Transparency of the Regulatory System
Chilean regulatory systems tend to be transparent, but in recent years are more lengthy and unpredictable, especially in politically sensitive cases. Environmental permits in particular are an increasingly complicated process due to mandatory indigenous consultation requirements arising from Chile’s ratification of the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169). That said, most legal, regulatory, and accounting systems provide clear rules for competition and a level playing field for foreigners.
Four institutions play key roles in the rule-making process in Chile: the Ministry General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic. However, Chile does not have in its institutional set up a regulatory oversight body. Most regulations are decided at the national level, but some, in particular related to permits for land use, are decided at the local level.
The legislation process in Chile allows for public hearings during discussion of draft bills in both Chambers of Congress. Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. This has also been the case for the legislation that replaced the Decree Law 600 regulating foreign investment.
Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the general public (except as per ILO 169), conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations on proposed regulations. For lower-level regulations or norms that do not need Congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders but in a less regular manner. According to the World Bank’s Citizen Engagement in Rulemaking report, in Chile the steps mentioned above (notice, publication, comments, report and impact assessment) are followed in practice. However, the WB report is based on a small number of agencies (mostly under the Ministry of Economy) and its results do not necessarily reflect all ministries and agencies involved in rulemaking. In addition, the report does not capture the quality of such engagement and assessment.
In practice, Chile often does not conduct open public consultation processes for draft bills before they are submitted to Congress, and private sector representatives have noted that making changes to bills once they are already in Congress is quite difficult. Some open comment periods for new draft bills have reportedly taken place without real access to the text and did not sufficiently allow for a technical debate.
The OECD “Regulatory Policy in Chile” report issued in April 2016 finds that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design and evaluating them over time. The report criticizes that most regulators in Chile prepare new norms without clear evidence that regulation is the best way to intervene. One of the main findings is Chile’s lack of a regulatory oversight body, and recommends its creation to oversee the rule-making process currently managed by different government departments. It also recommends that Chile develops mandatory standards and guidelines for the preparation of laws and regulations, including compulsory consultation practices and forward planning. Regulatory management tools such as regulatory impact assessments and ex-post evaluations are also recommended.
All decrees and laws are published in the Diario Oficial (National Gazzette), but other types of regulations will not necessarily be found there, and there are no other centralized online locations where regulations in Chile are published, similar to the Federal Register in the United States.
International Regulatory Considerations
Chile does not share regulatory sovereignty with any regional economic bloc. However, several international norms or standards are referenced or incorporated into the country’s regulatory system. As a member of the WTO, the government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Legal System and Judicial Independence
The legal system of Chile is based on civil law. The basis for its public law is the 1980 Constitution which was most recently reformed in 2005. Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights. However, in cases where firms face complaints filed by local communities or workers, especially in cases that concern compliance with permitting requirements or procedures, courts tended to side against private firms. Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act. Chile has specialized courts for dealing with tax and labor issues. The judicial system in Chile is generally transparent and independent. The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council. In cases where courts determine a firm is bankrupt, a receiver is named to distribute the debtor’s remaining assets to the creditors.
Regulations can be challenged before the court system, the National Comptroller, or the Constitutional Court, depending on the nature of the claim.
Laws and Regulations on Foreign Direct Investment
See the section on Policies Towards Foreign Direct Investment.
Competition and Anti-Trust Laws
Foreign investors are not required to seek a ruling before investing on the potential competition implications of a planned investment. Chile’s anti-trust law, the Chilean Free Competition Act (1973), which was amended in 2016, prohibits mergers or acquisitions that would prevent free competition in the industry at issue. An investor may voluntarily seek a ruling by an Antitrust Court that a planned investment would not have antitrust implications. The National Economic Prosecutor (FNE) is in charge of conducting investigations for competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.
Four competition cases involving foreign investments had important developments over the past year. In October 2015, CMPC and Sweden’s SCA subsidiary PISA, two of the biggest paper manufacturers in Chile, were accused of having colluded for at least a decade to control the Chilean tissue and toilet paper market, inflating prices. The details of a compensation plan in which the two companies will be required to reimburse Chileans will be published during 2017. In January 2016, the FNE filed a complaint accusing the supermarket chains Cencosud, SMU and Walmart Chile (U.S owned) of colluding to fix a minimum retail price for chicken meat, at least between 2008 and 2011. In November 2016, the TDLC approved a settlement agreement with G.D. Searle. In August 2016, the FNE accused two pharmaceutical companies: Laboratorio Biosano, and Fresenius Kabi Chile and Laboratorio Sanderson (local subsidiaries of Germany-based Fresenius), of forming a cartel to rig bids in public tenders for the procurement of ampoules.
Expropriation and Compensation
Chilean law grants the government authority to expropriate property, including property of foreign investors, only for public or national interests, on a non-discriminatory basis and in accordance with due process. The government has not nationalized a private firm since 1973. Expropriations of private land have only taken place in a transparent and justified manner, generally when the purpose is to build roads or other types of infrastructure. The law requires the payment of compensation without delay at fair market value, in addition to any applicable interest.
ICSID Convention and New York Convention
Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975 Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.
Investor-State Dispute Settlement
Since 1958, Chile has been party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). It is also a party to (i) the Pan-American Convention on Private International Law (Bustamante Code) since 1934; (ii) the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976; and (iii) the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992. Chile also has a FTA with the United States in force since 2004, which includes an Investment Chapter. This chapter provides a mechanism for investors to pursue a claim against a host government that is in breach of the FTA’s investment obligations, an investment agreement, or an investment authorization. The investor pursuing a claim may by right submit a claim under the ICSID Convention or under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, or any other mutually agreed upon arbitral institution. So far no claims have been filed by U.S. investors under the agreement. Over the past 10 years, the only investment dispute brought by a U.S. person or other foreign investor was one case brought by a Spanish citizen against the state of Chile, which is pending resolution. Local courts respect and enforce foreign arbitral awards, and there is no history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
The U.S.-Chile FTA chapter on investments encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, a claim for arbitration can be submitted by the investor. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public. The tribunal must also accept amicus curiae submissions. The FTA chapter on investments establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law.
Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms. A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights. The Judiciary Code and the Code of Civil Procedure govern domestic arbitration. Local courts respect and enforce foreign arbitral awards and judgments of foreign courts. Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration. In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.
No Chilean SOEs have been involved in investment disputes in recent decades.
Chile implemented a new Insolvency Law in October 2014, replacing a 1982 law. The new framework avoids punishing entrepreneurs for bankruptcy, allowing them instead to use resources and restart economic activities. Among other outcomes, it reportedly clarified and simplified liquidation and reorganization of businesses, introduced provisions to facilitate the continuation of the debtor’s business during insolvency, established a public office responsible for the general administration of insolvency proceedings (the new Superintendence of Insolvency and Re-entrepreneurship) and created specialized insolvency courts. According to the World Bank’s Doing Business Report, Chile made significant progress under this new insolvency framework in making resolving insolvency easier, which resulted on Chile escalating from 72nd place in 2014 to 55th place in 2017 in the respective section of the ranking.
The new Chilean insolvency framework requests creditors’ approval for selection or appointment of the insolvency representative and for sale of substantial assets of the debtor. The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor is not given the right to request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation only. The creditors are divided into classes for the purposes of voting on the reorganization plan, each class votes separately and creditors in the same class are treated equally.