TED Case Studies
Chile Copper Exports
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CASE NUMBER: 105
CASE MNEMONIC: COPPER
CASE NAME: Copper Exports from Chile
A. IDENTIFICATION
1. The Issue
Few people would think that a nation as small as Chile would
be so rich in natural resources. The country measures no more
than 180 kilometers between its Pacific coast and its eastern
frontier. Its area of 756,626 square kilometers makes it smaller
than any of the South American republics except Uruguay,
Paraguay, Ecuador, and the Guyanas. Of the thin country's
resources, none are more valuable than its copper mines, which
contribute handsomely to Chile's GNP. The demand for copper on
the world market has contributed to its advancement towards many
bi-lateral agreements and regional trade pacts like the GATT,
MERCOSUR, and NAFTA. The need for copper was particularly
evident during the Vietnam War, when the metal accounted for
eighty percent of Chile's export earnings. Chile's eagerness
to meet investors' and nations' needs for copper has created
several environmental problems in the area. The smelting of the
copper ore at the factories emits arsenic and carbon-monoxide
which pollutes the air and water near the mines. The parties at
risk include: fishermen and farmers who live and work near the
port Caldera, marine life and animals that live in the area,
other people who live and work in the area (including the
miners).
2. Description
Copper has played a large role in the Chilean economy since
at least 1825, when British and Americans were already competing
with other foreign investors to control Chile's copper and silver
market. By 1835, Chile was exporting 12,700 tons of copper a
year, much of it to the United States. Copper accounted for
fifty-five per cent of the country's economy by 1860. Chile
became highly dependent upon its copper exports. After the War
of the Pacific (1879-83), the quantity of copper that Chile mined
continued to skyrocket. Although the demand for copper put
Chile way ahead of other nations in the region, its increasing
dependence on copper put it at the mercy of the world market.
When copper prices dropped or industrial slumps hit Europe,
Chile's economy went into a tailspin.
The impact of copper production in Chile on the country's
environment is real and is growing at an alarming rate. Most
threatened is the atmosphere in immediate vicinity of the copper
mines -- which are located in the northern areas of the country.
The production of copper is a long and dangerous process.
Workers heat copper at high temperatures as many as fifteen times
before the metal is ready for export. The refiners at the
factories emit high quantities of arsenic and carbon-monoxide.
Local farming and fishing communities fear that loading
operations in Port Caldera will pollute the bay. Some of these
farmers and fishermen have already defeated COLDECO, the state
owned mining company, in court. To comply with environmental
regulations Chuquicamata, the largest copper mine in the world,
closed its furnaces for a month in July, 1994. The miners who
work in copper mines like Chuquicamata and La Escondida, are at
risk because of the fumes they inhale while they are at work.
Farmers and animals in the area are also in danger because the
smelting of copper releases noxious chemicals that seep into the
soil.
3. Related Cases
CHILE case
CHILEAIR case
GEDDES case
TRAIL case
Keyword Clusters
(1): Trade Product = COPPER
(2): Bio-geography = DRY
(3): Environmental Problem = Pollution Land [POLL]
4. Draft Author: Jay Krasnow
B. LEGAL Cluster
5. Discourse and Status: DISagreement and INProgress
While the government and legal system has forced
environmental regulations upon the copper mines, COLDECO
officials admit that copper production is damaging the
environment. One official announced that COLDECO is negotiating
with the Chilean government to implement a pollution control
plan. Since most copper mines in Chile are state owned, ideas
such as "accepting government regulations" and "negotiating with
the government" seems paradoxical. Copper will continue to be an
important part of Chile's economy, so there is little doubt that
concerns about copper production's affect on the environment will
continue.
6. Forum and Scope: Chile and Unilateral
7. Decision Breadth: 3
The inhabitants the towns near copper mines include farmers,
fishermen, vendors, small shop owners, copper mine workers, and
small groups of indigenous peoples. Though many of them are not
actively participation in the case (or even aware of it), the
pollution in the air and sky has the potential to affect all who
come in contact it. COLDECO is in the process of negotiating
environmental regulations with the Chilean government.
