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 –which include mandatory indigenous consultation required by the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169)- and other permitting processes have become lengthy and unpredictable, especially in politically sensitive cases.
Four institutions play key roles in the rule-making process in Chile: the 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 come from the national government; however, some, in particular those related to land use, are decided at the local level. Both levels get involved in environmental permits. Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods. 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.
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 entered 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, conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations. 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. The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance. Each institution with regulation enforcement responsibilities has its own sanction 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. The World Bank´s Global Indicators of Regulatory Governance project finds that Chile is one of the countries that have improved their regulatory governance framework since 2017.
Chile’s level of fiscal transparency is excellent. Information on the budget and debt obligations, including explicit and contingent liabilities, is easily accessible online.
International Regulatory Considerations
Chile does not share regulatory sovereignty with any regional economic bloc. However, several international norms or standards from multilateral organizations (UN, WIPO, ILO, among others) are referenced or incorporated into the country’s regulatory system. As a member of the WTO, the Chile notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Legal System and Judicial Independence
Chile’s legal system is based on civil law. 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
Law 20,848, of 2015, established a new framework for foreign investment in Chile and created the Agency for the Promotion of Foreign Investment (APIE), successor to the former Foreign Investment Committee and which also acts under the name of “InvestChile.” InvestChile’s website (https://investchile.gob.cl/) provides relevant laws, rules, procedures, and reporting requirements for investors. For more on FDI regulations and services for foreign investors see the section on Policies Towards Foreign Direct Investment.
Competition and Anti-Trust Laws
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 competition implications. The National Economic Prosecutor (FNE) is a very active institution conducting investigations for competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.
In February 2019, the TDLC fined supermarket chains Walmart, Cencosud, and SMU with USD 4.2 million, USD 5.1 million, and USD 3.1 million, respectively. The TDLC ruled in a collusion case introduced by the FNE in 2016 establishing that these retailers set up a minimum price accord in the market for fresh poultry meat.
In April 2019, the FNE asked the Supreme Court to reverse a decision from the TDLC on October 2018 authorizing alliances between the Chilean airline Latam with British Airways, Iberia, and American Airlines. The FNE considers that such alliance would allow the formation of a monopoly in the main air routes used by Chileans to travel to Europe and North America, significantly reducing competition in other routes. On May 25, the Supreme Court unanimously accepted the request from the FNE and prohibited the alliances.
In June 2019, the FNE approved without conditions IBM’s acquisition of Red Hat Inc., an IT company that provides IT solutions for corporate clients, on the grounds that, according to FNE’s risk analysis, this operation does not reduce substantially competition in the market.
In December 2019, the FNE asked the TDLC to issue fines of USD 70 million on three foreign companies – Denmark-based Biomar; Netherland-based Skretting, and Peru-based Salmofood – that provide salmon feed in Chile. The FNE alleged that these companies, together with U.S. based Ewos, established an agreement to fix salmon feed prices between 2003 and 2015. FNE asked the TDLC to exempt Ewos from fines due to its cooperation with authorities.
Expropriation and Compensation
Chilean law grants the government authority to expropriate property, including property of foreign investors, only on public interest or national interest grounds, 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 take place in a transparent manner, and typically only when the purpose is to build roads or other types of infrastructure. The law requires the payment of immediate compensation 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, in force since 2004, includes an investment chapter that provides the right for investors to submit claims under the ICSID Convention; the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules; or any other mutually agreed upon arbitral institution. So far, U.S. investors have filed no claims under the agreement.
Over the past 10 years, there were only two investment dispute cases brought by foreign investors against the state of Chile before the World Bank’s International Center for Settlement of Investment Disputes (ICSID) tribunal. The first relates to a Spanish-Chilean citizen regarding the expropriation of Chilean newspaper El Clarín in 1975 by Chile’s military regime. On September 13, 2016, ICSID issued a final ruling in favor of the Chilean state, rejecting the claimant’s request for financial compensation. However, the same person brought a new case in April 2017, related to the State’s actions following a 2008 judgment of the Santiago court in relation to the confiscation of the Goss printing press, as well as the alleged lack of remedy for the deprivation of their property rights in El Clarín. The amount of compensation claimed by the investor is USD 338.3 million. The case is now pending resolution.
The second case was brought in 2017 by Colombian firm Alsacia, which holds concession contracts as operators of Transantiago, the public transportation system in Santiago de Chile. The firm claims USD 347 million for Government actions in relation to Transantiago that allegedly created unfavorable operating conditions for the claimants’ subsidiaries and resulted in bankruptcy proceedings. The case is pending resolution.
Local courts respect and enforce foreign arbitration 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 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 tribunal must also accept amicus curiae submissions.
In Chile, 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 cannot 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.