The nationalization of the Chilean
copper
Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkis ...
industry, commonly described as the Chileanization of copper ( es, Chilenización del cobre) was the process by which the Chilean government acquired control of the major foreign-owned section of the Chilean
copper mining
Copper extraction refers to the methods used to obtain copper from its ores. The conversion of copper consists of a series of physical and electrochemical processes. Methods have evolved and vary with country depending on the ore source, loca ...
industry. It involved the three huge mines known as 'La Gran Mineria' and three smaller operations. The Chilean-owned smaller copper mines were not affected. The process started under the government of President
Carlos Ibáñez del Campo
General Carlos Ibáñez del Campo (; 3 November 1877 – 28 April 1960) was a Chilean Army officer and political figure. He served as President twice, first between 1927 and 1931, and then from 1952 to 1958, serving for 10 years in office.
T ...
, and culminated during the government of President
Salvador Allende
Salvador Guillermo Allende Gossens (, , ; 26 June 1908 – 11 September 1973) was a Chilean physician and socialist politician who served as the 28th president of Chile from 3 November 1970 until his death on 11 September 1973. He was the fir ...
, who completed the
nationalization
Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to pri ...
. This "act of sovereignty" was the espoused basis for a later international economic
boycott
A boycott is an act of nonviolent, voluntary abstention from a product, person, organization, or country as an expression of protest. It is usually for moral, social, political, or environmental reasons. The purpose of a boycott is to inflict som ...
, which further isolated Chile from the world economy, worsening the state of political polarization that led to the
1973 Chilean coup d'état
The 1973 Chilean coup d'état Enciclopedia Virtual > Historia > Historia de Chile > Del gobierno militar a la democracia" on LaTercera.cl. Retrieved 22 September 2006.
In October 1972, Chile suffered the first of many strikes. Among the par ...
.
The mines involved in the nationalization
By the late 1950s, the three principal copper mines in Chile were
Chuquicamata
Chuquicamata ( ; referred to as Chuqui for short) is the largest open pit copper mine in terms of excavated volume in the world. It is located in the north of Chile, just outside Calama, at above sea level. It is northeast of Antofagasta and n ...
,
El Salvador
El Salvador (; , meaning " The Saviour"), officially the Republic of El Salvador ( es, República de El Salvador), is a country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south b ...
, and
El Teniente
El Teniente ("The Lieutenant") is an underground copper mine located in the Chilean Andes, above mean sea level. It is in the commune of Machalí in Cachapoal Province, Libertador General Bernardo O'Higgins Region, near the company town of ...
. Chuquicamata and El Salvador were owned by the
Anaconda Copper Company
The Anaconda Copper Mining Company, known as the Amalgamated Copper Company between 1899 to 1915, was an American mining company headquartered in Butte, Montana. It was one of the largest trusts of the early 20th century and one of the largest mi ...
and El Teniente was owned by the
Kennecott Copper Corporation Kennicott or Kennecott may refer to:
* Kennecott, Alaska, an abandoned mining camp, United States
* Benjamin Kennicott (1718-1783), English churchman and Hebrew scholar
* Robert Kennicott (1835-1866), American naturalist and pioneer Alaska explorer ...
. The
La Exotica mine, an adjunct of
Chuquicamata
Chuquicamata ( ; referred to as Chuqui for short) is the largest open pit copper mine in terms of excavated volume in the world. It is located in the north of Chile, just outside Calama, at above sea level. It is northeast of Antofagasta and n ...
, was added to these big mines in 1966.These large mines were mainly self-contained and self-sustaining settlements with their own cities to house their workers, their own water and electrical plants, their own schools, stores, railways, and even in certain cases their own police forces.
Three other mines were eventually nationalized,
Cerro de Pasco
Cerro de Pasco is a city in central Peru, located at the top of the Andean mountains. It is the capital of the Pasco region, and an important mining center. At elevation, it is one of the highest cities in the world, and the highest or the sec ...
's Andina operation, which went to Codelco, and the two mines,
Los Bronces and
El Soldado, owned by Peñarroya's
Disputada de las Condes, which were bought by
ENAMI. Evidently these mines did not fit in with ENAMI's plans and Disputada de las Condes was subsequently sold (at a substantial profit) to Exxon Minerals.
Second stage of nationalization
On June 26, 1969, President
Eduardo Frei Montalva
Eduardo Nicanor Frei Montalva (; 16 January 1911 – 22 January 1982) was a Chilean political leader. In his long political career, he was Minister of Public Works, president of his Christian Democratic Party, senator, President of the ...
signed an agreement with the
Anaconda Copper Company
The Anaconda Copper Mining Company, known as the Amalgamated Copper Company between 1899 to 1915, was an American mining company headquartered in Butte, Montana. It was one of the largest trusts of the early 20th century and one of the largest mi ...
