VZCZCXYZ0000
RR RUEHWEB

DE RUEHSG #0690/01 2041325
ZNR UUUUU ZZH
R 231325Z JUL 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC 5252
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHQT/AMEMBASSY QUITO 2508
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SANTIAGO 000690 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS TO USTR KATE KALUTKIEWICZ 
COMMERCE FOR KMANN 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KIPR PGOV PREL CI
SUBJECT: CHILE'S NORTHERN FREE TRADE ZONE: A PLATFORM FOR 
SOUTH AMERICA 
 
¶1. (SBU) SUMMARY: The Free Trade Zone of Iquique (ZOFRI) is 
an essential part of Chile's northern economy, providing 25 
percent of jobs in the city of Iquique.  Already Chile's 
largest free trade zone, officials are extremely upbeat about 
the ZOFRI's future because of its strategic location, 
infrastructure, and efficient administration.  Trade with the 
U.S. has increased from $263 million in 2003 to $600 million 
in 2008, making the U.S. the second largest supplier to the 
ZOFRI after China.  ZOFRI officials described a passive 
approach towards intellectual property rights protection, but 
pledged cooperation on law enforcement issues.  As workers 
constructed approximately 30 new warehouses, officials 
outlined their vision to make the ZOFRI a platform for South 
America that reached from Chile to Peru, Bolivia, Argentina, 
Paraguay, and Brazil. END SUMMARY. 
 
ZOFRI: ENGINE OF ECONOMIC GROWTH IN NORTHERN CHILE 
--------------------------------------------- ----- 
 
¶2. (SBU) During a recent meeting with Poloff, officials 
explained that the ZOFRI serves as a key engine for economic 
growth and development in northern Chile.  The ZOFRI, Chile's 
largest free trade zone, employs 30,000 people in over 1700 
registered businesses that trade with more than 70 countries. 
 Officials highlighted the ZOFRI's strategic location, 
well-developed infrastructure, and efficient administration 
as features that combine to make it an attractive entry point 
for businesses looking to expand in South America.  Located 
more than 1000 miles north of Santiago but within 100 miles 
of the Peruvian and Bolivian borders, the ZOFRI has a growing 
industrial distribution area, a large shopping mall, and a 
convention center.  The ZOFRI also extends to industrial 
centers in Arica, a city that borders Peru, and Alto 
Hospicio, a small town east of Iquique. 
 
¶3. (SBU) Eugenio Cortes, ZOFRI General Manager, noted the 
increase in overall sales from $1.2 billion in 2002 to $3.4 
billion in 2008.  Trade with the U.S. has also jumped, with 
ZOFRI purchases from the U.S. rising from $263 million in 
2003 to $600 million in 2008.  The U.S., currently the second 
largest supplier to the ZOFRI after China, primarily sells 
fuel, lubricants, and used cars.  Fifty-five percent of ZOFRI 
sales are to Chile, followed by Bolivia with 25 percent. 
 
¶4. (SBU) The ZOFRI has a diverse mix of international small 
business owners.  Large immigrant populations have 
established themselves in certain sectors, and Chilean 
nationals own just 47 percent of ZOFRI businesses.  Chinese 
nationals own 17 percent of ZOFRI businesses, while Pakistani 
and Indian immigrants each own six to seven percent.  The 
Chinese primarily trade textiles and household goods, and 
Pakistanis dominate the used car market. 
 
THE NOT SO GOOD: IPR ENFORCEMENT 
-------------------------------- 
 
¶5. (SBU) ZOFRI administrators defended their cooperation with 
law enforcement officials on issues such as intellectual 
property rights (IPR) and money laundering.  Any company that 
is convicted of an IPR crime can have its ZOFRI license 
rescinded, but officials acknowledged that this has never 
taken place.  They noted, however, that the Board of 
Directors was scheduled to meet soon to consider revoking the 
license of a business found guilty of selling fake Nike and 
Disney products. 
 
¶6. (SBU) A representative of the Chilean Customs service who 
attended the meeting challenged officials by saying that 
Customs officials regularly seize fake products destined for 
ZOFRI businesses, but there are no consequences for 
importers.  ZOFRI officials explained that without a judicial 
finding, they cannot take action. 
 
¶7. (SBU) Administrators noted that they fully cooperate with 
Chile's Financial Investigative Unit (UAF) and Customs 
officials on questions of money laundering and valuation 
problems.  They lamented the lack of cooperation from 
Bolivian officials and stated that information only flows in 
one direction, from Chile to Bolivia.  Officials explained 
that four to five years ago, the Government of Bolivia (GOB) 
regularly complained about undervaluation and smuggling 
within the ZOFRI, but those complaints have stopped.  ZOFRI 
administrators speculated that the current GOB does not care 
about smuggling or contraband. 
 
 
FUTURE INCLUDES INFRASTRUCTURE EXPANSION, MORE REGIONAL TRADE 
--------------------------------------------- ------------- 
 
¶8. (SBU) Officials see the ZOFRI as a regional platform for 
South America, with a bright future in markets in northern 
Chile, Peru, Bolivia, Argentina, Paraguay, and even Brazil. 
Construction is currently underway on approximately 30 new 
warehouses and officials discussed port expansion as a key 
goal for the long term.  They are also considering expansion 
of the industrial center in Alto Hospicio to accommodate the 
booming used car business.  ZOFRI administrators acknowledged 
competition from the free trade zone in Tacna, Peru, but do 
not view Peru as a serious threat.  They proudly noted that 
it only takes two weeks to register a business in the ZOFRI, 
and Chile has an excellent reputation for business 
transparency. 
 
COMMENT 
------- 
 
¶9. (SBU) There were no signs of the global economic slowdown 
in the ZOFRI, as construction workers labored to build 
approximately 30 new warehouses and the mall bustled with 
shoppers looking for deals on the latest electronics.  The 
building boom reflects the private sector's optimism that 
demand will continue to grow.  The ZOFRI's passive approach 
to IPR protection, however, is a worrisome sign that some in 
the private sector are part of Chile's IPR problem instead of 
the solution. 
SIMONS