Copper in Chile
Chile is the world's largest copper producer. In 1996, Chile produced
28% of the world's copper. The copper belt in Chile is the largest and
highest grade deposit in the world. This copper belt shared with both
Argentina and Peru contains 30% of the world's identified copper
reserves. The Andes copper deposit also contains other valuable minerals
such as molybdenum, gold and silver which are co-products and
by-products of the copper refining process. Currently, Chile produces
19% of the world's molybdenum ranking it fourth among world producers.
Locations
The major mines, processing plants and deposits are in the northern
half of the country. The copper belt and the Solar de Atacama are the
sites of most mining activity in Chile. As of 1996, Chile contains 32
either privately or publicly (i.e. state) owned mines whose primary
product is copper. CODELCO or the state copper corporation currently
produces 48% of Chile's copper. Its largest mine is El Chuquicamata or
Chuqui located at an elevation of 2700 metres and is 1200 kilometres
north of Santiago making it the northernmost CODELCO mine. Chuqui is the
largest open pit copper mine in the world and is a long time strong hold
of the Chilean Communist Party. Its main support city is Calama and is
located in the Atacama desert, the driest place on earth. The
concentrator at Chuqui has a 96.000 metric tonne cpacity with a refining
capacity of 500,000 metric tonnes per year. Located in the Atacama some
1100 kilometres north of Santiago and resting at an elevation of 2600
metres is the El Salvador mine. Production here began in 1959. It is
CODELCO's third most productive mine.
CODELCO's Andina division and the two Exxon mines at El Soldado and
SMP's Lo Aguirre and La Africana mines are near Santiago slightly to the
northeast of the capital. Andina is located 50 kilometers northeast of
Santiago and its facilities are 3500 meters above sea level. The Andina
division produces over 50,000 tonnes per year much of which is shipped
to Japoan for processing. Nearby is the Los Bronces deposit which was
acquired by Exxon in 1977. It produces over 50,000 tonnes per year and
is located 4000 meters above sea level.
The other major CODELCO division El Teniente is located 100
kilometers southeast of Santiago in the fertile cnetral valley of Chile.
Production at El; Teniente was begun in 1906 and remains today the
largest underground copper mine in the world with over 15,000 meters of
tunnels. El Teniente is about 50 kilometers from Rancagua (pop.
100,000) the primary support center for the mine. El Teniente produces
about 300,000 tonnes of copper per year making it CODELCO's second most
productive operation.
Copper in the Chilean Economy
The mining industry, especially copper, is very important to
Chile's GNP, exports, foreign exchange and ability to obtain foreign
investment. In 1995, mining contributed 8% of Chilean GNP with copper
contributing about 7% of that total. In 1995, copper was 82% of mining
exports with total value at $US 6,500,000. In 1995, copper exports were
45% of total Chilean exports. Historically, from 1974-1995, mining has
attracted 56% of total foreing investment in the Chilean economy.
Currently, mining attracts between 5-10% of total foreign investment in
Chile. Most of the foreign investment has been in copper although
recently other mineral such as lithium and iodine have attracted some
foreign capital.
Chilean copper production has tripled since 1977, going from 1.03
million metric tonnes per year in 1977 to 3.1. million tones in 1997.
Production is predicted to increase to over 4 million metric tonnes by
the year 2000. Roughly, 50% of copper production is by state companies
CODELCO and ENAMI while the other half is produced by foreign companies
and domestic small and medium size businesses. Copper production at
CODELCO has fallen from 83& of the country's total in 1981 to 48% today.
This is largely die to the government's strong push for privitization
and foreign investment as well as the hegemony of neo-liberal ideology
in Chile. The next largest copper producers are La Escondida (19%),
Disputada (8%), Candelaria (5%) and ENAMI (5%). CODELCO's mines remain
among the lowest cost producers in the world because of the harsh
repression of labor and organized labor during the military regime and
to the fact that CODELCO's mines are quite productive by world
standards. Struggles of the miners have led to wage increases and more
liberal labor laws in Chile. Furthermore, Chile has made significant
progress in the refining of copper, domestically, increasing its refined
output from 64% in 1977 to nearly 85% today.