Implementing legal and judicial regulations in Chuquicamata alone
will cost COLDECO over $300 million in one decade. Because
regulations forced Coldeco to close down Chuquicamata for one
month in 1994, its yearly output fell 40,000 tons. These
environmental regulations are no doubt costly for COLDECO. Since
COLDECO is state owned, the government will also lose money. It
is unlikely that compliance with the regulations will affect the
workers who will breath in the fume daily. Compliance by COLDECO
may prevent contamination from spreading to Port Caldera, which
is important to farmers, fishermen, and the marine life in the
bay. If Chile joins the North American Free Trade Agreement
(NAFTA), it would be expected to honor the provisions of its
environmental side-agreement. NAFTA's environmental side-
agreement provides a forum for arbitration of environmental
disputes.
8. Legal Standing: LAW
Both the judicial and governmental intervention were
implemented at the national level. Since Chile is involved with
many multi-lateral trade pacts, environmental disputes
-- including pollution caused by copper processing -- may be
brought before dispute councils.
C. GEOGRAPHIC FILTERS
9. Geographic Locations
The geographic domain is South America and specifically the
Andean mountains/Atacama Desert respectively, but environmental
disputes directly affect nations that purchase copper.
A. Geographic Domain: South America [SAMER]
B. Geographic Site: ANDES
C. Geographic Impact: CHILE
10. Sub-National Factors: NO
11. Type of Habitat: DRY
D. TRADE Clusters
12. Type of Measure: Regulatory Standard [REGSTD]
COLDECO has agreed to spend between $250 million and $300
million over the next decade to control gas emissions at
Chuquicamata alone. In 1992, COLDECO spent US $13 million to
conduct research in many areas, including environmental
management.
13. Direct vs. Indirect Impacts: INDirect
COLDECO's copper production remains an important part of
Chile's economy. Chile will remain a leader in the export of
copper, but compliance with environmental regulations will be
costly for COLDECO. As previously mentioned, COLDECO will spend
between US $250 million to control copper factories' gas
emissions that are damaging the ozone layer and increase the risk
of global warming. In 1987, Chile became one of one-hundred and
thirty-six nations to sign the Montreal Protocol on Substances
that Deplete the Ozone Layer (see MONTREAL case). The summit's
objective was "to protect the ozone layer by taking precautionary
measures to control the emissions of substance that deplete
it." Sixteen other Latin American nations -- including Cuba -
- signed the protocol.
14. Relation of Measure to Environmental Impact: MEDium
Government regulations require that copper factories take
measures to reduce pollution emission. Figures regarding the
extent to which environmental regulations will cost COLDECO in
lost revenues are not available.
a. Directly Related to Product: NO
b. Indirectly Related to Product: YES COPPER
c. Not Related to Product: NO
d. Related to Process: YES Pollution Land
[POLL]
15. Trade Production Identification: COPPER
16. Economic Data
In 1990, copper made up half of Chile's exports and 15
percent of its GDP (see also CHILE case for discussion of the
country's wood products). Though the Chilean Copper Worker's
Union had 19,000 members in 1993, COLDECO employed on 5,000
workers. Chile produced 1.94 million tons of copper in 1992.
Data for 1992 is not available, but in 1994, copper cost at least
$2,359.50 a ton. The copper industry has contributed US $15
billion to Chilean Treasury between the years 1984 and 1994.
17. Impact of Measure on Trade Competitiveness: LOW
Coldeco is spending US $250 million to control factory
emissions over the next decade.
18. Industry Sector: MINeral
19. Exporters and Importers: CHILE and USA
E. ENVIRONMENTAL Clusters
20. Environmental Problem Type: MANY
The arsenic and carbon-monoxide which the copper factories
emit not only endanger the animals which inhabit the areas that
have been polluted, but also is damaging the atmosphere.
21. Name, Type, and Diversity of Species
Name: Many
Type: Many
Diversity: 1,269 higher plants per 10,00 km/sq (Chile)
The following animal and fish species live near the Port
Caldera or copper mines like Chuquicamata.
