Chile in the global trade game.
These days Chile is called the Latin American tiger because the level of its high economic growth during the past decade. Macro-economic GDP figures show that the country’s growth was between 6 and 7 per cent annually during the last twelve years.
This incredible economic growth was obtained by carrying out profound changes, going from a closed industrial system centred on an internal, regulated and protected market, to an economic model based on exporting raw materials, privatisation, and deregulation as a way to achieve its incorporation into the global market.
International organisations such as the World Bank, are calling the other countries of the region to follow the Chilean experience as the successful model. Also in the surveys of international business Chile was recently ranked among the most competitive countries .
According to the International Institute of Business Development’s recent report, based on surveys of 2,465 business leaders throughout the world, Chile holds the fifteenth place in a global competitiveness. The criteria of this ranking are: government support for competition, the ability of society to adapt to and maintain competitiveness, aggressiveness in the world market, and attraction for foreign investment.
Given the success Chile is having on the regional and international scene is important to know how it was achieved, and what are the lessons we, as citizens, need to learn about this process. This is why Chilean citizen organisations are exposing worldwide what’s really happening with the people and the environment in the country, to show the real costs of this successful model.
The competitive basis of the Chilean economic model
In a trade context in which Chilean exports have increased fifteen times in the last few years, almost US$9 out of every US$10 that we export today correspond to natural resources in the form of raw materials or semi-processed materials. Of these, 44.5 per cent come from the mining sector, 17.1 per cent come from agriculture, 14 per cent from forestry and 11.7 per cent from fishing.
In 1994, more than 88 per cent of our exports were natural resources. Of these, 55.9 per cent were unprocessed raw materials and 32.3 per cent materials with a low-level of processing, especially fish-meal and cellulose.
Government and business officials claim that the country is able to sustain an annual growth rate of 6 to 7 per cent, but they are ignoring the inability of the ecosystem to continue tolerating the stress produced by the present rate of extraction, and the build-up of deposits of residues and emissions of industrial processes. To give a clear picture of the serious pressure of the Chilean export model over the environment, it is enough to note that at present, 64.8 per cent of Chile’s competitive exports consist of only ten products: copper, gold, fish-meal, frozen fish, grapes, apples, raw and bleached cellulose, pine lumber and native wood chips. In the other hand, pollution and its impacts on environment and public health has forced the government to designate as saturated areas almost all mining sites where the impact of pollution on public health is serious, and some cities including Santiago, Chile’s capital.
The lack of effective laws to protect the environment, weak regulations which are largely unenforced, have all had serious impacts not only on the ecosystem, but also on elementary economic activities, the quality of life and the health of the population.
Environmental impacts of economic liberalisation
1. The mining sector
Pollution of the air, land and water is widespread in the mining sector. All the mining regions throughout the country, particularly those that produce copper, should have been declared saturated areas by the government, since their high levels of emissions have caused serious damage to the health of the population and the environment. According to official information the externalisation of environmental costs in the mining sector are very difficult to reverse. For example one company, CODELCO, the state copper company alone, must invest more than 900 million dollars to reverse the air and water pollution it is producing.
Strangely enough, today, both the state and the private sectors claim that they do not have enough funds to pay for the clean up in the regions they have polluted. One of the most important instruments that has contributed to the stress on ecosystems and the negative impact on the population in the mining sector have been the laws and decrees on mining and water promulgated by the military government to attract foreign investment. Both sets of decrees have remained in effect without any change during the transition to democracy. One of them, Decree Law 600, stimulates large investments at the expense of the rights of local community. Through this mechanism, companies have obtained water rights from the government, forcing local populations to diminish their farming and herding activities, and finally abandon their homes. This has had special impact on indigenous groups, the Aymara and AtacameÃ±os, and is significant due to the fact that 90 per cent of the mining activities are in the first, second and third regions which are desert zones, and that mining processes require intensive use of water resources. Further, Chilean law does not mention any restoration of land where mining occurred once the operation is finished.
Today APEC countries receive almost 50 per cent of Chilean mining exports, in particular Japan which receives 30 per cent of our copper exports.
Chile’s trade liberalisation through free trade agreements like NAFTA and APEC without environmental regulations will increase the pressure on mineral resources and the impact of mining activities on peoples health and the environment.
2. Forestry sector
To facilitate the liberalisation of exports in forestry, the military government changed the legislation in this area by introducing decrees such as Decree Law 701, which subsidised forestry plantations and freed them from taxes. Decree 701 was in effect for 20 years, starting in 1974. And it was renewed by the democratic government.
