Transparency of the Regulatory System
Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners. They are consistent with international norms; however, environmental regulations and permitting processes in particular have become lengthy and unpredictable, especially in politically sensitive cases, due to mandatory indigenous consultation requirements arising from Chile’s ratification of the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169).
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 a regulatory oversight body in its institutional set up. Most regulations are decided at the national level; however, some, in particular those related to permit processing for land use, are decided at the local level.
The OECD’s April 2016 “Regulatory Policy in Chile” report asserts 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 OECD recommends that Chile create a regulatory oversight body to oversee the rule-making process currently managed by different government departments. It also recommends that Chile develop mandatory standards and guidelines for the preparation of laws and regulations, including compulsory consultation practices and forward planning, and the use of management tools such as regulatory impact assessments and ex-post evaluations.
Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods.
In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS). Since January 1, 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 will enter into force in 2019.
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. 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.
All decrees and laws are published in the Diario Oficial (National Gazette), but other types of regulations will not necessarily be found there. There are no other centralized online locations where regulations in Chile are published, similar to the Federal Register in the United States.
According to the OECD, compliance rates in Chile are generally high, although there is no monitoring mechanism that can prove this finding. The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance. In terms of sanctions, each institution with regulation enforcement responsibilities has its own procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration. An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.
Chile still lacks a comprehensive, “whole of government” regulatory reform program. However, the Agriculture and Transportation Ministries have taken steps to create units designed to improve the preparation and implementation of regulations. In 2014, the government created the National Productivity Commission, which includes among its main functions the identification of regulatory constraints to increase productivity and recommendations to overcome them.
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). Chile ratified the Trade Facilitation Agreement (TFA) in November 2016. Chile implemented a new law modernizing the Customs Service in March 2017.
Legal System and Judicial Independence
Chile’s legal system 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.
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.
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 on the potential competition implications of a planned investment. Chile’s anti-trust law 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.
In October 2015, paper manufacturers CMPC and Sweden’s SCA subsidiary PISA were accused of having colluded for at least a decade to inflate prices in the Chilean tissue and toilet paper markets. The companies agreed to a compensation plan with the National Consumer Service to reimburse Chilean citizens in 2017.
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. Hearings took place during 2017 and will extend through 2018. The FNE is demanding that the TDLC impose fines on Sanderson and Fresenius Kabi Chile amounting to more than USD 18 million. Biosano has entered into a leniency agreement.
In 2015, the FNE opened an investigation into Oracle for potential abuse of market dominance regarding database management systems (DBMS software). On April 2018, the company agreed with the FNE on a plan to improve its practices related to information sharing with its users.
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 manner, and 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
Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934; the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976; and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.
The U.S.-Chile FTA has been in force since 2004 and 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 involving a U.S. person or other foreign investor was one case brought by a Spanish-Chilean citizen against the state of Chile regarding the expropriation of a newspaper in 1975 by Chile’s military regime. On September 13, 2016, the World Bank’s Washington-based International Center for Settlement of Investment Disputes (ICSID) tribunal issued a final ruling in favor of the Chilean state, rejecting the claimant’s request for financial compensation. However, a new case was brought by the same person in April 2017 and is now 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
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 U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, the investor may submit a claim for arbitration. 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 investment chapter 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.
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 state-owned enterprises (SOEs) have been involved in investment disputes in recent decades.
Chile’s Insolvency Law from 1982 was updated in October 2014. The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy. It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets. 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 purposes 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.
Chile’s credit reporting system is a negative-only system with some positive data elements, which distributes data on both firms and individuals, including data from retailers, utility companies, as well as banks and financial institutions. Chile has a competitive commercial credit bureau industry in which agencies not owned by creditors (the largest of which is Equifax) coexist with non-commercial, creditor association reporting such as the National Chamber of Commerce.