Flag of Chile

Chile country brief

Introduction

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, and share an Asia-Pacific trade focus. A free trade agreement, double taxation agreement and social security agreement underpin a growing trade and investment relationship.

Australia and Chile have embassies in their respective capitals. The Chilean government had consular representation in Australia as early as 1899 in Newcastle. Diplomatic ties were established when the first Chilean chargé d'affaires en titre presented credentials in Canberra on 5 July 1945. After several periods of suspension, the mission was upgraded to an Embassy with an Ambassador in September 1969. Similarly, an Australian Legation in Chile was established in August 1946 and after a period of suspension, Australia announced the decision to re-establish the mission in the form of an embassy in Santiago in June 1968.

Political overview

Background

Following the successful resistance to the first Spanish invasion of Chile in 1535 by the indigenous Araucanian people, in 1541, Pedro de Valdivia began the final Spanish conquest and founded Santiago. Chile achieved independence from Spain in 1818 after the Spanish were defeated by the Army of the Andes led by Jose de San Martin and Bernardo O'Higgins.

Following the election of a left-wing government, headed by Salvador Allende (1970-73), the armed forces, under the leadership of General Augusto Pinochet, seized power on 11 September 1973, suspending the constitution, dissolving congress, imposing strict censorship and banning all political parties. 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 Concertacion and centre-right Coalicion have continued the economic liberalisation initiated under Pinochet.

Recent developments

President Michelle Bachelet, of the Nueva Mayoría coalition (comprised mainly of centre-left political parties), won the presidential election on 15 December 2013 after heavily defeating rival Evelyn Matthei in a second round run-off election. President Bachelet took office on 11 March 2014. This will be her second term, having previously served as president between 2006 and 2010. 

President Bachelet has a strong mandate to govern and has proposed some ambitious reforms. While Chile has one of the lowest poverty rates in Latin America, inequality remains significant. President Bachelet’s election campaign centred on redistributive policies including tax and education reforms, and other measures intended to address income inequality.  She has also proposed amendments to the constitution, which, despite many amendments, date back to the era of military leadership under Pinochet.

The election of her predecessor, Sebastián Piñera (of the centre-right Coalicion), marked the first transition to centre-right government since Chile returned to democracy in 1989 and was the first elected centre-right government in more than 40 years. During his term as president, Piñera promoted an economic agenda of structural reform to improve productivity and competitiveness and reformed healthcare, education and the labour market.

System of government

Under Chile's constitution, the president, as head of state, serves a four-year term and is unable to serve a second consecutive term. In the bicameral congress, Chile's Chamber of Deputies and Senate have 120 and 38 elected members respectively.

International relations

Chile's most important regional partners are Brazil, Argentina and the 'Pacific Alliance' members, Peru, Mexico and Colombia. The Pacific Alliance economic integration process, covering goods, services, people and capital, offers economic opportunities beyond Chile's current bilateral FTAs with these countries. The integration of stock exchanges, for example, will form the second-largest stock exchange in Latin America.

Chile does not have diplomatic relations with Bolivia following a long-term border dispute. Bolivia lost its Pacific coastline during a 19th-century war with Chile. Bolivia has sought to regain access to the sea, including by bringing a claim against Chile before the International Court of Justice (ICJ). On 27 January 2014, the ICJ issued its final judgment over a longstanding maritime border dispute between Chile and Peru.. Despite requiring Chile to cede territory, both countries have agreed to abide by the ruling in what some see as a cause for optimism regarding bi-lateral relations between the two nations. Chile is an associate member of Mercosur (the Customs Union comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela). It is also an associate member of the Andean Community (comprising Colombia, Ecuador, Peru and Bolivia).

Chile is an active participant in other major international fora, including the United Nations, Organisation of American States (OAS), Asia Pacific Economic Cooperation (APEC), Organisation for Economic Development and Cooperation (OECD), International Monetary Fund (IMF), World Bank, the World Trade Organisation (WTO), Union of South American States (UNASUR) and the Community of Latin American and Caribbean States (CELAC). Chile served as a non-permanent member of the United Nations Security Council from 1996-97 and 2003-04, and is a candidate for 2014-15.

Chile has strong political, economic and trade relations with the United States (US). Bilateral trade has more than doubled since the US-Chile Free Trade Agreement (FTA) entered into force in 2004. The United States is Chile's second-largest goods trading partner overall, and the largest foreign investor in Chile.

Chile's trade focus in Asia is supported by a growing list of free-trade and economic agreements, including China, Japan, ROK, Viet Nam, Hong Kong, and Malaysia. China is Chile's number one destination for exports and number two source of imports after the United States; although inbound Chinese investment remains relatively modest. Chile and China upgraded relations to a "strategic partnership" in June 2012. Chile was the first South American country to establish diplomatic ties with China (in 1970), the first country in South America to sign off bilaterally on China's accession to the WTO and the first to conclude an FTA with China.