Government Role
The Chilean government remains the dominant player in the mineral
and copper industry. The government controls copper mining by ownership
of copper producing companies, processing facilities, by developing laws
and policy as well as marketing. CORFO the state industrial holding
company co-ordinates the mining industry as a whole. There are several
government agencies that deal with mining and specifically with copper.
Foreign Investment. These are COCHILCO, a technical organization,
Ministry of Mining which coordinates all government activity,
SERNAGEOMIN, the National Centre of Geology and Mining, CODELCO, ENAMI,
both state mining companies and CIMM, the Research Centre for Mining and
Metallurgy.
All foreign investment in Chile is governed by decree-law no.600.
Drawn up in 1974, a short time after the coup, decree 600 is designed to
liberalize foreign investment and provide a stable legal and political
framework for foreign investors. The statute is straightforward . A
potential foreign investor is required to appear before a committee that
reports to the president through the minister off the Economy,
Development and Reconstruction. The investor signs a contract with the
Chilean state. The committee is the only organization that can accept
the entry of capital into the country and establish the terms and
conditions of the contract. The committee is made up of the Minister of
the Economy, the chairperson of the central bank etc. The meeting is
never more than a formality sionce Chile's foreign investment regime is
lax and there is no sector in the Chilean economy save armament that is
not open to foreign investment. Here are a few features of the statute;
–equal treatment of domestic and foreign companies.
–full profit remittances after one year.
–no time limit on profit and capital repatriation.
–the most favorable market rate for the purchase of foreign exchange.
–fixed stable income tax rate of 42% for ten years or the going national
rate with no time guarantee.
The Chilean government has subsidized and continues to subsidize the
mining industry including especially copper. Technical and financial
support are given to the mining companies owned by the state and the
"arms length" agencies described above. Large investments in processing,
facility expansion and infrastructure improvement are financed and
directed through CORFO.
Since the coup in 1973, Chilean mining law and policy have been
re-oriented towards attracting foreign capital and reducing the role of
the state in mining activity as well as the economy as a whole, witness
the 40% drop in CODELCO's share in national copper output even though
CODELCO has been successful by orthodox economic measures. The shift in
mining policy towards privatization and the adoption of foreign capital
is the result of several different complex forces. It is partly
ideological as the worldview of the "Chicago Boys" who have controlled
policy in Chilean society for the last 25 years assume an a priori
belief in the natural superiority of private economic activity versus
state or public economic activity. Chile today, despite a thin veneer of
democratic activity and rhetoric remains a society tightly controlled by
the military and the various police forces. This gives the Chilean elite
and their policy makers carte blanche to implement their policies.
Moreover, there have been substantial pressures by the multilateral
institutions such as the IMF to privatize and open the economy. These
multilateral institutions have considerable power in Chile because of
the enormous public and foreign debt run up by the military government.
Ironically, when the economy collapsed in 1982 the government ended up
socializing almost all private debt including the banks. The state
copper company was the bedrock that earned enough foreign exchange to
stave off complete collapse. The debt is to be paid, of course, by the
poor and working class.
Chile has also acted on the belief that the desired investments
in mining could not be met by domestic capital. In 1977, Chile adopted
decree-law 1748 concerning foreign investment in mining. Decree law 1748
is similar to 600 but contains special application to mining. Among the
provisions of this law are clear definitions of the contractual
obligations of the state and mining companies provisions for the
repatriation of profits, new tax code, etc.
In 1981, a new mining law was passed to promote the development
of new mining ventures as well as the streamlining of existing mining
legislation. The ultimate goal of this legislation was to help double
copper production within ten years which as we have seen was successful.
This law established exploration and exploitation concession
regulations. Exploration concessions have no fixed time limit and are
extended as along as all licence fees are paid. This mining code grants
the rights for private individuals to own mining concessions.
Concessions owners, like all companies, are to be protected from
expropriation by government contract Any expropriation would entitle the
owner of the concession to full compensation to be established by
judicial review. The aim is to reduce fear and possibility (i.e. risk)
of expropriation among foreign investors as a guaranteed
arrangement for compensation is in place. In this context it should be
noted that large, militant anti-government, anti-neo-liberal
demonstrations and organization started in 1981 which raised eyebrows
amongst the international investor class.
