pacific Hydro (power generation).

The entry into force on 6 March 2009 of the ACl-FTA has eliminated tariffs on 97 per cent of existing merchandise trade. By 2015, tariffs on 100 per cent of existing merchandise trade will be eliminated under the FTA. The FTA also contains provisions with respect to services and investment liberalisation, and guarantees access to government procurement markets. The Australia-Chile FTA was Australia's fifth free trade pact and the first with a Latin American country.

The ACl-FTA reflects our shared interest in the trade liberalisation agenda. It is a major step in our bilateral links with Chile. A Cooperation Chapter will facilitate closer engagement with Chile in a range of trade-related areas. Chile was particularly interested in having this Chapter in the FTA because it regards Australia as an economic model for Chile to follow and as a potential partner in innovation and technology, in areas such as mining operations and viticulture.

Australia's Senior Trade Commissioner to Chile is responsible for all of Austrade's operations in Latin America. The Austrade Latin American Regional office is based in Santiago.

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MAJOR AUSTRALIAN INVESTMENT ACTIVITY

Mining

BHP-Billiton holds a 57.5 per cent stake in the world's largest copper mine, Escondida, located in northern Chile. BHP Billiton's development of major new projects continues, with the US$870 million Escondida Sulphide Leach project and US$990 million Spence copper mine in train. With ongoing concerns about energy supply in northern Chile, BHP Billiton has announced the tender of a 340MW coal-fired power plant, offering Australian providers the opportunity to participate in the design and construction of the plant, and the supply of coal (currently Australia's largest export to Chile and a key area of growth potential).

Energy

Pacific Hydro holds a 50 per cent stake in the joint venture construction of the 155 MW La Higuera plant on the Tinguiririca River. Included in this joint venture are Pacific Hydro's 2004 acquisitions from Codelco (the Coya and Pangal hydroelectricity generation plants), as well as stage 2 of the La Higuera project, the 145 MW La Confluencia. Australian company HydroChile has also recently entered the renewable energy market, developing a number of small run-of-river hydro projects. [[checked]] GasValpo, a major gas distribution company in Chile, is owned by a group of Australian superannuation funds.

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EXPORT OPPORTUNITIES

Opportunities exist for Australian companies in the areas of:

-- Mining (technology, equipment and services)

-- Energy – coal (technologies and services); renewable energy (including hydro and wind)

-- Agribusiness – animal genetics (cattle and sheep genetics and livestock and production technologies)

-- Specialised food and beverage

-- Technology and services – engineering and consulting; agri and mining sectors; wine technology and services

Mining technology and services

Australian mining technology and services companies continue to have commercial success in Chile with companies such as ATC Williams and Enthalpy Pty Ltd winning new export business in Chile. In addition 60 Australian companies took part in ExpoMin, the region's largest mining trade event, on 14-18 April 2008.   New projects in the mining sector total over US$7 billion through 2012, with a number of expansion projects offering opportunities for Australian companies. In September 2007, Austmine and its Chilean equivalent, MinExport, signed an MOU aimed at promoting co-operation at an industry level in the mining technology and services sector.

Engineering and consulting services

Chile continues to be a magnet for Australian engineering companies across a broad spectrum of sectors. GHD has had success in a wide range of port development and upgrade projects, the largest being the development of port receiving facility in Valparaiso. Such is the demand for its services, Sinclair Knight Merz has increased its local staff profile to over 700. In addition, the company has expanded its consulting practice in Chile and added an Environmental Consulting division.

In 2006, WorleyParsons opened an office in Chile and acquired 50 per cent of a local engineering firm in October 2006. Also active in the services sector is Sedgeman Pty Ltd, a specialist in the design of coal-fired processing plants, and demand for the company's services are expected to increase due to the change in the energy landscape in Chile. In 2007, Brisbane-based Enthalphy Pty Ltd entered into joint venture to address services opportunities in the mining sector. Specialist Australian consulting companies are well regarded in the Chilean mining market and a number of Australian companies supply services to leading customers such as CODELCO, Chile's state owned resources company.