Economic Overview

At a glance

For the latest economic data refer to Chile country fact sheet [PDF 31 KB]

Economic outlook

Chile retains an open economy with a liberal trade regime, including a floating exchange rate, a rules-based counter-cyclical fiscal policy, and inflation-targeting, all geared towards reducing economic volatility. Chile continues to record solid economic growth: GDP grew by 5.6 per cent to an estimated US$268 billion in 2012 (about one-sixth of Australia's GDP), with an estimated real GDP growth of 4.4 per cent in 2013. Foreign direct investment in 2012 reached US$30.323 billion, representing an increase of 32.2% from 2011. The Chilean government's strong fiscal position has allowed for the repayment of debt and, until recently, placed the government in a net creditor position. In recent years, the strong performance of the mining sector, combined with economic growth and a favourable domestic investment climate contributed to a reduction in unemployment to an estimated 6.2 per cent in 2013 (from over 11 per cent in 2004).

As a major exporter of copper and other commodities, Chile was significantly affected by the global financial crisis. While the OECD has noted that Chile remains vulnerable to a sharper than expected economic downturn because of the dominance of copper in its exports (approximately 60 per cent), the underlying strengths of the economy, 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 future financial uncertainty in Europe.

Chile has eliminated most trade distortions and non-tariff barriers. It has a uniform tariff of six per cent, although due to its network of FTAs, the average applied tariff is much less. Draft taxation reform issued in April 2012 proposed to remove all tariffs unilaterally by 2015, but this was later removed from the agenda. The Central Bank of Chile maintains an independent monetary policy aimed at maintaining inflation at OECD standards. Privatisation over the past two decades has meant that relatively few state-owned enterprises remain. However, CODELCO, the Chilean National Copper Corporation, Chile's largest company, remains state-owned.

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 FTA agenda. Chile has preferential trade agreements in place with over 62 countries (including with 13 other APEC members – the United States, ROK, Mexico, New Zealand, Singapore, Brunei, Japan, China, Malaysia, Vietnam, Peru, Thailand and Hong Kong). It is currently negotiationing with  India on expanding an existing Partial Trade Agreement. Chile participates in the Trans-Pacific Partnership negotiations.

Chile strongly supports trade and investment liberalisation within APEC. It pursues its market access objectives within the WTO and is a member of both the Cairns Group and the WTO G20 group of developing countries. Chile's 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, which Australia strongly supported. Chile was a special invitee to the G20 in 2012.

Bilateral relationship

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. Both countries are negotiating the Trans-Pacific Partnership agreement and the Plurilateral Services Agreement. In 2012, Australia became an observer of the Pacific Alliance (Chile, Colombia, Mexico and Peru) and commenced a senior officials' dialogue with the Community of Latin American and Caribbean States (CELAC) during Chile's pro-tempore presidency of both organisations. 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.

Senior government, military and business visits between the two countries have increased greatly in recent years. In February 2014, Vice Chief of the Australian Defence Force, Air Marshal Mark Binskin AC, travelled to Chile to meet the Chiefs of the Chilean Army and Air Force, Senior Naval Officers and the Vice Minister of Defence. This visit was the most senior level Australian Defence Force visit to Latin America in recent memory and laid the foundation for practical and sustainable defence engagement, with a particular focus on the Pacific. Former Parliamentary Secretary for Trade, the Hon Kelvin Thomson MP, visited Chile in May 2013 on his way to the Pacific Alliance Summit in Cali, Colombia. The-then Minister for Trade and Competitiveness, Dr Craig Emerson, visited Chile in April 2012. The-then Minister for Broadband, Communications and the Digital Economy, Stephen Conroy, visited Chile in May 2011.

President Sebastián Piñera visited Australia in September 2012, accompanied by Foreign Minister Alfredo Moreno. Memorandums of Understanding on trilateral development cooperation with AusAID, mining with the CSIRO and biosecurity with the Department of Agriculture, Fisheries and Forestry were signed during the visit. Following the visit, President Piñera and the then Acting Prime Minister Wayne Swan issued a Joint Statement. The Chilean Minister for Mines, Hernán de Solminihac visited Australia in May 2013, July 2012, and September 2011, and signed MOUs with the Department of Resources, Energy and Tourism and the South Australian Government. Evelyn Matthei, the former Chilean Minister for Labour and Social Welfare and current presidential candidate, and the then Minister for Defence, Andrés Allamand, visited Australia in May and June 2012 respectively. Environment Minister, Maria Ignacia Benitez, also visited Australia as a Guest of Government in March 2013.

The first known Chilean to arrive in Australia was former president and political exile, General Ramon Freire, who arrived in 1838. Australia's third Prime Minister, John Watson, was born in the Chilean port city of Valparaiso in 1867 and emigrated to Australia, via New Zealand, in 1886. Chileans in Australia numbered 90 in the 1901 Census and grew slowly until the late 1960s. Numbers increased from the 1970s and the 2011 Census recorded just under 25,000 Chilean-born people in Australia. Australia's Chilean community now includes a network of second and third generation Chilean Australians. More information on Australia's Chilean population can be found at the Department of Immigration and Citizenship's Community Information Summary page.

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 merchandise trade totalling $1.6 billion in 2012. Exports to Chile totalled $427 million in 2012 comprising coal, beef, goods vehicles, and measuring and analysing instruments. Australia's merchandise imports from Chile totalled $1.2 billion in 2012, and included copper, lead ores and concentrates, wood, veneers, plywood, and particle board. Chile is a significant services trading partner in Latin America, with trade-in-services totalling $519 million in 2012.