Mining Labor
The copper sector of the Chilean economy currently employs about
75,000 people close to 2% of the total labor force. Copper miners have
traditionally been the best paid sector of the Chilean working class.
This is because of their collective strength as well as the dangerous
and demanding labor that they perform. Moreover, most copper mines are
located in remote and rugged areas. After the coup, the copper unions
were destroyed and the legal rights of the workers was taken away. Chile
introduced a new mining labor code in 1979, decree laws 2756 and 2758
giving the owrkers the right to bargain collectively and to strike.
Other provisions of the law included the open shop, multiplant unions,
iinflation indexing of wages, a 60 day strike limit. And the right of
employers to stage lockouts. El Teniente and Chuqui experienced labor
unrest in 1979 but there was no work stoppages. In mid-1981 eight
miner's unions struck El Teniente where 10,000 workers walked out. The
strike cut CODELCO's production for the year and was the largest . And
most serious strike since the coup. The government responded with more
liberal labor laws. Another key copper strike came in mid-1991 at Chuqui
and El Teniente. This was the first serious conflict between labor and
the elected Concertacion government in the key export sector of the
economy. The strike was led by a group of young militant underground
miners who had walked to raise incomes of the lowest paid miners. The
strikers used militant actions resulting in the strike being declared
illegal. The strikers won their demands and set an example for the rest
of the then dormant Chilean labor movement in defying state power and
winning better contracts. The militant tactics, autonomous action and
economic success of the miners was heard among sectors of the Chilean
working class.
Historical Overview 1880-1973
The post-colonial, post-independence economy was dominated
especially in the export sector by Copper. Gold, copper and nitrates
were the principal products. Between independence and the 1860's, the
copper industry still displayed many colonial features. For example,
simple technology was used, e.g horses rather than steam engines. The
ownership structure of industry was domestic revolving around individual
and family. Towards the end of the nineteenth century, most of the rich,
high grade ore began to become depleted. As a result foreign extraction
and processing methods had to be brought in to mine and process the
lower grade ore. These methods were imported mainly from Great Britain
which already had a developed copper industry.
The war with Peru from 1876-1880 damaged copper output drastically.
Only the most efficient mines survived while many closed. An
overproduction crisis caused a slump in world copper prices which helped
cut back production. Production fell from 46,421,000 kg to 24,931,000 by
1911. Chile's share of the world market fell from 30% to 10%.
After 1911, the copper industry in Chile revived as the structure of
the Chilean economy evolved from domestic to foreign ownership. With
foreign ownership came large capital intensive, vertically integrated
firms. In 1904 an American named William Braden introduced the flotation
process in Chile at the El Teniente mine. Braden revolutionized Chilean
copper mining yet the price of doing so was enough to force him to sell
the mine to the Guggenheim family. The Guggenheim's bought Chuquicamata
three years later which eventually became the world's largest open pit
copper mine. After 5 years and US$ 500 million in investment the mine
began to turn a profit. The Guggenheim's sold El Teniente and Chuqui to
Kennecott in 1917.
In 1916, Anaconda began to develop another huge mine north of Copiapo
in the Norte Chico region of Chile. These three mines all owned by
American companies came to be known as the "Gran Mineria". The Gran
Mineria under American ownership boosted Chilean copper production by
300%. Consequently, the Chilean share of the world market rose from
4.3.% to 10%. However, the mines were located in remote areas which
allowed for few forward or backward linkages. Almost of the earnings
were remitted abroad.
The copper industry grew quickly during WWI when production tripled
and exports more than doubled. Wartime sales in 1917 were 400% greater
than in 1914. By 1917, copper accounted for 20% of Chile's total
exports. The growth of the copper industry between 1880 and WWI had its
roots in the introduction of electricity in the U.S. which needed copper
for wiring.
