Multinational Monitor

APR 2001
VOL 22 No. 4


NAFTA's Investor Rights: A Corporate Dream, A Citizen Nightmare
by Mary Bottari

The Chapter 11 Dossier: Corporations Exercise Their Investor "Rights"
by Michelle Swenarchuk

Serving Up the Commons: A Guest Essay
by Tony Clarke

NAFTA for the Americas: Q&A on the FTAA (Free Trade Agreement of the Americas)
by Monitor Staff


Chile's Democratic Challenge
an interview with
Sara Larrain


Behind the Lines

Fast Track to Hell

The Front
Unilever's Dumping Fever - The Torture Trade

The Lawrence Summers Memorial Award

Book Review
Trust Us, We're Experts!

Names In the News


Chile's Democratic Challenge

An Interview with Sara Larrain

Sara Larrain: is the executive director of the Sustainable Chile Program (SCP) in Santiago, Chile. SCP is an inter-institutional program sponsored by the Institute for Ecological Policy, the National Environmental Network and the Bolivarian University.

Multinational Monitor: What does "sustainable" mean for you?

Sara Larrain: Sustainable development or sustainability is a way of development that is linked, first of all, with social equity. Proponents of neoliberal policies and trade liberalization emphasize the importance of economic growth. But there is no guarantee that this economic growth will benefit the population.

In the last 17 years in Chile, we have had an annual growth rate of 7 percent, with the exception of the last two years. But one in four Chileans still lives in poverty. So social equity is key for us, because economic growth and sustainability per se don't guarantee the equitable distribution of wealth.

The second goal is environmental sustainability. Economic growth in developing countries like Chile has been achieved mainly through the exploitation and export of natural resources. In the case of Chile, 44 percent of our exports are copper; 13 to 15 percent are forest products; about 15 percent fish meal and other fish products. A large portion of the rest consists of agricultural products. If you look at these figures, you see that more than 80 percent of our exports are natural resources. Most of this 80 percent is raw materials. So we are exporting our natural capital.

At the same time, in our raw material export economy we are not creating jobs. So Chile is receiving minimal social benefit in exchange for the exploitation of our natural resources.

Chile is also externalizing environmental costs of the country's production processes. As a consequence, we have a huge internal ecological debt in terms of the depletion of natural resources and the accumulation of major pollution problems.

The last component of sustainable development for us is public participation. We believe that all of the decisions linked to development need to be made democratically. That's not the way that things are being decided under the neoliberal model. It's worse in the case of globalization where nation-states have less and less flexibility and ability to make decisions that answer to the needs of their populations.

The economy can be sustainable in Chile and other countries in Latin America with a growth rate of probably around 3 or 4 percent. But the economies of the northern countries can probably grow sustainably at a rate of only about 1 percent or zero percent. So sustainability is more complex than sustainable economic growth. Economic growth is a semantic and economic trap that corporations put before nation states and international institutions. A development paradigm centered around the goal of economic growth has impeded the implementation of sustainable development strategies around the world.

From 1997 until 2000, Sustainable Chile built an alternative development project for the country. We analyzed all the social, environmental and political problems and highlighted the more critical problems of equity, environmental sustainability and public participation and democracy because we have had an incomplete transition to democracy. With the help of several NGOs, academics and technical people we put forward a package of concrete reforms to reorient Chile's development model towards sustainability. We have a 500-page program which shows, sector by sector, the main changes we have to make to reorient the development of the country towards sustainability.

MM: What are the main environmental problems in Chile?

Larrain: First, we have the over-exploitation of natural resources; we are exhausting our natural capital.

This is most serious in mining. The tax system in the mining sector provides no funds for development in the regions that have been devastated by the extraction of non-renewable mineral resources.

The second problem is with forests. All the studies we have from the central bank and other institutions conclude that, if we continue exploiting our native forests at the current rate, in 10 years Chile will not have any native forests except for the protected national parks.

Fisheries are also over-exploited. Government figures indicate that 80 percent of commercial species are over-exploited.

These are the three main areas where there is over-exploitation. The second main environmental problem is pollution, which is a consequence of the externalization of environmental costs.

The pollution problem is a serious public health problem. The city of Santiago, where 45 percent of Chileans live today, is saturated with pollutants. The city is under a cleanup plan, but the government has no money to implement the plan. According to government estimates, 1,000 people die annually because of the pollution.

A second pollution problem in Chile comes from the mining industry. All the main mining sites are declared saturated of toxic pollutants. In some of the cases the government set clean-up plans. In other cases, for instance in Chuquicamata - the biggest copper mining site in the world - they decided to relocate the people instead. At this moment they are dismantling the village and relocating all the people to Calama city, because the conditions there do not support human life.

MM: In your alternative plan, what would you like to see done in, say, the mining sector?