The entry into force in March 2009 of the Australia-Chile Free Trade Agreement (ACI-FTA) 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 ACI-FTA was Australia's fifth free-trade pact and the first with a Latin American country.

The Australia-Chile Double Taxation Agreement (DTA) entered into force in February 2013. The agreement provides certainty for Australian and Chilean businesses through a framework for the taxation of cross-border transactions. It reduces barriers to the cross-border movement of people, capital and technology, primarily through reducing withholding taxes on dividend, interest and royalty payments. Further information is available at the Australian Treasury website or the Australian Taxation Office website's list of Countries that have a tax treaty with Australia.

The Australia-Chile Social Security Agreement, signed in 2003, improved social security protection for those 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.

Australian companies are significant investors in Chile. Chile's relatively open business environment has made it an ideal base for Australian companies looking to expand into Latin America. Over 100 Australian companies (including 25 ASX200 companies) with over 180 projects are actively trading in 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 total Australian investment in Chile was $2.330 billion in 2011 and $2.7 billion in 2012. Significant Australian private-sector investors include BHP Billiton, Rio Tinto, Origin Energy, Orica (chemicals) and Pacific Hydro (power generation). The CSIRO Chile Centre of Excellence in Mining and Minerals Processing, co-funded by the Chilean government and supported by local universities and major industry partners, has offices in Santiago and Antofagasta.

Short-term visitor numbers are growing since Qantas began direct flights from Sydney to Santiago in March 2012, in addition to LAN services via Auckland, which commenced in 2002. Chilean tourism authorities recorded the arrival of more than 33,321 Australians in 2011, which grew by 37 per cent to 41,459 in 2012.

In September 2011, Australia introduced an e-visa for Chilean tourists visiting Australia. The e-visa processing system has benefitted relatives of the large resident Chilean community in Australia and facilitated a greater flow of Chilean tourists to Australia. In July 2005, Australia and Chile signed a MOU establishing a work and holiday visa program. This program began with 100 available places, and this has increased progressively to 1,500 places, 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 the other country.

Australia is an attractive education destination for Chileans. In December 2013, around  2,000 Chilean students were enrolled in Australian institutions making Chile the third-largest source of international students from Latin America, after Brazil and Colombia.

Australia's bilateral education relationship with Chile is the most sophisticated in the region. A range of collaborative agreements exist between Australian education and training institutions, the Chilean Government and with local education providers, covering scholarships, student exchanges and double degree arrangements. Australia is among the top destination countries for scholarship students funded by the Chilean Government's Becas Chile Scholarship Program, under which 500 students have been sent to study in Australia since 2010. The program includes postgraduate, undergraduate and vocational education and training scholarships. New opportunities are emerging for Australian education and training providers in areas such as mining and water, where Australia has key research and teaching strengths and Chile has human capital development needs. Greater engagement between government, researchers, education and training providers and industry is taking place as a result.

From 2010 to 2014, Australia provided $100 million in official development assistance to Latin America, including 250 Australia Awards scholarships.  Chile received 23 Australia Awards Scholarships and eight Australia Awards Fellowships. The regional program has now closed, though some activities that have already been funded will continue until 2017.  Following the 2010 Chile earthquake and tsunami, Australia provided $5 million for the immediate relief of emergency supplies (generators, tents, stretcher beds and rain jackets), and helped Fundacion Integra to reconstruct and restore 32 child care centres in the poorest areas of Chile that were most affected. At the time, the Fundacion Integra board of directors was chaired by Cecilia Morel, the wife of the then Chilean President, Sebastian Piñera.

In 2001, the Australian Government established the Council on Australia-Latin America Relations (COALAR) which aims to enhance commercial, political and cultural relations between Australia and Latin America. Since its inception, COALAR has been active in promoting business, education, tourism and cultural links between Australia and Latin America.  For updates on COALAR activities and information on the annual grants program, follow COALAR on Facebook.

Export and investment opportunities

Chile is developing frameworks to encourage more foreign investment and trade, with a view to stable and sustainable economic growth. In this context, Australian expertise and firms are increasing their focus on supporting the policy development framework in these countries across a number of sectors. Chile is the most like-minded country in Latin America for Australians wishing to conduct business and Australia has a significant history of investment in Chile. In 1992 Australia was Chile's third-largest investor and recent developments in the relationship, such as the Australia-Chile Free Trade Agreement and the Australia-Chile Double Taxation Agreement, have significantly reduced barriers to trade and investment. The Australia Chile Free Trade Agreement has a review process and we would welcome advice of any further obstacles faced by Australian companies when doing business in Chile. Austrade's Santiago office and the Australia-Chile Chamber of Commerce work on promoting trade and investment links between the two countries.

Mining and associated services remain significant players in the bilateral economic and trade relationship, however, growing income levels within Chile and a strong economic outlook for the country means Australian agribusiness, financial services, energy and water, and education providers will also see significant opportunities in the future.

Updated April 2014