Since the denationalization in the early twentieth century the
copper industry has been dominated by the conflict between the need for
Chile to subjugate mining to the development needs of the country as a
whole i.e. to a national economic strategy for development and the
imperatives of the individual mining companies (profit taking) and
United States foreign policy (the protection of U.S. foreign investments
and profit taking.)
The first attempt to subjugate copper to national development
imperatives occurred in 1925 when the government imposed a 6% tax on top
of the 6% that already existed. Until then, the government had adopted a
basically laissez-faire policy with a 6% flat tax on profits. This new
tax was designed to increase the "valores retornados" or "returned
value" of the copper industry. "Returned Value" was a concept invented
by nationalist Chilean economists and adopted by the government to
designate the amount of value that stayed or returned to Chile from
copper exports. The returned value of copper exports had henceforth been
very low because of the vertical integration of the copper companies,
the lack of forward/backward linkages in mining and the governments
laissez faire policy. Either Chile had to increase production and
therefore increase the absolute level of returned value or simply
increase the share of returned value. It attempted to do both.
The Great Depression hit the copper industry hard as production
fell from 317,000 to 163,00 tonnes. The price of copper from 17.5 cents
to 7 cents a pound. In 1932, the imposed a 4% per pound duty on copper
because of saturated markets, dwindling demand and to protect domestic
producers. By 1933, exports to the United States had fallen from 87,000
lbs to 5,000 lbs and from $US111 million to US$33 million.
The depression put pressure on the Chilean government to increase
the amount of returned value since the need for public expenditure
increased and therefore the need for foreign exchange. The collapse of
the nitrate export sector also put pressure on to increase copper
exports. With the great depression, the conflict between the Chilean
government and the Chilean government intensified. Because copper was an
important input in the U.S. economy, growing conflict emerged between
the Chilean and U.S. governments. The principal means by which the
government increased returned value was an increase in direct taxes, a
discriminating exchange rate on the companies and state intervention in
pricing and marketing.
During WWII copper production soared as demand rose to meet the
need of the U.S. was economy. The U.S. government in 1943 fixed the
price of copper at 12 cents per pound and waived the 4 cent tariff. With
the price frozen at a low level Chile suffered large losses. In 1946,
the US lifted the price control and the price of copper immediately
doubled which in turn doubled the amount of returned value to Chile.
Chile had paid a high price for having its copper subjected to U.S.
national interests.
Chile experienced a similar situation during the Korean war, when
in 1950, the U.S. again fixed the price of copper, this time at 24 cents
per pound. An open conflict between the two governments ensued. The
Chilean government responded by repudiating U.S. policy and setting up
an agreement where the central bank would buy the entire output of the
Gran Mineria at the low US fixed price and sell it at the higher world
market price. The result was a success as returned value increased
substantially.
The Korean War ended in 1953 and with it the military demand for
copper. IN 1955 a "nuevo trato" or "new deal" was announced between the
Chilean and the U.S. governments. All taxes on the Gran Mineria were
harmonized under a 50% basic tax on profits. The special exchange rate
levied ont eh companies was replaced with the floating market rate.
Accelerating depreciation was allowed for investment in new capacity.
These changes were designed to lower the burden on the companies and
thus increase production. The new policy did not work as new investment
in capacity only raised production and output to WWII levels. By 1960,
exports of refined copper had fallen to half of their 1944 level. The
result was less in income, employment and returned value to the economy.
Copper became the hot issue in the 1964 election. Eduardo Frei and the
Christian Democrats called for greated Chilean participation in
produciton,refining and marketing as well as expansion in productive
capacity. The left called for nationalization. The companies on the
defensive called for the status quo. With Frei winning the presidency
another deal was reached with the companies where the government would
take majority ownership set prices and reduce taxes. Moreover, a $US 500
million expansion in productive capacity would take place to raise
output by 70% by 1970. At the end of 1964, Chile purchased 51% of
Kennecott $81.6 million. Anaconda reused to sell to the government but
signed a contract to increase production. In return the government
promised to reduce taxes.
The Frei policy was a failure. Chile controlled none of the mines of
the Gran Mineria, production stagnated and profit remittances abroad
tripled.