Animals:
Alpaca: (Lama pacos)
Guanaco: (Lama guanicoe)
Llama: (Lama glama)
Vicuna: (Vicugna vicugna)
Fish:
Albacoro: (Thunnus alalunga)
Anchoveta: (Engraulis ringens)
Bonito (Atlantic): (Sarda sarda)
Erizo (Chilaen): (Loxechinus albus)
Caballa (Atlantic): (Scomber scombras)
Cholga: (Aulacomya ater)
Cojinobas (del norte): (Seriolella spp.)
Jurel (chilean): (Trachurus murphyi)
Lenguago (Pacific): (Lepidopsetta bilineata)
Macha: (Mesodesma donacium)
Piure: (Pyura chinensis)
Pulpo: (Octopus vularis)
Sardina araucana: (Strangomera bentincki)
22. Resource Impact and Effect: HIGH and MEDium
Although Chuquicamata is the largest copper mine in the
world, production peaked in 1990. Since then copper production
at Chuquicamata has declined. Sight managers are searching for
new locations to mine copper. COLDECO spent five million dollars
in just in 1990 to drill new pits on the north and south sides of
Chuquicamata. Opening new mines will spread the pollution
problem other nearby areas (see CHILEAIR and CHILE cases).
23. Urgency and Lifetime: MEDium and 100s of years
The average life expectancy in Chile was 68.5 for a male and
75.6 for female in 1994. Because their work damages their
respiratory system, copper mine workers risk sickness and early
death. The life spans of the animals and marine life that
inhabit the area varies from species to species. There seem to
be little talk about the extinction of these species as a result
of the copper factories' pollution.
24. Substitutes: Biodegradable [BIODG]
Although it is highly likely that synthetic copper can be
produced, it would not solve the problem because copper's value
is intrinsic. Synthetic copper would be worthless to investors
and considered a cheap toy by nations like the United States.
Fiber optic cables can be used as a substitute for copper in some
instances, but the demand for copper will remain for a long time
to come.
F. OTHER Factors
25. Culture: NO
26. Trans-border Issues: NO
27. Rights: YES
One source calls copper miners "an elite group with
relatively handsome wage and benefit packages." Nevertheless,
Chilean mining jobs have been known for their long hours and low
pay. Coal miners worked 12 hour days until the late 1960's and
still get paid an average of US $8 a day. Mining conditions
are typically dirty and the workers lungs often suffer from
inhaling chemicals like arsenic and carbon-monoxide. Coal miners
still work six or seven day weeks. Since the arsenic and carbon
monoxide seeps into farmers' land tracts, they and their clients
are in danger of suffering from illnesses like arsenic poisoning.
28. Relevant Literature
Asheshov, Nicholas. South Pacific Mail Chile Inc. Sourcebook
1994, The: The User's Guide To business in Chile.
Santiago, Chile: The South Pacific Mail SRL, 1994.
Black, Jan Knippers, ed. Latin America: Its Problems and
Promise: A Multidisciplinary Introduction, 2nd edition.
Boulder, Colorado: Westview Press, 1991.
Bosworth, Barry P., Dornbusch, Rudiger, and Laban, Raul. Chilean
Economy: Policy Lessons and Challenges, The.
Washington, D.C.: The Brookings Institute, 1994.
Falcoff, Mark. Modern Chile 1970-1989: A Critical History. New
Brunswick, U.S.A.: Transaction Publishers, 1991.
Krasnow, Jay. Travel Journal, January 13, 1993-June 1, 1993:
Chile Argentina, Brazil, Uruguay, and the islands of
Chilo and Floranopolis.
Loveman, Brian. Chile: The Legacy of Hispanic Capitalism, 2nd
edition. New York: Oxford University Press, 1988.
Perrottet, Tony, ed. Insight Guides: Chile. Singapore: Hofer
Press Pte. Ltd Publications, 1991
TURIS TEL '91 norte. Chile: Compania de Telefonos de Chile, 1990.
References
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