Today we are starting our series of Q&A interviews with JJR Abogados of Chile. In particular we speak to Ricardo Rozas who leads JJR´s marine practices together with Max Morgan. Ricardo is a arguably one of the best maritime lawyers in Chile. He is past chair of the maritime and land transport committee of the International Bar Association (IBA). JJR are named P&I correspondents for a number of IG P&I Clubs and international insurers and it is fair to say that JJR are the preferred choice of the majority of the Chile based shipowners.

1) What is the current situation and reality for the people of Chile in terms of health and safety? 

As of July 16, 2020, Chile has 323,698 confirmed cases of COVID-19 within its borders. Chile remains in Phase 4 of the outbreak, i.e., uncontrolled and widespread community transmission. The Chilean government has declared a 90-day state of emergency, which took effect March 19. The declaration was renewed on June 16 for an additional 90 days. Chile has declared a preventative quarantine for parts of Santiago and nationwide curfew requirements.  Chile is under a daily nationwide curfew from 10:00 pm to 5:00 am.  The Chilean armed forces are present at ports of entry to ensure compliance with these restrictions.

Since March, the Chilean government has implemented several and different measures. Some of the main ones are as follows:

    • Labor. The so-called Employment Protection Law was enacted to grant certain benefits from the unemployment insurance in case of suspension of employment contracts for instance due to an act or declaration of authority or a suspension agreement between the employee and the employer or a temporary reduction of the working day. Additionally, a new Law for regulating Telework or Distance work was approved, setting obligations for employers in order to protect the employees working under this new modality. On the other hand, the Law on Minimum Guaranteed Income was published, so that employees who meet certain requirements can access a subsidy to supplement the salaries of employees with low incomes.
    • Taxes. Payment of several taxes has been postponed. Additionally, small and middle-sized companies as well as people with low income have been provided with flexibility for the payment of tax debts with the General Treasury of the Republic.
    • Corporate. The Law on the Criminal Liability of Legal Entities was amended to include as an additional crime the employer’s instruction to force employees to go to the place where they perform their work, when such place is different from their home or residence and the latter is under quarantine or compulsory lock-down decreed by the health authority.

In addition, the Financial Market Commission (CMF) has issued couple of regulations to regulate remote participation and voting for shareholders’ meetings, bondholder meetings and meetings of contributors of funds.

    • Criminal. The Criminal Code was amended, increasing the penalties for the crime of attacking public health.

 

2) How has Covid-19 affected the already tense political situation in Chile and how hard has the Chilean economy been hit by both? 

Political situation

 Chileans have been forced to rethink their priorities now that the country faces a pandemic. By rescheduling the much-anticipated constitutional referendum, initially scheduled for April 26, to mid-October, the government and the opposition acknowledge that Chile has bigger problems than the decision over whether they ought to write a new constitution. People’s priorities are now to avoid being infected with Covid-19 and the economic fallout from social-distancing policies. As the economy is expected to contract drastically during the second half of 2020, the referendum will be held under very different conditions than when the government and opposition first agreed to respond to social protests.

However, in the recent days we have witnessed an increase in polarisation and the ongoing discussion on the Middle Class Protection Plan recently announced by the government is a good example of it. In this respect, the Chamber of deputies [yesterday July 15, 2020] approved a draft bill that would allow to withdraw up to 10% of the pension funds compulsory administrated by the so-called Pension Fund Administrators (AFPs). The draft bill has now to be discussed at the Senate. The Government opposes to the aforementioned withdrawal as it may affect the future pensions and announced new measures to support the middle class, including direct transfer of funds for people that have suffered a decreased in their income equal to CLP 500,000 per person (approx. USD 650); solidarity and soft state loans; housing and education benefits (deferment of mortgages and property contributions and rental subsidies; postponement of credit granted for higher education) as well as stating openness to reach agreements for implementing substantive changes in pension funds system.  Further news on the outcome are expected over next week.