Larrain: First, we need to change the system that regulates the mining sector. Mining companies pay fewer taxes in Chile than all the other industrial sectors. So our proposal is to increase mining taxes, to bring them up to the level of other sectors, which right now are over 15 percent. This would provide the government with more money to enforce the law. For example, right now we have less than 20 people to monitor all of the mining activities in the entire country. That makes it impossible to enforce existing laws.

We are also asking for a 1 percent sales tax on the mining industry to be used to create a recovery fund, because mining resources are not renewable. That would allow regions that have lost natural capital to have money for development alternatives, including tourism and agriculture.

We also recommend that mining investments be linked with the previous evaluation of water resources. Mining activities are mainly in the northern region of the country, which is a highlands desert with few water resources. The companies use all the existing surface and underground water, they ask the government for the water rights and leave the indigenous communities without water resources. So for years indigenous communities have been relocating because they can't continue their agricultural activities or feed their livestock. We've collapsed a lot of villages and cultures because of the mining investment. So we need an evaluation of water conditions before mining projects begin, and we need to impose conditions on the projects to make sure they properly recycle water and use water-efficient technologies.

The last recommendation relates to employment. The mining sector in Chile does not create much employment. We are exporting almost 100 percent unprocessed copper. The mining sites are increasingly mechanized and unemployment is increasing year by year, so the destruction of natural resources is not creating much social benefit. We are asking the government to require the companies to include processing of the mineral inside the country and not export raw materials, like unprocessed copper.

MM: What mining companies are involved?

Larrain: Compania del Cobre (CODELCO) is the main national. Some of the main multinationals involved include BHP (Australia), Rio Tinto (UK), Exxon Coal (U.S.), Phelps Dodge (U.S.), Sumitomo (Japan), Outokumpu (Finland), Placer Dome (Canada), Cominco (Canada), Nippon Mining (Japan), Mitsubishi (Japan), Rio Algum (Canada), Falcon Bridge (Canada) and Anglo American (South Africa). We have no post-closure plans for mines in Chile. We have more than 100 mining waste sites. These all have tailings ponds. The government has to figure out what to do with these because the companies have no responsibility for their waste. Right now we have no regulation of what happens after they're done extracting the minerals.

MM: What are some of the shifts you hope to achieve in the broader political economy?

Larrain: We had a long period of dictatorship. During the transition period, our political leaders promised to advance a plan to end the social and environmental conditions that existed under the dictatorship, and to seek solutions for poverty, democratize politics, change the labor laws and create laws to defend indigenous rights. That did not happen properly.

After the first and second transitional governments, nothing very structural had changed.

After all these years of economic growth, we have the same level of distribution of income that we had during the dictatorship. We are a little better off in terms of poverty. Before, we had more or less 35 percent of the population in poverty. Today it is 20 percent. But we have essentially the same level of income distribution that existed during the dictatorship - the bottom tenth of the population receiving 1.5 percent and the top tenth 41.5 percent. So there's no democracy in terms of income distribution inside this country.

During the transition, for instance, we did not reform the labor law. The present labor law was set during the dictatorship, when we didn't have unions, we didn't have political parties and we didn't have a congress. So you can imagine who discussed the labor law. After 10 years of transition to democracy we have the same labor law.

In terms of natural resources, we pushed and we pushed and in the last months of President Aylwin's government at the beginning of 1994, they passed the environmental law. But because of the lack of political will, we spent three years until 1997 asking for regulations to implement this law. If you look at the sectoral laws governing forests, water resources or mining, we still have the same codes as during the dictatorship, despite the work of all the organizations asking for new natural resource codes. Our democratic governments are administrating the same economic model that was set during the dictatorship.

To have democratically elected officials administering the same economic model and the same political structure established during the dictatorship - by the 1980 constitution - is really amazing. We still have all the political problems that we had because of the 1980 constitution, which was created by Pinochet. Pinochet designed a political constitution that doesn't allow the people to easily rewrite the rules of the country in terms of labor law, water law, mining law, indigenous law, investments and the privatization of pension funds, health and so on. So in the transition period we are under the same economic rules and institutions by all these sectoral laws. We have practically the same political code.

Progressives have asked the government to ask the Congress to change the constitution, to call a plebiscite. They make excuses such as "we don't have a majority" in the current political system. But for the majority of the population, it would be better if the democratic government put the reforms to the Congress and lost than it is to do nothing. At least you would begin to create the spectacle and the fight, and put into concrete terms what democratization means and show that the opposition (the right-wing parties) are an obstacle to change.

Because the democratic authorities don't put these reforms before the Congress, the people are becoming disoriented and confused. The right-wing coalition now wins almost as many votes as Concertacion [the center-left coalition which has run the government since the transition from dictatorship]. The people no longer know what change means. The message of the right-wing candidates is "change." And the message of the Concertacion is "no change."

