Chile's Green Awakening

5 min

This article originally was published in the Journal of Commerce on April 21, 1997. Reprinted with permission.

For the past decade, Chile has led the way in economic growth in South America. The nation consistently has posted solid growth in gross national product while lowering trade barriers. American businesses and consumers have taken notice and trade between the United States and Chile has skyrocketed. Further, many American companies have begun to make large scale investments in Chile.

A crowning touch to Chile's achievements would be admission to the North American Free Trade Agreement (NAFTA). However, American domestic politics may derail Chile's bid to become the fourth member of this trade pact. One major issue of debate over Chilean accession is whether or not environmental issues should play a part in NAFTA accession negotiations. With Congress deadlocked over this, and other issues, chances for NAFTA expansion appear to be receding. Nevertheless, American businesses wishing to do business in Chile need to be aware that the environmental landscape is changing. Chile has started to confront the environmental impact of a decade of economic growth.

A review of Chilean environmental progress is important for several reasons. First, American businesses involved in Chile need to be familiar with the environmental regulatory framework within which they must operate. Second, to the extent Chile serves as a model for economic growth in Latin America, its approach to the impact of such growth on the environment may be emulated throughout Latin America. Finally, on an even more general level, Chile may typify the changing attitudes of an increasingly prosperous population toward environmental protection. As Chileans have become wealthier, more and more they have shown a willingness to sacrifice potential economic benefits for what they perceive to be environmental gains.

During the 1990s, the Chilean government has begun to address environmental concerns that previously were largely ignored. The desire to join NAFTA played some role in this policy change as the United State position in the original NAFTA negotiations with Canada and Chile made clear that environmental upgrades were a de facto requirement for any nation wishing to be a part of NAFTA. For its part, Chile consistently has stated its willingness to sign and abide by the Environmental Side Agreement to NAFTA.

In 1994, the Chilean government, over the protests of both industry and environmental groups, created an Environmental Framework Law (EFL). The EFL was designed to balance environmental protection with economic growth. The law, which states that persons have "the right to live in a pollution-free environment" sets out basic legal principles but does not codify all relevant statutory provisions. The law created new instruments for environmental management, including authority for the establishment of pollution standards and the imposition of pollution prevention requirements. It also requires abatement plans and environmental impact statements for new projects.

Since the enaction of the EFL, Chilean citizens and foreign investors have waited for the promulgation of regulations to implement the Law. This has been a slow and laborious process with little progress to date. Until regulations are released, Chilean environmental law will remain a disorganized hodgepodge administered by several different ministries. Thus, the actual application of the EFL remains unclear.

Despite the lack of unified and clear environmental regulations, recent actions by both the Executive and Judicial branches of the Chilean government typify a changing government policy towards the environment. The government recently instituted a decontamination plan to address both short-term and long-term air pollution problems in the nation's capital, Santiago. In August 1996, Chile's environmental agency (CONAMA) rejected as incomplete an environmental impact study for a controversial $460 million hydropower plant on the Bio Bio River. Earlier in 1996, CONAMA held up approval for a $1 billion woodpulp plant in southern Chile until the company agreed to put in a pipe line to take toxic waste from the plant out to the coast, instead of dumping it into a nearby river that ran into a wetlands nature reserve. Also in 1996, Chile's Central Bank began to release updates on the environmental performance of the forestry, fishing and mining sectors.

Most recently, the Chilean Supreme Court invalidated CONAMA's approval of $350 million plan by an American company, Trillium Corp., to harvest an ancient beech forest. Citing to the EFL, the Court found that CONAMA's actions failed to protect Chilean's right to live in a "contamination free" environment.

Many industries in Chile have agreed to spend hundreds of millions of dollars in environmental upgrades, particularly in the mining and smelting areas. For example, in 1994, CONAMA approved a cleanup plan for the Paipote Foundry in Atacama in northern Chile that had an estimated cost of $90 million. Other industries have begun to build waste water treatment facilities and other environmental improvements. Government and business action perhaps only reflects a changed attitude on behalf of the Chilean population. As early as 1992, polls showed a majority of Chileans preferred protecting the environment over economic growth. From this general mood, a broad-based environmental movement of over 150 groups has emerged as a powerful force. These groups have organized protests and focused media attention on development that they do not believe adequately takes into account environmental considerations. Most importantly, they have brought administrative and legal challenges to projects involving billions of dollars in foreign investment. Indeed, it was an environmental group that brought the successful challenge of the Trillium logging project.

A growing and popular environmental movement, combined with a central government more open to environmental concerns demands the attention of businesses investing in Chile. While the economic climate remains positive for foreign investors, businesses need be aware that they will be required to learn and abide by Chilean environmental law. Further, Chilean public opinion and a growing environmental movement ensure that Chilean environmental controls will increase in breadth and in strength.

For more information about Chile's Green Awakening, please contact Andrew Herrup at (202) 962-4855 or e-mail ARHerrup@Venable.com.