CHILE'S NORTHERN FREE TRADE ZONE: A PLATFORM FOR SOUTH AMERICA

By WW Staff

Reference ID: 09SANTIAGO690

Created: 2009-07-23 13:25

Released: 2011-08-30 01:44

Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY

Origin: Embassy Santiago


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TAGS: ECON ETRD KIPR PGOV PREL CI

SUBJECT: CHILE'S NORTHERN FREE TRADE ZONE: A PLATFORM FOR

SOUTH AMERICA


1. (SBU) SUMMARY: The Free Trade Zone of Iquique (ZOFRI) is an essential part of Chile's northern economy, providing 25 percent of jobs in the city of Iquique. Already Chile's largest free trade zone, officials are extremely upbeat about the ZOFRI's future because of its strategic location, infrastructure, and efficient administration. Trade with the U.S. has increased from $263 million in 2003 to $600 million in 2008, making the U.S. the second largest supplier to the ZOFRI after China. ZOFRI officials described a passive approach towards intellectual property rights protection, but pledged cooperation on law enforcement issues. As workers constructed approximately 30 new warehouses, officials outlined their vision to make the ZOFRI a platform for South America that reached from Chile to Peru, Bolivia, Argentina, Paraguay, and Brazil. END SUMMARY.


ZOFRI: ENGINE OF ECONOMIC GROWTH IN NORTHERN CHILE

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2. (SBU) During a recent meeting with Poloff, officials explained that the ZOFRI serves as a key engine for economic growth and development in northern Chile. The ZOFRI, Chile's largest free trade zone, employs 30,000 people in over 1700 registered businesses that trade with more than 70 countries. Officials highlighted the ZOFRI's strategic location, well-developed infrastructure, and efficient administration as features that combine to make it an attractive entry point for businesses looking to expand in South America. Located more than 1000 miles north of Santiago but within 100 miles of the Peruvian and Bolivian borders, the ZOFRI has a growing industrial distribution area, a large shopping mall, and a convention center. The ZOFRI also extends to industrial centers in Arica, a city that borders Peru, and Alto Hospicio, a small town east of Iquique.


3. (SBU) Eugenio Cortes, ZOFRI General Manager, noted the increase in overall sales from $1.2 billion in 2002 to $3.4 billion in 2008. Trade with the U.S. has also jumped, with ZOFRI purchases from the U.S. rising from $263 million in 2003 to $600 million in 2008. The U.S., currently the second largest supplier to the ZOFRI after China, primarily sells fuel, lubricants, and used cars. Fifty-five percent of ZOFRI sales are to Chile, followed by Bolivia with 25 percent.


4. (SBU) The ZOFRI has a diverse mix of international small business owners. Large immigrant populations have established themselves in certain sectors, and Chilean nationals own just 47 percent of ZOFRI businesses. Chinese nationals own 17 percent of ZOFRI businesses, while Pakistani and Indian immigrants each own six to seven percent. The Chinese primarily trade textiles and household goods, and Pakistanis dominate the used car market.


THE NOT SO GOOD: IPR ENFORCEMENT

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5. (SBU) ZOFRI administrators defended their cooperation with law enforcement officials on issues such as intellectual property rights (IPR) and money laundering. Any company that is convicted of an IPR crime can have its ZOFRI license rescinded, but officials acknowledged that this has never taken place. They noted, however, that the Board of Directors was scheduled to meet soon to consider revoking the license of a business found guilty of selling fake Nike and Disney products.


6. (SBU) A representative of the Chilean Customs service who attended the meeting challenged officials by saying that Customs officials regularly seize fake products destined for ZOFRI businesses, but there are no consequences for importers. ZOFRI officials explained that without a judicial finding, they cannot take action.


7. (SBU) Administrators noted that they fully cooperate with Chile's Financial Investigative Unit (UAF) and Customs officials on questions of money laundering and valuation problems. They lamented the lack of cooperation from Bolivian officials and stated that information only flows in one direction, from Chile to Bolivia. Officials explained that four to five years ago, the Government of Bolivia (GOB) regularly complained about undervaluation and smuggling within the ZOFRI, but those complaints have stopped. ZOFRI administrators speculated that the current GOB does not care about smuggling or contraband.


FUTURE INCLUDES INFRASTRUCTURE EXPANSION, MORE REGIONAL TRADE

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8. (SBU) Officials see the ZOFRI as a regional platform for South America, with a bright future in markets in northern Chile, Peru, Bolivia, Argentina, Paraguay, and even Brazil. Construction is currently underway on approximately 30 new warehouses and officials discussed port expansion as a key goal for the long term. They are also considering expansion of the industrial center in Alto Hospicio to accommodate the booming used car business. ZOFRI administrators acknowledged competition from the free trade zone in Tacna, Peru, but do not view Peru as a serious threat. They proudly noted that it only takes two weeks to register a business in the ZOFRI, and Chile has an excellent reputation for business transparency.


COMMENT

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9. (SBU) There were no signs of the global economic slowdown in the ZOFRI, as construction workers labored to build approximately 30 new warehouses and the mall bustled with shoppers looking for deals on the latest electronics. The building boom reflects the private sector's optimism that demand will continue to grow. The ZOFRI's passive approach to IPR protection, however, is a worrisome sign that some in the private sector are part of Chile's IPR problem instead of the solution. SIMONS

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