, the
Kennecott Utah Copper
Kennecott Utah Copper LLC (KUC), a division of Rio Tinto Group, is a mining, smelting, and refining company. Its corporate headquarters are located in South Jordan, Utah. Kennecott operates the Bingham Canyon Mine, one of the largest open-pit co ...
company, and the Cerro company (which was afterwards ratified by Congress). In this agreement, the government acquired the 51% of the Kennecott’s shares and 25% of the shares in both Anaconda and Cerro, allowing the U.S. to maintain some level of control in this economic sector.
This process was known as "negotiated nationalization", and was designed to avoid a conflict with international investors (and ultimately with the United States) and to allow for the acquisition of the technical, financial and marketing knowledge of the multinationals. A similar process was used to acquire a dominant ownership over the rest of the copper industry.
In the agreement, it was established that the Chilean government could buy within the next 13 years (counting from 1970) the remaining 49% of the foreign ownership from the multinational corporations, but only after having paid at least 60% of the current debt due from the purchase of the original 51%. It also fixed a clear formula for the valuation of the assets to be bought, for the liquidation of profits, for the increase of direct investment in new works, and related issues.
Third stage of nationalization
The process of "negotiated nationalization" met with vociferous criticism from the leftist political parties, and from a section of the President's own
Christian Democratic Party
__NOTOC__
Christian democratic parties are political parties that seek to apply Christian principles to public policy. The underlying Christian democracy movement emerged in 19th-century Europe, largely under the influence of Catholic social tea ...
. The idea was accused of bowing to
American imperialism
American imperialism refers to the expansion of American political, economic, cultural, and media influence beyond the boundaries of the United States. Depending on the commentator, it may include imperialism through outright military conquest ...
, being too slow and too expensive.
In the 1970 presidential election, the outright nationalization without compensation (known as the Chileanization of copper) became one of the main campaign issues. Two out of the three presidential candidates incorporated the idea into their political platforms, while the third opted for a faster version of the "negotiated nationalization".
After socialist candidate
Salvador Allende
Salvador Guillermo Allende Gossens (, , ; 26 June 1908 – 11 September 1973) was a Chilean physician and socialist politician who served as the 28th president of Chile from 3 November 1970 until his death on 11 September 1973. He was the fir ...
won the election, he promised to deal with the issue head-on. In fact, at the beginning of 1971, he sent Congress a project for a constitutional amendment that would allow him to nationalize outright all mines, and to transfer all present and future copper fields to the state. Congress passed this amendment on July 11, 1971, by a unanimous vote, and based on it, on July 16, 1971 law 17.450 was promulgated, and became effective immediately. The event was celebrated as the Day of National Dignity ( es, Día de la Dignidad Nacional).
In principle, there was complete agreement about the process of nationalization of the mines among all political parties represented in the Chilean Congress, as indicated by the unanimous vote that approved law 17.450. When it came down to the particulars, however, there was much concern about the political use that the Allende administration would make of it. Even so, the bigger concern was for the expected reaction of the
U.S. government.
Compensation
Originally, the expropriation was based on the book value of the properties. Nevertheless, the Allende administration introduced the idea of "excessive profits" into the calculation of indemnization for the mines. This idea was based on the concept that the multinational corporations had reaped profits far in excess of what was considered "normal business practice". The way this was done was by comparing copper profits in Chile with the companies' profits elsewhere in the world. It was calculated that twelve percent was the worldwide profit rate for these companies, and that they had made $774 million above this in Chile from 1955 to 1970: "This deduction exceeded the book value of the companies' properties."
In October 1971, the General Controller's office handed down the calculations of the indemnizations due, in line with the parameters established by the Constitutional Amendment. According to this document, the American companies were not to receive any compensation for the
Chuquicamata
Chuquicamata ( ; referred to as Chuqui for short) is the largest open pit copper mine in terms of excavated volume in the world. It is located in the north of Chile, just outside Calama, at above sea level. It is northeast of Antofagasta and n ...
