The Political and Legal System of Chile: A favorable environment for the expansion of SureCrete Design Products, Inc.
Nowadays, the global market is full of various goods and services. The competition is really high and it is not that easy to find your niche and conquer it. That is why more and more American manufacturers choose to search for new potential markets overseas. It concerns not only large corporations but new developing ones as well.
SureCrete Design Products, Inc. is one of the American manufacturers of decorative products, specializing on concrete production. The company was founded in 2001 in Tampa, Florida. At the moment, it has several manufacturing centers in the USA, Canada, and Europe and sure looks forward to expanding its production facilities and markets even more.
One of the countries that can be perspective for SureCrete is Chile. This South American country has a lot to offer to foreign investors in terms of natural resources, climate, developed infrastructure, human resources, etc. Besides, the political and legal system of Chile is quite stable which creates favorable conditions for business development. In this essay, we are going to have a closer look at the political and legal system of Chile as well as political and legal conditions for the market expansion of SureCrete Design Products, Inc. in this country.
2. Political and legal system of Chile
Chile is a republic with a presidential system of government. The President of Chile is both the head of state and the head of government elected by popular vote to serve a four-year term without immediate re-election possibility. The current President of Chile is Sebastián Piñera who has been in office since 2018 (“Presidential system”, n.d.).
The legislative power in Chile belongs to the National Congress consisting of two chambers – the Chamber of Deputies (Lower House) with 155 members elected for four-year terms by proportional representation and the Senate (Upper House) with 38 members elected for eight-year terms (one-third renewed every four years) by plurality voting in each senatorial circumscription (“Legislative power”, n.d.).
The Constitution of Chile was promulgated on September 11th, 1980, during the military regime headed by Augusto Pinochet (“The Constitution”, n.d.). It has been amended several times since then but remains one of the longest-lasting Constitutions not only in South America but also in the world as a whole (“Chile: Constitution amended following approval in referendum”, 2016).
The Chilean Constitution regulates different spheres of public life such as economic activity regulation, human rights protection (including children’s and women’s rights), environmental protection measures, etc. (“Constitution of Republic of Chile”, 1980). Besides that, it provides for a clear separation of powers between executive, legislative and judiciary branches as well as guarantees citizens’ rights and responsibilities (Ibid).
The Constitution also defines Chile as “a democratic republic based on work and social justice; its political regime rests on respect for human dignity and individual rights […] guaranteed by means determined by law […] organized around free elections held periodically […]; authority emanates from people […], subject only to such limitations established in this Constitution with regard to individuals who do not have full use or enjoyment thereof due to age or physical or mental disability” (“Constitution of Republic of Chile”, 1980, art. 1).
The legal system of Chile is based on the Civil Law tradition. The main sources of law in Chile are the Constitution, legislation, and jurisprudence. The Constitution is the supreme law of the country and any other laws or regulations must not contradict it. The legislation includes laws enacted by Congress as well as decrees and ordinances issued by the President within his constitutional powers. Jurisprudence refers to court decisions which are binding only on the parties to a particular case but may be used as a precedent in other similar cases (“The Legal System”, n.d.).
The independent judiciary in Chile is comprised of the Supreme Court, the Constitutional Court, the Courts of Appeal, and the Courts of First Instance (“Judicial power”, n.d.). The Chilean courts have exclusive jurisdiction over civil, criminal and labor cases as well as cases involving minors and family matters.
The Supreme Court is the highest court in Chile. It is composed of 21 members appointed by the President with the approval of the Senate. The Constitutional Court is the second highest court in Chile. It is composed of nine members appointed by the President with the approval of the Senate for eight-year terms. The Courts of Appeal are intermediate courts that hear appeals from the judgments of Courts of First Instance. There are 13 Courts of Appeal in Chile. The Courts of First Instance are the lowest courts in Chile. They have jurisdiction over most civil and criminal cases as well as over labor and family matters (“Judicial power”, n.d.).