Chilean economy

As regard economy indicators, Chile is traditionally considered as a model in Latin America in terms of political and financial transparency. It has also been one of the fastest growing economies in Latin America over the last decade, enabling the country to significantly reduce poverty (World Bank). According to the IMF, GDP increased by 1.1% in 2019, against 3.9% in 2018. According to the World Bank, the slowdown is due to challenging external context, adverse climatic condition and delay in some government reforms. Moreover, according to Reuters, protests and riots since October have led to billions in losses to private businesses and public infrastructure. However, Chile’s economic recovery after years of low commodity prices relied on higher consumption and private investment, increasing wages, lower interest rates, private-sector confidence, higher copper prices, growing mining production, and – to a lesser extent – on increased wholesale trade and commercial services (World Bank). According to the updated IMF forecasts from 14th April 2020, due to the outbreak of the COVID-19, GDP growth is expected to fall to -4.5% in 2020 and pick up to 5.3% in 2021, subject to the post-pandemic global economic recovery.

The Government’s balance closed at -1.6% of GDP in 2019 and is projected to decrease to -1.4% in 2020 and -1.2% in 2021. According to the World Bank, the decline in copper revenues was offset by the slowdown in current spending, and the contraction of capital transfers. However, because of the slowdown in GDP, authorities have decided to increase public investment and to lower monetary policy interest rate. The Government’s gross debt was estimated at 27.5% of GDP in 2019 and is likely to rise to 29.2% in 2020 and 30% in 2021. According to IMF estimates, inflation reached 2.3% in 2019 and is expected to slightly increase to 3.4% in 2020 and 2.9% in 2021; this means that despite the COVID-19 pandemic the Chile’s Central Bank target of 3% of inflation is still met. Inflation should improve through fiscal austerity measures announced by the Treasury Department, particularly due to 1.6% of GDP in spending cuts over the next four years. The Chilean economy remains vulnerable to international copper prices, international demand (particularly from China), climate and earthquake risks, inadequate R&D, vulnerable road network and energy grid and high energy prices. In the context of the increased pressure resulting from a recent US-China trade war, the major issue to be tackled by the Chilean government in order to revive economic growth is to reinforce commercial cooperation with new trade partners in Asia. Advancing on key tax, pension and migration reforms represents another major challenge for the policymaking agenda. [Source: Nordea]

 

3) how has Covid-19 impacted and continues to impact  the shipping industry in Chile, i.e. for Chilean shipowners and for Chilean ports and terminals?

The shipping industry in Chile is playing an essential role in the short-term emergency response to the COVID-19, by facilitating transport of vital commodities and products.

Despite the current difficult times, Chilean port and terminals have remain under operation and have succeeded to stay open to cargo operations despite the sanitary measures and restrictions. The industry has shown resilience and its different members have worked hard to ensure that the country counts with supplies, food, resources and raw material which are needed during the isolation phase.

 

4) As a renown and leading P&I correspondent, do you see a pattern or trend in claims which are triggered by the Covid-19 situation?

We have seen a slight increase in containers robbery cases, particularly during the land transportation leg.

In addition, in the context of the current COVID-19 crisis, Customs issued Resolution 1179/20, which implements transitory modes for the treatment of various customs procedures and the ways of presenting documents associated therewith to facilitate foreign trade transactions. Among these transitory measures, Customs has authorised electronic exchanges and amendments to bills of lading.

Despite subsequent complementary resolutions from Customs, there are several greys areas regarding its interpretation and practical implementation, including with regard to potential delivery of cargo without surrender of the original bill of lading. Until clarifications are obtained from Customs, ocean carriers should proceed carefully and liaise with their Chilean port agents to define interim protocols. Ocean carriers should also consider requesting letters of indemnity or similar guarantees from their shippers or consignees, as the case may be.

Ricardo Rozas

Partner / Jorquiera & Rozas Abogados