VI. TRADE REGULATIONS AND STANDARDS Tariff and Agricultural Priceband Chile's import duties are 11 percent of the CIF value. One exception is the agricultural price band or surcharge mechanism on wheat, edible oils and derivatives, and raw sugar. The surcharge is designed to maintain domestic prices for these commodities, within a pre-determined band, in order to shield Chilean producers from international price fluctuations. The band's effect has reduced imports, especially of wheat. Tariff and VAT Chile has relatively few import or non-tariff barriers other than controls for hazardous materials and the minimum price requirements under the agricultural priceband. Chile's 11 percent import tariff is based on GATT regulations. The country also uses the Harmonized Tariff Schedule (HTS) to classify imports and exports. The 11 percent, uniform import duty or tariff applies to more than 95 percent of Chile's imports. This duty is calculated on the cost, insurance and freight (CIF) value of the imported goods. Chile also levies a value added tax (VAT) of 18 percent, on practically all goods. The VAT is calculated on the basis of the CIF value plus the import duty. Importers, end-users, and foreign subsidiaries in Chile pay import duties plus VAT. The foreign supplier is not responsible for these costs. Importers get a refund from the Chilean government when selling to the end-user. Thus the end-user is the only one affected by this tax. National Customs Service (Servicio Nacional de Aduanas) may refuse to accept a supplier's CIF value in a case of obvious price distortion, e.g., price is too low by accepted world standards. In such instances customs officials may increase the duty on the imported goods to ensure fair value is charged and to prevent under-invoicing. Luxury Goods Luxury goods pay taxes or surcharges on their CIF value, at the time of their entry into Chile. These taxes are in addition to the 11 percent import duty and the VAT. In such cases, the VAT is calculated on the basis of the import duty, plus CIF value, plus surcharge. Luxury goods include: expensive cars (with engines above 1500 cc), ivory articles, fine jewelry, such textiles as Persian, Khilim and Dhurrie rugs, expensive tapestries, alcoholic beverages, tobacco, furs, and gasoline. (See table below) Surcharges on Luxury Goods Percent Articles of gold, platinum and ivory 50 Jewels of precious or synthetic stones 50 Fine furs, whether or not manufactured 50 High quality rugs and tapestries 50 Yachts (except with sails and for sporting events) 50 Home trailers, self-propelled 50 Caviar 50 Air and compressed gas guns (except those for submarine fishing) 50 Pyrotechnic products and fireworks 70 Whiskeys 70 Liquors * 30 Wine and beer 15 Non-alcoholic beverages, syrups and other alcoholic substitutes 13 Mineral water 13 * Lower duties, 13, 15 or 25 percent may apply. (Pisco: 25 % - Vermouth: 30 %. Special Regulations Samples are admitted duty free, as long as they cannot be sold or used commercially. If they have commercial value, both the normal duty of 11 percent and the 18 percent VAT are levied. Small size and limited quantity normally suggest the sample has no commercial value. There are two additional taxes on automobiles, both locally-assembled vehicles and imports: (1) an engine size tax applied to vehicles with engines of over 1,500 cc.; and (2) a luxury tax, which is based on the car's CIF value. In 1993, the luxury tax was 85 percent of the value in excess of US$9,422.07 (adjusted annually according to the U.S. wholesale price index). Neither tax applies to buses, trucks, ambulances, off-road vehicles, motor homes, or certain other special vehicles. The incidence of these taxes is weighted toward larger and more expensive vehicles, some of which are of U. S. origin. Firearms can be imported, but they require a special permit from a military authority in Chile. In the case of foodstuffs and live animals, original phytosanitary or health certificates, from the country of origin are required. Copies are not accepted. Used Goods Used goods imports, other than capital equipment, carry an import duty of 16.5 percent of the CIF value. The VAT tax of 18 percent must also be paid. Used passenger cars, and used parts, however, are customarily prohibited importation along with most other used vehicles. (A car is considered used when it is more than one model year removed from its proposed date of importation). Exceptions to used equipment duties and vehicle import restrictions are: ambulances, armored cars, public road cleaning vehicles, mobile homes, prison vans, hearses, street cleaning vehicles, and cement-making vehicles. These goods pay 11 percent import duty plus the VAT. Fire- fighting vehicles are not subject to import duty, and pay VAT on the CIF value only. Importers of used and new cargo vessels of over 3,500 tons and over 120 meters length do not pay import duty, but do pay the VAT of 18 percent. Importers of used yachts pay an import duty of 16.5 percent, plus the VAT tax and a 50 percent luxury tax on the CIF value, plus the import duty. Deferral of Import Duties Import duties on capital goods can be postponed, with installment periods of 3, 5, and 7 years. The minimum value per item must be at least US$4,900. Deferment of duties is also possible on parts and pieces that are imported simultaneously with the capital goods in question, provided the parts do not exceed 10 percent of the CIF value of the goods or machinery. Waiver of the deferred/postponed import duties on capital goods is possible where sale goods are used to produce exports. VAT Exemptions VAT exemptions on capital goods imports, brought in for investment purposes, are possible in the following cases: (1) where the import is brought in under Chile's Foreign Investment Law, DL 600; or (2) there is no local production of such goods; or (3) there is insufficient local production of such goods. Import Licensing Certificate Chile's Central Bank requires that importers obtain a registration certificate known as the "Informed de Importacion," for all imports valued over US$3,000. This certificate is for