Chilean nationalization of copper
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The nationalization of the Chilean copper industry ("Chilenization"), was the progressive process in which the Chilean government acquired total control of the copper industry, and involved the transference of ownership of the Chilean copper industry from the hands of a few multinational corporations, especially those from the United States, to the Chilean state. This process, that culminated during the Salvador Allende government, was the espoused basis for a later international boycott, which further isolated Chile from the world economy, worsening the state of political polarization that led to the Chilean coup of 1973.
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[edit] Background
Copper mining has long been the mainstay of Chilean exports and at present it still accounts for almost a third of all foreign trade, down from a peak of almost 75%. Successive Chilean governments have characterized its revenues as “Chile’s salary.” Copper has been mined since colonial times in the area between central Chile and southern Peru, but it never acquired the importance of other mining exports such as saltpeter or silver until the beginning of the 20th century. Due to the introduction of artificial nitrates following World War I, the world market for saltpeter, then Chile’s main export, collapsed. The copper industry then started rapidly acquiring an increasingly important role for Chile’s economy. It was that period that copper became known as “Chile’s salary”.
The first foreign-owned copper mine was open in 1904, but the beginning of the modern exploitation began in 1912. In that year, Guggenheim Bros. acquired the control over the Chuquicamata fields, and created the Chile Exploration Company. Construction work started on February, 1913, and the new mine started production in March, 1915.
Production climbed steadily from 45,000 metric tons per year initially to 51,000 in 1918, 100,000 in 1923, and 200,000 in 1937. Today, Chuquicamata is the largest mine in the world, and the largest man-made hole in the planet. In 1923, Guggenheim Bros. transferred the property of the mines to the Anaconda Copper Mining Company.
[edit] Principal mines at the beginning of the nationalization
By the late 1950s, the three principal copper mines in Chile were: Chuquicamata, El Salvador, and El Teniente. Chuquicamata and El Salvador were owned by the Anaconda Copper Company and El Teniente was owned by the Kennecott Utah Copper Corporation. The La Exotica mine 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.
[edit] First stage of nationalization
The first indication of the growing frustration over the copper revenues was indicated by the law 11.828 of May 5, 1955 (also known as the law for a new deal). That law created the Copper Office (Departamento del Cobre), which had the primary objective of dealing with these multinational corporations that were fast becoming states-within-the-state.
During the administration of President Eduardo Frei Montalva, Congress sanctioned law 16.425 on January 25, 1966 and transformed the "Copper Office" into the "Copper Corporation of Chile" (Codelco). The principal objective was to increase state control over the copper industry. It also authorized the government to participate directly and invest in new and existing operations.
Based on this law, the government invested in the newly discovered La Exotica mine on February 10, 1967. The La Exotica mine was jointly owned and developed by the Anaconda Copper Company (75%) and the Chilean government (25%). More importantly, in that same year, the Chilean government acquired the majority of shares (51%) of the El Teniente mine, with the remaining 49% left in the hands of the Kennecott Utah Copper Corporation.
[edit] Second stage of nationalization
On June 26, 1969, President Eduardo Frei Montalva signed an agreement with the Anaconda Copper Company (which was afterwards ratified by Congress). In this agreement, the government acquired the 51% of the remaining two major mines (Chuquicamata and El Salvador) and also the right for Codelco to consolidate the international sales of Chilean copper.
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.
[edit] Third stage of nationalization
The process of "negotiated nationalization" met with vociferous critics from the leftist political parties, and from a section of the President’s own Christian Democratic Party. The idea was accused of bowing to American Imperialism, being too slow and too expensive.
In the 1970 presidential election, the outright nationalization without compensation (known as the Chilenization of copper) became one of the basic 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 Salvador Allende 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 the event was celebrated as the day of “national dignity”. Based on it, on July 16, 1971 the law 17.450 was promulgated, and became effective immediately.
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 US Government.
[edit] 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 world-wide 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 of 1971, the General Comptroller'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, El Salvador and El Teniente mines, and only a very small one for the rest of their properties. The US government reaction was immediate. The US Department of State declared: "This serious infraction to international practice can cause damage not only to Chile, but to all other developing countries".
Chilean mines were kept under state control after the 1973 coup despite the junta's pro-U.S. leanings, which, as of 2006, is still the case.