3. Political and legal conditions for the market expansion of SureCrete Design Products, Inc.
3. 1. Foreign investment regime
Chile has been consistently rated as one of the best countries in Latin America for doing business. According to the 2019 World Bank’s “Doing Business” report, Chile ranks 43rd among 190 economies in the world in the “ease of doing business” category (“Doing Business 2019: Economy Rankings”, 2019).
Chile has also been ranked first in Latin America and fourth in the world in the “economic freedom” category by Heritage Foundation’s “Index of Economic Freedom” for 2019 (“2019 Index of Economic Freedom”, 2019).
These rankings reflect a positive business environment created by a number of factors such as a relatively stable political and legal system, developed infrastructure, skilled workforce, etc. All these factors make Chile an attractive destination for foreign investors including American businesses looking to expand their operations to South America.
One of the most important factors contributing to a supportive business environment in Chile is its foreign investment regime which is governed by Law No. 19,913 on Foreign Investment (the “Foreign Investment Law”) (“Foreign Investment Act”, 1999).
The Foreign Investment Law establishes equal treatment for foreign and domestic investors and guarantees the free repatriation of profits and dividends as well as compensation in case of expropriation (“Foreign Investment Act”, 1999). Besides that, it provides for a number of tax incentives for foreign investors such as a reduced income tax rate for export-oriented companies, accelerated depreciation rates for certain investments, etc. (Ibid).
Chile has also concluded a number of bilateral and multilateral agreements aimed at protecting and promoting foreign investment including more than 20 bilateral investment treaties (BITs), 17 free trade agreements (FTAs), and membership in a number of regional economic integration organizations such as Mercosur, Pacific Alliance, etc. (“Chile: Bilateral Investment Treaties”, n.d.; “Chile: Free Trade Agreements”, n.d.; “Regional Economic Integration Organizations: ASEAN +3 Free Trade Agreement (AFTA)”, n.d.).
3. 2. Tax regime
Chile has a relatively favorable tax regime for businesses compared to other countries in the region. The corporate income tax rate in Chile is 20% which is lower than the average corporate tax rate in Latin America (25.3%) (“Average Corporate Tax Rates in Selected Countries”, 2019).
Besides that, Chile has a number of tax incentives for businesses including a reduced income tax rate for export-oriented companies (15%), accelerated depreciation rates for certain investments, etc. (“Investment Incentives”, n.d.).
In addition to that, Chile has signed a number of double taxation agreements (DTAs) with other countries which provide for reduced withholding tax rates on dividends, interest and royalties as well as exemption from double taxation on certain types of income (“Chile: Tax Treaties”, n.d.).
3. 3. labor regime
The labor regime in Chile is governed by the Labor Code (the “Labor Code”) (“Labor Code of Chile”, 1970). The Labor Code regulates different aspects of employment relationships such as working hours, wages, hiring and firing procedures, etc.
The Labor Code provides for a number of protections for workers such as the right to form and join unions, the right to strike, etc. (“Labor Code of Chile”, 1970). Besides that, it establishes certain protections for employers such as the right to hire and fire employees, etc. (Ibid).
The labor regime in Chile is generally favorable for businesses. The flexibility of the labor market makes it relatively easy to hire and fire employees which helps businesses to adjust their workforce according to their needs. The relatively low level of unionization also makes it easier for businesses to negotiate labor contracts with workers.
4. Santiago – the capital of Chile
Santiago is the capital of Chile and its largest city with a population of over 6 million people. It is located in the central part of the country and is the political, economic and cultural center of Chile.
Santiago has a developed infrastructure with a good network of roads, railways, and airports connecting it to other parts of the country and the world. The city also has a developed telecommunications and financial infrastructure.
Santiago is home to a number of universities and research institutes as well as a number of cultural institutions such as museums, theaters, etc.
Chile is a country with a lot to offer to foreign investors including a relatively stable political and legal system, developed infrastructure, skilled workforce, etc. All these factors make Chile an attractive destination for foreign investors including American businesses looking to expand their operations to South America.
SureCrete Design Products, Inc. can consider expanding its operations to Chile given the favorable conditions for doing business in this country. The company would benefit from a number of tax incentives as well as from the relatively low level of unionization which would make it easier to negotiate labor contracts with workers.