In this context, the Sustainable Chile program was born as a blueprint for the country developed by civil society so that we don't continue working only in a reactive mode - only saying "no" to their programs for mining, water, social programs, etc. We want to say "no," but we also want to be able to articulate how we want things to be. We think we cannot as citizens take political initiative if we don't have our own agenda for the country. So the Sustainable Chile program and the 500-page book of proposals we put together is really a blueprint that gives civil society the political initiative to push for a new country project, including the mechanisms, the laws, the timelines by which we need to change.

MM: How does the distribution of income and wealth compare now to the period of dictatorship?

Larrain: In 1987, when Chile's Ministry of Planning officially began to study income levels, the poorest 10 percent of the population received 1.5 percent of the overall income while the richest 10 percent received 41.3 percent. The last official count in 1996 shows that the poorest 10 percent of the population still received 1.5 only percent of the income and the 10 richest percent received 41.3 percent. The same.

Between 1992 and 1994, we had a decrease in poverty, but the distribution gap remained about the same. This is completely contradictory with a democracy. In Latin America, Brazil has the worst distribution of income. Chile is the next worst.

Chile is the model of Latin America in terms of economic growth and modernization, etc., but it's really the second worst, socially, in terms of distribution of income. The situation is unacceptable.

MM: Why does the Chilean government want to enter into a free trade agreement with the United States?

Larrain: Chile was the first Latin American country to unilaterally open its economy and decrease trade tariffs. The dictatorship liberalized trade and investment, and privatized sectors - health, pensions - in ways that were unimaginable in other countries. By 1988 and 1989 tariffs rates in Chile were completely different from other Latin American countries.

In 1994, Clinton signed the NAFTA. The Clinton administration saw Chile as the first country to which NAFTA could be extended, because of its low tariffs. Chile saw being in the NAFTA as a chance to get ahead of other countries in the region and increase its status for future negotiations with the European Union.

When the U.S. Congress refused to pass fast track, Chile asked to join Mercosur (the Common Market of the Southern Cone) because the government knew that the European Union was beginning talks with Mercosur to construct an agreement. At the same time, the government continued to negotiate a free trade agreement with Canada modeled after the NAFTA, including with the environmental side agreements.

The idea of prioritizing the signing of an agreement with the United States is to take advantage of the export of natural resources before Chile's competitors, Argentina and Brazil.

For the United States, Chile is key because tariffs are very low. There is a lot of investment here, but not a market on a scale that would be of much interest to the United States.

The political interest of the United States involves approaching Chile through the NAFTA framework and therefore legitimizing the NAFTA model for the FTAA negotiations. They don't want the FTAA just for trade, they also want rules on investments included, which they have in NAFTA. Chile is very useful for the U.S. strategy because Brazil doesn't want the NAFTA model for the region.

MM: What would you like Chile to be doing within the Mercosur and the region?

Larrain: The Mercosur is a bloc where we can continue expanding the export of our processed products and not only natural resources. We have no comparative advantage with our neighbors in term of natural resources, so we have the opportunity to export industrial products, and begin to aggregate value to our natural resources and through this create jobs. If we really began to have an exchange in services, industrial products and so on, we have the opportunity to decrease the exploitation of natural resources.

Mercosur is more an integral agreement and is not just focused on trade. You have a better opportunity for cultural exchange, services exchange and so on.

This is not the case with our bilateral relationship with the United States. The comparative advantage we have with the United States is mainly in natural resources - mining, fisheries and agriculture (fruit). At the same time, we have a lot of dangers in terms of a flood of imported manufactured and agriculture products from the United States.

MM: What are the principles that you would like to see guiding the evolution of Mercosur so that you have the development of a sustainable regional arrangement?

Larrain: We think that some of the processes guiding the European Union's integration process would be more appropriate in terms of looking at all sectors at the same time, and not just under the umbrella of trade. Looking at all sectors through the lens of trade economizes everything.

The EU has a lot of problems, but what is good about the European process is that it involves parallel efforts for economic, political and cultural integration.

In the case of Mercosur, there is an opportunity to prioritize social and environmental concerns because tariff reduction is just beginning and proceeding very slowly. For example, Brazil is very careful as to how it decreases tariffs because they don't want to create social problems inside the country. This is a correct position. It's important to look at the social and environmental conditions. It's important to apply the precautionary principle - to make a social and environmental evaluation before signing the treaty. This enables you to pursue different measures to decrease the impacts or have mitigation measures to avoid harmful development impacts or real social crises. Mercosur should apply the precautionary principle within the paradigm of integration and not only within the trade paradigm.

We also believe that any integration needs to be put into a framework of existing international agreements. Integration should occur within a framework of respect for international labor standards, multilateral environmental agreements and human rights standards.

What is happening today is that the goal of trade is the economic growth of the region. So economic growth became the dogma that drives all the integration process through trade. This has begun to create human rights, environmental, social and labor problems. Not to mention what is happening with the investment regimes such as Chapter 11 of the NAFTA.

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