This decree makes forestry plantations tax free and subsidises between 75 per cent to 90 per cent of their costs. However, this subsidy only helps large companies which use it to substitute native forests with plantations of pine and eucalyptus, both of which are non-native species. Only 4 per cent of the subsidies of Decree 701 go to small tree farmers.
Thanks to these subsidies, forestry exports increased from US$130 million in 1974 to US$2,040 million in 1995. This means an increase of 1,600 per cent in forest exports in the last 20 years. A big part of this increase was the export to the APEC countries, that today receive 44 per cent of Chilean forest products (Japan 31 per cent, USA 7 per cent and Korea 6 per cent)
Another important stimulus to forestry exports was the privatisation of State companies. Six of the largest State owned companies in the forestry sector were sold to the private sector at 78 per cent of their nominal value.
The stress over the native forests in Chile is at the point of becoming irreversible. According to the National Accounts Programme of the Central Bank of Chile, in the period of 1985 and 1994, between 400 to 900 thousand hectares of native forest were lost, and that this tendency continues. If the actual forestry policy remains unchanged, Chile’s native forests will disappear by the year 2025, just thirty years from now.
3. Fishing sector
Chile today is the fourth leading nation in fishing in the world. In order to exploit the market possibilities, the military government deregulated fishing in 1980, by decreeing that marine resources were Res Nullius (nobody’s property). Exports from Chile’s fishing industry have doubled in the last ten years (from 4,907 tons to 8,000 tons). Although it is true that the fishing industry was regulated by a new Fishing Law in 1991, the extensive pressure on marine resources and the coastal pollution has continued during the democratic government, due to lack of implementation of the rules and the lack of funding to enforce them. Now, over-exploitation affects 70 per cent of Chilean marine resources, affecting 80 per cent of the biomass.
Today , 77 per cent of Chilean marine resources are exported to APEC countries: 62 per cent to ASEAN countries and15 per cent to the US and Canada .
Chilean military and democratic governments promoted the deregulation of this sector and the concentration of property ownership, using various legal mechanisms such as changes in legislation regarding indigenous peoples. These reforms, in addition to subsidies to export crops, caused a decrease in the cultivation of traditional crops that did not lend themselves to trade, and almost wiped out the campesino economy. More than 300,000 hectares of traditional crops were reconverted to export crops such as fruit, vegetables and flowers.
The use of pesticides on these crops, especially in the last ten years (1985 to 994) has drastically increased. Use of insecticides increased by 64 per cent, weed killers by 221 per cent, phytoregulators by 81 per cent and other special products by 180 per cent. One hundred and thirty of these products which enter the country are black-listed by the United Nations because of their effect on health and/or because they are carcinogens or mutagens.
In the sixth region of the country, for example, where 60 per cent of the pesticides are used, studies carried out by the Hospital of Rancagua show an alarming increase in miscarriages and genetic malformations, research that has now attracted worldwide attention.
Agricultural policy oriented toward the world market has caused a loss of biodiversity due to accelerated changes in soil use, salination of soils, degradation of water sources and erosion. Today, 75 per cent of the agricultural soil in Chile is eroded, this means 45 per cent of the total land area.
Finally, it must be pointed out that the income produced by the growth in agricultural exports has principally gone to the large firms, that the number of jobs has decreased, with an increase only in temporary jobs, and that a large number of unemployed rural farm workers have migrated to the cities. It is estimated that during the next ten years, between 100,000 and 200,000 more families will have no alternative but to abandon the countryside.
The failure of the Chilean model to consider environmental and social costs has contributed significantly to the economic growth of the country and its entry into the global economy, since Chilean products have been more competitive in the international market. However, it can be demonstrated that the Chilean model of economic growth and increased GDP is not sustainable in the long term and is incapable of improving the conditions of life for the majority of its population.
Chilean liberalisation has intensified inequality
The benefits of the Chilean export model are concentrated on a few while many are excluded. This situation which began during the Pinochet dictatorship continues today under democracy.
In 1970, before the trade liberalisation of Chile’s economy took place, economic growth and the GDP were lower, but only 20 per cent of the population were living in poverty.
In 1990, the newly elected democratic government was handed a country where 40 per cent of the population lived in a situation of poverty, or twice as many poor as in 1970.
Today, after 12 years of 6 per cent annual sustained growth, 30 per cent of the Chilean population continues to survive at the poverty level; that is 4 million Chileans. In some regions, such as the seventh and eighth regions, 40.5 per cent and 40.9 per cent of the population (respectively) are poor, even though these regions make a high contribution to the GDP. ( These two regions contribute 27 per cent of the total in fishing, 12 per cent of forestry, and 19 per cent of manufacturing.)