Agribusiness

A shipment of nine Australian breeding rams (the first to Chile in three years) was delivered in late October 2006. These rams came from some of the recently approved facilities in Australia that formed part of the SAG (Chile's quarantine authority) visit to Australia in August 2006. The Australian Government worked with SAG to conduct visits to Australia to approve eight Australian facilities (collection centres and ovine studs) that are focused on exporting to Chile.

The Chilean Minister of Agriculture visited Australia in September 2006 to review Australian technology in animal genetics and meet with Australian suppliers of animal genetics. Ovine genetics opportunities have seen new growth in Chile for Australian suppliers, specifically multipurpose merinos. In addition, Australian fine quality wool is exported to Chile and made into high quality fabric for the United States retail market.

Energy

The energy landscape in Chile continues to create opportunities for Australian companies, notably in the areas of renewable energy and coal in the short to medium term, and liquefied natural gas (LNG) in the long term. Chilean energy demand is forecast to grow at 6-7 per cent over the next 5-10 years and demand for Australian coal has the opportunity to see significant growth over the next five years due to the increased energy demands in both the commercial and residential sectors.

Chile is making significant investment in renewable energy (hydro and wind), coal and LNG projects. This is due to a continuing energy crisis in Chile and the lack of natural gas from Argentina. Austrade is working with all of the major power generators in Chile to look to Australia for new sources of coal. Chilean power generators regularly travel to Australia to meet with potential business partners. In addition to coal, a second LNG plant is being developed in the second region to the north of Chile. This project offers potential opportunities for Australian suppliers of LNG starting after 2010.

Pacific Hydro continues to enjoy success with run-of-river hydro projects. Its La Higuera project became the first project in Chile to be registered for carbon trading under the Kyoto Protocol's Clean Development Mechanism. In addition to its already operational Coya and Pangal Plants and the La Higuera and La Confluencia projects under construction, Pacific Hydro has also announced its intention to invest a further US$1 billion by 2014 to develop five run-of-river hydro projects with a combined capacity of 600MW. The company has established a wind energy testing station on Chiloe Island, and is using its office in Santiago as a base to develop projects in Brazil and Peru.

Franchising and services

With Chile's growing middle class and increased disposable income, franchising has emerged as a new area of opportunity for Australian companies in Chile. Already, Australian chain Boost Juice has a Master Franchisee in Chile, and has opened outlets in two of Santiago's largest retail malls. Boost Juice hopes to open up to 20 outlets across Chile over the next four years, and possibly branch out to other markets in the region. Austrade is also working with Gloria Jean's to identify a local business partner to open branches in Chile.

Additionally the general interest in Australian products and services continues to diversify into new such areas as aviation. For the first time, in April 2006, three Australian companies were represented at FIDAE, the region's largest air show. Australian company Aerosweep Pty Ltd has started to makes sales in the market and Gippsland Aeronautics is promoting Australian made aircraft to the tourism and agriculture sector.

Retail

Australian companies Billabong and Rip Curl have established a strong presence in the Chilean surfwear market. In June 2007, the Rip Curl International Surfing Contest was held in the northern Chilean city of Arica, which brought the world's best surfers to Chile and promoted the Australian company throughout the country. Another Australian surfwear company, Ocean and Earth, will open a shop in Santiago in early September, 2009.

Food and beverage

Wine importer Adelco has finalised an order for a range of 12 Australian wines, which will be available in restaurants and selected supermarkets from July 2008. The market opportunity for Australian suppliers will continue, while bans on Argentinean beef remain in force.

Austrade worked with Jumbo supermarkets to launch an Australian food project in January 2008 that effectively focused on high-end specialised food products being imported and targeted the upper end of the Chilean consumer market. The project involved over 20 Australian products and a number have been re-ordered since the 20 store promotion took place.

Education and training

Australian educational institutions are well regarded and there is scope for expansion of the Australian presence in the Chilean education market. DFAT, Austrade and Australian Education International (which established its regional office for Latin America in Santiago in April 2004) are working to promote Australia as a quality provider of educational services. A new Expo Australia event was held in Santiago on 1 and 2 October 2008 to promote Australian Education.

