VZCZCXYZ0005
OO RUEHWEB

DE RUEHSG #0442 1281739
ZNR UUUUU ZZH
O 081739Z MAY 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4919
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNMER/MERCOSUR COLLECTIVE
RUEHHE/AMEMBASSY HELSINKI 0031
RUEHOT/AMEMBASSY OTTAWA 0593
RUEHQT/AMEMBASSY QUITO 2358

UNCLAS SANTIAGO 000442 
 
STATE PLEASE PASS TO USTR KATE DUCKWORTH 
STATE FOR WHA/EPSC, EEB/TPP/BTA/EWH, EEB/TPP/MTA/IPC 
TREASURY FOR BLINDQUIST 
COMMERCE FOR KMANN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD KIPR EFTA CI
 
SUBJECT:  Chile Wants Free Trade Commission Meeting To Review Pulp 
Tax-Break 
 
¶1. (SBU) SUMMARY:  Chile's wood and pulp industry association 
(CORMA), one of the nation's leading export industries, is 
pressuring the GOC to address a tax credit received by U.S. pulp and 
paper companies for use of alternative fuels.  In response, the GOC 
on April 29 sent a letter to USTR requesting a special session of 
the U.S.-Chile Free Trade Commission in order to review the tax 
credit.  CORMA claims the tax credit is a subsidy that provides an 
unfair competitive advantage to U.S. companies.  The GOC is 
discussing next steps with USTR.  The American Chamber of Commerce 
in Chile has supported CORMA's position.  END SUMMARY. 
 
Chilean Wood/Pulp Industry Demands Action 
----------------------------------------- 
 
¶2. (SBU) Chile's wood and pulp industry association (CORMA) met with 
the Direccion General de Relaciones Economicas Internacionales 
(DIRECON) -- the Chilean equivalent of USTR -- during the week of 
April 20.  The press and Embassy contacts at DIRECON report that 
CORMA demanded GOC action in response to what they perceive as a 
subsidy for U.S. pulp and paper companies.  Because of recent 
changes to a U.S. tax program intended to promote alternative fuels, 
companies that use a mix of fossil and alternative fuels can receive 
tax credits.  Reportedly, U.S. pulp and paper companies could 
receive up to $6 billion in credits, which CORMA alleges creates an 
unfair competitive advantage for those U.S. companies. 
 
¶3. (U) Many U.S. pulp and paper companies use a mixture of "black 
liquor" (a pulp byproduct) with diesel, which reportedly qualifies 
them for a tax credit of 50 cents per gallon of fuel used.  Chilean 
press quoted Charles Kimber, the corporate manager of a leading 
Chilean pulp company, who estimated that the credit could account 
for up to 50% of the cost to produce one ton of wood pulp.  He noted 
"no company can compete with that kind of subsidy." 
 
DIRECON Writes Letter to USTR 
----------------------------- 
 
¶4. (SBU) In response to the pressure from CORMA, DIRECON contacted 
USTR and the Embassy to formally object to the U.S. tax credit on 
April 24.  DIRECON Director for Bilateral Economic Affairs Andres 
Rebolledo subsequently wrote a letter to USTR on April 29.  The 
letter requests an extraordinary session of the U.S.-Chile Free 
Trade Commission to review the tax-credit.  Finland and Canada have 
made similar complaints to the USG regarding the tax credit. 
 
¶5. (U) USTR and DIRECON are currently working on next steps.  Press 
reports on May 5 quoted CORMA's President Jose Rafael Campino as 
saying the GOC and USG would create a bilateral committee in May to 
review the issue.  Also in the press, the American Chamber of 
Commerce in Chile (AmCham) has endorsed CORMA's position that U.S. 
companies are unfairly advantaged by the tax break. 
 
¶6. (U) This cable has been cleared by USTR. 
SIMONS