Economy & Trade, Headlines, Latin America & the Caribbean

CHILE: Heated Debate over Proposed Royalty for Mining Companies

Gustavo González

SANTIAGO, Jul 15 2004 (IPS) - An initiative by the Chilean government to begin charging royalties from the private companies that mine copper in Chile not only put an end to the honeymoon between President Ricardo Lagos and the business community.

It also led to the withdrawal from the co-governing Socialist Party of the architect of the ”policy of consensus” that helped bring about a smooth, peaceful transition to democracy in Chile after the 1973-1990 dictatorship of Gen. Augusto Pinochet.

The secretary-general of Lagos’ Socialist Party confirmed Tuesday that former cabinet minister Enrique Correa, who in recent years had become the leading lobbyist in Chile for transnational corporations, had left the party.

Correa, who served as secretary-general to the government in the administration of Patricio Aylwin (1990-1994), was sought out by mining companies to lobby in parliament against the royalties bill.

Lagos sent the lower house of Congress a bill that would slap a fee of up to three percent on the gross sales of private mining companies. He classified the bill as extremely urgent, which means the Chamber of Deputies has 10 days to vote on it and send it on to the Senate, which will also have 10 days.

But Finance Minister Nicolás Eyzaguirre said Tuesday that the 10-day deadline might be extended by classifying the bill as ”urgent” (rather than extremely urgent), as long as the deputies agree to discuss it, and not to vote it down without a debate.

The president justified his haste regarding the bill by saying he wanted to limit the political connotations of a debate that, if its drags on, could influence the October municipal elections and even the December 2005 legislative and presidential polls.

Juan Claro, the president of the Confederation of Production and Trade business association, which is staunchly opposed to the royalty, said the bill is a populist measure, and argued that taxing earnings would be unconstitutional and would violate the rules and laws that helped draw major investment to Chile’s copper mining industry, the backbone of the economy.

Analysts say the conflict over the issue of the royalties appears to have distanced, once and for all, Lagos, a moderate socialist, and Claro, a businessman who has worked with the centre-left governing coalition since 2001 on a ”Pro-Growth Agenda”, which is criticised by the Central Unitaria de Trabajadores (CUT), the leading trade union confederation.

Socialist president Salvador Allende (1970-1973) nationalised Chile’s huge copper reserves on Jul. 11, 1971. But in 1983, the Pinochet dictatorship, which overthrew Allende’s leftist government in 1973, issued a new Mining Code that reopened the industry to the private sector, offering major tax incentives.

Today, the share of the mining industry that is in private hands, including transnational corporations as well as large national consortiums, accounts for 70 percent of the 4.7 million tons of copper extracted every year in this South American country of 16 million.

Chile, which possesses 40 percent of the planet’s copper reserves, is the world’s largest producer of the mineral.

But a total of ”82 percent of Chileans do not agree that copper should have been privatised,” Edgardo Condeza told IPS.

Condeza, a physician, belongs to the Socialist Party and heads the Movement for Citizen Rights and Consultation, which carried out the survey he cited in Santiago and the coastal city of Viña del Mar (130 km west of the capital).

Condeza is in favour of charging royalties, as is the leadership of the Socialist Party and a majority of lawmakers within the other three parties that make up the governing ‘Concertation for Democracy’ coalition: the Christian Democracy Party, the Party For Democracy, and the Radical Social Democratic Party.

But the ruling coalition holds just over 50 percent of the seats in the Chamber of Deputies and the Senate, insufficient to pass laws that require a special majority, as in the case of the royalty bill, which would need the votes of four-sevenths of the 120 deputies and 48 senators.

However, the bill is also backed by some lawmakers in the right-wing opposition Alliance for Chile, especially those who represent northern Chile, where mining activity is concentrated.

Chile is one of the few countries that does not charge royalties from companies that exploit its natural, non-renewable resources.

”The royalty is a right that the sovereign state charges the concessionaire”, economist Héctor Vega told IPS. It is ”A notion equivalent to the patent, that the state, the owner of non-renewable natural riches, charges the concessionaire to exploit.”

Condeza pointed out that of 17 mining countries in the developing world, Chile charges mining companies the lowest taxes.

Those opposed to the royalty argue that thanks to the incentives offered by Chile since the 1980s, the country has drawn around 20 billion dollars in investment in the mining industry.

Francisco Costabal, vice-president of the Mining Council business association, said this week that in the past 14 years, private sector mining companies have paid an average of 128 million dollars a year in taxes, while if the royalty is charged, that figure would climb to more than 900 million dollars a year.

José Luis Daza, a Chilean economist who works as a Wall Street consultant, told the Santiago newspaper El Mercurio that the argument that copper is a non-renewable resource, put forth by advocates of the royalty, is unfounded.

”The argument that copper is going to run out has been totally discredited. The copper reserves could last 100 or 1,000 years, no one knows. It depends, among other things, on the risks that the mining companies take in prospecting, and on the technology that they bring to or develop in the country,” he said.

While the debate on the economic front continues to heat up, Correa’s withdrawal from the Socialist Party drew attention to an interesting phenomenon, in which several influential designers of the transition to democracy in the early 1990s have become business consultants and lobbyists.

Besides Correa, the ranks of the lobbyists, an activity that is not regulated in Chile, include sociologist Eduardo Tironi, secretary of communications under Aylwin, and former parliamentary deputy Jorge Schaulsohn, both of whom belong to the Party for Democracy.

Correa was invited by mining businesses to lead a strategy against the royalty through his company Imaginacción, but he turned down the offer when the Socialist Party threatened to haul him before the party’s Supreme Court, which triggered his withdrawal from the political force.

As Aylwin’s secretary-general to the government (a key cabinet position), Correa was one of the most influential figures on the political scene in the early years of the democratic transition, as the architect of the ”policy of consensus” that was aimed at avoiding conflicts with the right and with former dictator Pinochet, who remained army chief until March 1998.

In 1997, Correa became the target of criticism from environmentalists, when he began to lobby for Chile to allow the American Monarch, a factory ship, to fish in Chilean waters.

In the past few years, the former minister has been hired by transnational corporations like Spain’s Telefónica, to lobby for permission to increase the rates charged for utilities. He has also served as a consultant to tobacco, gas and food companies, steelworks and major supermarket chains.

Since April, he has been working as an image adviser to former Argentine president Carlos Menem (1989-1999), who is wanted for corruption and living in Chile, and to Foreign Minister Soledad Alvear of the Christian Democracy Party.

Alvear is one of the governing coalition’s potential presidential candidates. Her main rival is Defence Minister Michelle Bachelet, of the Socialist Party.

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