statistical purposes, it is free and is normally issued on a pro-forma invoice basis. Consular notarization of exports to Chile is not required. The registration certificate can be issued by three authorities, depending on the amount of the proposed import, as follows: (1) the Central Bank for amounts exceeding US$3,000 F.O.B.; (2) the Chilean Copper Commission for copper imports; or (3) a commercial bank in Chile for amounts of US$3,000 F.O.B. or less. Import certificates require up to 5 days to obtain, provided the forms are filled in correctly, and no hazardous substance or pricing distortions are involved. Exporters should not ship to Chile, however, until the importer notifies the exporter that the license has been issued. A fine can be levied on the importer when this procedure is not followed. To avoid a fine or confiscation, imports generally must be shipped within 120 days from the date of approval of the permit. Import Clearances Clearances normally take two days from the time import documents are presented to custom officials, until actual release of the goods to the importer or his customs agent. Goods can also be cleared in advance, provided Chilean customs receives faxed copies of the bill of lading, commercial invoice, and the insurance. The bill of lading must have been verified by a bank, however. Once the shipment arrives, the goods can be released immediately. Temporary Import Permits Temporary imports of goods are authorized for government approved exhibitions and for temporary demonstration purposes. In the case of exhibitions, the fair authorities are authorized to grant a temporary admission certificate. For Chilean, government-approved exhibitions, no duty or VAT is levied, and goods may remain in the country up to six months. Goods imported for temporary demonstration purposes require the resident end-user or potential vendee to obtain a temporary admission certificate from the Chilean customs authorities. The goods are taxed, however, based upon the number of days they are in country. For example, from 1 through 15 days the duty will be 2.5 percent; from 16 through 30 days the duty will be 5 percent. Temporary Exports Imported goods, returned to the foreign supplier for repair or replacement of defective parts, normally do not pay additional imports duties or VAT taxes upon reentry into Chile. A temporary export permit must be obtained, however, to certify as to the purpose of the export, and to authorize reentry of the good. Should the repair increase the value of the good, both an 11 percent duty and VAT will be levied on added value. Should a duplicate replacement be substituted for the original good, full import duty and VAT are levied on the replacement. Full import duty and VAT would also apply when replacement parts are sent into Chile to replace the original, defective imported parts. However, where the original contract of sale price (CIF) of the imported good included the cost of service and replacement parts, customs officials can determine that the duty and VAT for these replacement parts were paid upon entry. In such instances, no additional duty or VAT will be charged, provided appropriate documents have been filled with Chilean customs. FREE TRADE ZONES Chile's two free trade zones are the Free Zone of Iquique (ZOFRI) in the northern I, of Chile, and the Free Zone of Punta Arenas (PARANEZON) in the southern tip, Region XII. ZOFRI encompasses the free ports of Arica and Iquique. Punta Arenas also has a free port. Most merchandise is permitted import into Regions I and XII, except for arms, ammunition, and/or merchandise considered inconsistent with Chilean "morale, public health or national security." Modern facilities for manufacturing, packaging and exporting exist in each zone. Finished products produced there are reputed to be of good quality. Labor is considered relatively inexpensive. Duties and VAT Duties and VAT requirements are as follows: (a) imports entering, and remaining in, Chile's free ports pay no duty or VAT; (b) imports leaving the free trade ports, but remaining in their respective free trade zones, pay a six (6) percent import duty, but no VAT charges; (c) imports leaving the free trade zones to enter the greater Chilean market, pay full tariff and VAT charges; and (d) subject to negotiations with Chilean customs imports can remain in-bond for extended periods, for transhipment to other countries. Region I ZOFRI, established by the Chilean Development Corporation, CORFO, in 1975, is currently undergoing privatization. The U. S. is the second largest user of ZOFRI after Japan. Honk-Kong being the third. Region I has air, ground and ocean transportation to Chile and overseas. Storage facilities are available. Region XII Most imports into Punta Arenas (PARANEZON) come from the U.K., Italy, France, the United States, and Japan. Smaller quantities of mostly consumer electronics come from other Asian countries. The Port is undergoing expansion to improve shipping operations. Storage facilities are available. Standards The National Standards Institute (Instituto Nacional de Normalizacion, INN), has included the ISO 9000 standards as part of Chilean standards, and is in charge of their promotion among local manufacturers. The chemical industry is one of the few industries that has incorporated the ISO 9000 standards to its industrial processing lines. Membership in Free Trade Arrangements Chile has free trade agreements with Mexico, Colombia and Venezuela which provide for duty-free trade in most products by the late 1990s. Chile also has trade liberalization agreements with Argentina and Bolivia and is negotiating an agreement with Ecuador. As of mid-1994, it seems likely that negotiations on a U.S.-Chile free trade agreement (or Chilean accession to the North American Free Trade Agreement) will begin in the near future. Both U.S. and Chilean government officials, including the presidents of both countries, have expressed their intent to negotiate such an agreement, which would eventually eliminate tariffs on nearly all Chilean imports of U.S. products and U.S. imports of Chilean products.