Poverty in Chile does not exist because the poor do not have jobs, the unemployment rate was 5.6 per cent in 1994. Official figures show that in Chile the poor have jobs, but they have low paying jobs.
Economic growth in Chile is subsidised by low wages. One million households, that is 4 million Chileans, out of a total population of 13 million, have a monthly income of less than 80,000 pesos (US$200), and another million households or another 4 million persons, are on the verge of falling into this category.
As a result, according to official figures, when the Chilean population is divided into ten groups by income level, the richest 10 per cent of the population receives 40.8 per cent of the GDP, and the poorest 10 per cent receive only 1.7 per cent.
This group of the poorest 10 per cent of the population who receive 1.7 per cent of the GDP is comprised of 1,656,000 persons who earn less than 15,000 pesos per month.(US$37.50 ).
Between 1992 and 1994, that is to say, during the democratic governments, income distribution has become more skewed as the gap between the rich (who increased their share of wealth by .7 per cent) and the poor (whose share of wealth has decreased by .4 per cent) has widened.
This all shows that the success of Chile’s export model is based on low salaries, poverty and environmental destruction. Chile’s incorporation into the global economic adventure has benefited a very few at a high cost to the majority of the population.
The externalisation of social and environmental costs has given Chile a great competitive advantage in the world marketplace. However, these same factors make long term participation in the global market not a viable alternative, even by the rules of the market , because of the huge environmental and social debt accumulated. How and where the country will find resources to clean up pollution, to recapture native forest and to take out of poverty 30 per cent of the population ?
Chile has received good ratings, but, without a doubt, it has been a dark victory. The application of these criteria has destroyed the environment and has intensified social unrest in the country. The costs of the globalised economy for citizens and to the environment are not viable, and therefore they constitute a real limit for their future consolidation. That is why, as citizens, we must create the conditions needed to counteract the impact of economic globalisation and develop strategies to reverse it
How to proceed from the environmental movement?
Environmental protection is not only necessary to protect peoples health, quality of life and resources responsibly for future generations. But also is a clear condition for economic health and sustainability.
In the context of free trade agreements, we should simultaneously prevent the intensification of environmental impacts and to generate alternatives to economic liberalisation. On this way part of our task are the follows:
1. Countries must recognise that environmental deregulation creates trade distortions and that social and environmental impacts are difficult and expensive to reverse. Countries must promote building the environmental costs into the natural resources extraction and into productive processes.
2. Before liberalising trade governments should evaluate social, economic and environmental impacts that will be created or intensified. They should develop a plan and propose measures and recommendations to face or abolish these impacts. These measures and recommendations should be negotiated with the population and the congress in each country, and included in the negotiations package.
3. Countries should have environmental legislation in place and also the institutions and authority to implement environmental impact assessments in order to prevent environmental damage.
4. Countries should have an environmental policy with short, medium and long term goals as a result of an agreement with all social sectors in the country, standards that assure that productive or development projects will not impact peoples health and environmental quality, and also an environmental authority that is responsible for the environmental situation of the country (and not a second rank official under the ministry of economy and trade, a situation common in many countries).
5. Prior to free trade agreements negotiations, countries should agree to a certain level of harmonisation of environmental regulations ( in order to abolish the relocation of dirty industries to less regulated countries) and agree on financial and technical cooperation to achieve this harmonisation. This process must b recognise the right of countries to maintain and promote the improvement of its environmental regulations and not regard these improvements as commercial barriers.
6. In the APEC, and in other trade agreements in which countries have the right to use natural resources existing in all territories of those nations which are members of the agreement, each country should maintain the right to the sustainable use and management of it natural resources, including the improvement of standards to protect his resources. In the case of Chile this is crucial because natural resources are the base of our export economy. Current legislation does not consider this kind of agreements so it must be reviewed.
7. Lastly, taking in account that trade and investment agreements improve corporations’ activity and mobility between countries, is necessary to establish inside these agreements elementary codes of conduct that ensure that corporations act responsibility and that allow government and citizen control over their activities.
If government does not implement measures that allow fair and sustainable economic integration between nations, then citizens challenge corporations’ activities in the region; evaluate current impacts of trade in each economic sector and share this information in order to develop mechanisms that reduce environmental impact and profitability and therefore less attractive for exploitation.
NGOs should develop ways of showing the real costs of trade agreements. We should coordinate strategies to get rid of subsidies which create negative environmental effects and mechanisms that protect corporate profits and diminish peoples rights and protection.
* Sara Larrain represents the Chilean Environmental Action Network and is a member of the Board of Directors of Focus on the Global South.