The complete nationalization of the mines took place under the
left-wing Unidad Popular government. This took place through
constitutional amendment. The policy had broad popular support and
passed unanimously in the Senate. The state became the sole owner of all
mineral deposits in Chile. Most controversial was the introduction of
the concept of "excess profits" (i.e. exploitation) a form of deduction
from the compensation to be paid to the companies. This was fixed at 12%
since 1955. The companies were also responsible for depreciation. Chile
bore responsibility for the debt racked up by the companies since 1960.
The nationalizations were part of UP strategy of achieving political
independence through economic independence.
Conflict ensued between the companies and Chile and the U.S.
government and the Chilean government. The nationalization was carried
out against the wishes of the companies. The U.S. responded by cutting
Chile off from credit and setting up an unofficial trade blockade making
it difficult for Chile to import the necessary capital goods for the
mines. Various other forms of retaliation such as sabotage were carried
out by the companies and their right-wing supporters in Chile. Many
analysts believe the nationalizations were one of the main reasons for
the 1973 coup. The punitive measures taken by the U.S. were a penalty
paid by the Chileans for electing a democratic socialist government.
The result of the UP's copper policy were mixed. Between 1970 and
1973 production decreased in all mines except El Teniente. This was part
of trend that had been occurring since 1946. However, the drop in
production was largely a result of what was going on inside the mines.
After the nationalizations many technicians left the mines. Labor unrest
escalated as dozens and dozens of strikes took place. Many of the
problems were political, a result of the fierce infighting between the
Socialist, Communist, Christian Democratic and MIR party miners. The
conflict in the mines was a microcosm of what was going on in all
sectors of Chile. A majority of miners wanted to seize the mines and run
them themselves while a minority wanted the status quo. Declining copper
prices and the enormous pressure put on Chile by U.S. imperialism were
contributing factors.
The history of the copper industry in Chile is the history of U.S.
imperialism.
Conclusion
The short and medium term outlook for the Chilean copper industry is
fair. Despite a drop in world copper prices, CODELCO and some of the
private mines have managed to increase productivity and their profit
margins in recent years. A big worry is the development of the super
conductor industry which would gradually or even sharply cut world
demand for copper as superconductors phase out copper. This could would
be disastrous for the copper industry. In Chile, copper and the mining
industry continue to attract the most foreign investment. This is
because of the low wages, harsh labor code and the well developed
infrastructure in Chile as well as the incentives given to investors by
the Chilean government.
From the point of view of labor, things are less sanguine. In the
face of the still growing world capitalist offensive, the labor movement
in Chile like labor movements around the world is on the defensive.
This, despite many recent positive developments. In the state sector at
least, the copper miners continue to be well organized and militant in
their demands and actions (and also the highest paid and most exploited
sector.). The Chilean working class still labors under much of the harsh
Pinochet era labor code(open shops, strike limits, sectors forbidden to
organize etc.)
The Communist Party is back in control of the CUT (the main trade
union federation) as well as other unions in health, coal and education.
The growth of party influence has occurred because it is now the only
party in Chile, outside sectarian groups, that defends the working
class, supports autonomous working class action from the comprador union
officials and believes in socialism. A rejuvenated and more democratic
Communist Party and a more confident labor movement could signal a
comeback for the Left in Chile.
by Sam Pawlett
Sources
Norman Girvan *Copper in Chile*, Unwin,1972
William Sater and Simon Collier *A History of Chile. 1808-1994.*
Cambridge University Press. 1996.
James Petras, "Latin America: The Resurgence of the Left". New Left
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Petras, Leiva, Veltmayer. *Democracy and Poverty in Chile*
Westview.1994.
Stefan de Vylder *Chile 1970-3. The Political Economy of the Rise and
Fall of the Unidad Popular Government*. Urga Filosifias Forlag.1974.
Sideri ed. *Chile 1970-3. Economic Development and its International
Setting. Self-Criticism of the Unidad Popular Governments Policies*.
Martinus Nijhof. 1979.
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Latin American Mining Report
Web Sites:
COHILCO,CODELCO,PROCOBRE, Ministry of Mining.