Australia has also been recognised by the Chilean Government for its capacity to provide high quality education. During his visit to Australia in July 2008, Foreign Minister Foxley signed three Memoranda of Understanding with Universities Australia, the Group of Eight Universities and TAFE Directors Australia which will see up to 500 Chilean scholarship students study at the postgraduate level at Australian universities and up to 400 at TAFE Colleges, commencing in 2009.

Vocational Education and Training (VET) reform is a major issue in Latin America, with countries considering how best to provide the vocational and technical skills required to support economic growth. Opportunities exist in consultancy services for systems design, curriculum and training package development, and delivery of Australian qualifications in Chile. Opportunities also exist for the English language sector in short-term training packages and train-the-trainer courses for organisations and businesses. Greater links between higher education providers in Chile and Australia will encourage potential research collaboration and exchange of students and academics.

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CHANGES IN TRADE AND INVESTMENT CONDITIONS

Student visas

Visa regulations introduced on 1 April 2005 have made it a much more straightforward and convenient process for a Chilean student to obtain a visa to study in Australia. All categories for the student visa for Chile are at Assessment Level 1. This has led to an increase in student visas granted to Chileans since the introduction of changes.

Work and holiday visa arrangement

A reciprocal agreement between Australia and Chile was signed on 14 July 2005, introducing Work and Holiday Visa arrangements, which allow university-trained people aged 18-30 years to work and holiday in another country for up to 12 months. This program began with 100 available places, and this has increased progressively to 1,500 places for the 2008-09 year, reflecting the popularity of the program.

Energy and utilities

In January 2004, the Chilean Parliament approved laws governing new electricity transmission projects. The new laws provide incentives to investors by guaranteeing payment for establishing new networks and transporting the electricity and are expected to attract investments totalling US$3 billion over the next five years.

Taxation

Chile's Value Added Tax was increased from 18 per cent to 19 per cent in October 2003. In June 2003, the Foreign Investment Committee (FIC) increased the minimum amount for investments in fixed assets, technology, debt capitalisation and profit reinvestment from US$25,000 to US$250,000. The FIC also simultaneously increased the lower limit on capital invested through Chile's DL 600 Foreign Investment Statute from US$1 million to US$5 million per investor.

For further information or assistance developing business opportunities in Chile, please contact Austrade on 13 28 78 (anywhere within Australia), visit the Austrade website (http://www.austrade.gov.au/) or e-mail info@austrade.gov.au (mailto:info@austrade.gov.au).

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TRADE SUCCESSES

Note Printing Australia and Securency

In August 2006, Note Printing Australia (NPA) and Securency signed their second contract with the Central Bank of Chile for the CLP2,000 note. Under the contract, Securency and NPA will produce the note over the following five years. The Central Bank has indicated its intention to consider additional denominations in the future.

First export of Australian paper

The first export order for Australian paper to Chile has been made by one of the largest Chilean importers of paper, Paperela DIMAR S.A. The entry into force of the Free Trade Agreement should expand opportunities for exports of Australian paper products to Chile.

Education

Chile is Australia's fifth largest source of foreign students in Latin America. In 2009 there were 1,463 Chilean students enrolled in Australian educational institutions. In 2006 and 2008, there were significant increases in enrolments by Chileans in the English Language and VET sectors. The easing of student visa regulations and the establishment of the Australian Education International office in Santiago has contributed to the increases.

Air services agreement

In September 2001, Chile and Australia entered into an Air Services Agreement providing for both passenger and freight services. It allows for an expansion of airline routes between Australia and South America with Santiago de Chile as a first destination and entry point. Direct flights between Santiago and Sydney commenced in July 2002. LAN Chile currently operates seven flights per week to help meet the soaring demand for travel between Australia and South America. For further assistance please contact the Council on Australia Latin America Relations (COALAR) Secretariat on 02 6261 3334 or email the Department's Canada and Latin America Section: latin.desk@dfat.gov.au (mailto:latin.desk@dfat.gov.au).

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Last Updated: January 2010

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