,
El Salvador
El Salvador (; , meaning " The Saviour"), officially the Republic of El Salvador ( es, República de El Salvador), is a country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south b ...
and
El Teniente
El Teniente ("The Lieutenant") is an underground copper mine located in the Chilean Andes, above mean sea level. It is in the commune of Machalí in Cachapoal Province, Libertador General Bernardo O'Higgins Region, near the company town of ...
mines, and only a very small one for the rest of their properties. The U.S. government reaction was immediate. The
United States Department of State
The United States Department of State (DOS), or State Department, is an executive department of the U.S. federal government responsible for the country's foreign policy and relations. Equivalent to the ministry of foreign affairs of other n ...
declared: "This serious infraction to international practice can cause damage not only to Chile, but to all other developing countries." The U.S. had been assisting with plans to overthrow Allende for years, and in 1973 realized this goal, despite the knowledge of the torture and murder that would likely follow.
Aftermath
The nationalized Chilean mines were kept under state control after
Pinochet
Augusto José Ramón Pinochet Ugarte (, , , ; 25 November 1915 – 10 December 2006) was a Chilean general who ruled Chile from 1973 to 1990, first as the leader of the Military Junta of Chile from 1973 to 1981, being declared President of ...
's
1973 Chilean coup d'état
The 1973 Chilean coup d'état Enciclopedia Virtual > Historia > Historia de Chile > Del gobierno militar a la democracia" on LaTercera.cl. Retrieved 22 September 2006.
In October 1972, Chile suffered the first of many strikes. Among the par ...
, assisted heavily by the United States via the CIA, despite the junta's pro-U.S. leanings, and this is still the case, largely because of public sentiment and because Codelco is a major contributor to the Chilean Exchequer. Codelco pays income tax, all dividends go to the government and it also pays a 10% tax on the export value of copper products and associated byproducts according to Law 13,136.
Article 1 of the Chilean Mining Code states that "The State has absolute, exclusive, inalienable and imprescriptible ownership of all mines" but goes on to say that anyone may prospect for and establish concessions or mining rights for the search or mining of substances. As well as the Mining Code, foreign investors have to observe Decree Law No. 600 which deals with foreign investment and investment contracts. This allows tax invariability for 10 years from start of production, access to the
foreign exchange market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspec ...
and the right to return capital actually brought into the country without being taxed. The tax invariability can be extended to 20 years for companies bringing in US$50 million or more. In return for these concessions foreign investors have to pay a combined tax rate of 42% compared with the current 35%. They may change, but once only, to the current mining tax regime but most have opted for the higher tax rate because it gives more certainty to financial planning.
On June 16, 2005, Law 20.026 was published in Chile's Official Gazette (''Diario Oficial''). The Law establishes a specific tax on mining activities, which came in force on January 1, 2006 consisting of a sliding scale according to copper production from nothing below 12,000 tonnes p.a. to 5% above 50,000 tonnes p.a. on production in excess of 12,000 tonnes p.a. Foreign companies that signed a DL 600 contract before Dec 1 2004 and are still liable to 42% tax are not affected by this. Companies bringing in US$50 million or more now can be granted invariability of mining taxation but must pay normal income tax. They must also submit their annual financial statements to external audit and to the Securities and Insurance Supervisor as well as their quarterly statements and an annual report on the property.
Mining companies are generally granted concessions to allow them to recoup their initial capital expenditures because of the risky nature of mining. The most important of these in Chilean law are organisation and startup expenses, interest expense, technical assistance, tax losses and asset depreciation, which may be accelerated.
''Cochilco, legislation''
This gives rise to a long initial tax free period and the suspicion that they are avoiding tax.[Spanish pdf.Italian pdf.]
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See also
* Nationalization
Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to pri ...
* Economic history of Chile
The economy of Chile has shifted substantially over time from the heterogeneous economies of the diverse indigenous peoples to an early husbandry-oriented economy and finally to one of raw material export and a large service sector. Chile's recent ...
* Chile under Allende
Salvador Allende was the president of Chile from 1970 until his 1973 suicide, and head of the Popular Unity government; he was a Socialist and Marxist elected to the national presidency of a liberal democracy in Latin America.Don MabryAllend ...
* Chile under Pinochet
Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the east a ...
* Miracle of Chile
The "Miracle of Chile" was a term used by economist Milton Friedman to describe the reorientation of the Chilean economy in the 1980s and the effects of the economic policies applied by a large group of Chilean economists who collectively came ...
* Codelco
Codelco (''Corporación Nacional'' ''del'' ''Cobre de Chile'' or, in English, the National Copper Corporation of Chile) is a Chilean state-owned copper mining company. It was formed in 1976 from foreign-owned copper companies that were nationali ...
References
{{DEFAULTSORT:Nationalization
Economic history of Chile
Politics of Chile
History of the foreign relations of Chile
Chile
Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the east a ...
Presidency of Salvador Allende
History of mining in Chile
Nationalization
1969 in economics
1971 in economics