Chile Wants Free Trade Commission Meeting To Review Pulp

UNCLAS SANTIAGO 000442 STATE PLEASE PASS TO USTR KATE DUCKWORTH STATE FOR WHA/EPSC, EEB/TPP/BTA/EWH, EEB/TPP/MTA/IPC TREASURY FOR BLINDQUIST COMMERCE FOR KMANN SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EINV EFIN ETRD KIPR EFTA CI SUBJECT: Chile Wants Free Trade Commission Meeting To Review Pulp Tax-Break ¶1. (SBU) SUMMARY: Chile's wood and pulp industry association (CORMA),one of the nation's leading export industries, is pressuring the GOC to address a tax credit received by U.S. pulp and paper companies for use of alternative fuels. In response, the GOC on April 29 sent a letter to USTR requesting a special session of the U.S.-Chile Free Trade Commission in order to review the tax credit. CORMA claims the tax credit is a subsidy that provides an unfair competitive advantage to U.S. companies. The GOC is discussing next steps with USTR. The American Chamber of Commerce in Chile has supported CORMA's position. END SUMMARY. Chilean Wood/Pulp Industry Demands Action -------------- ¶2. (SBU) Chile's wood and pulp industry association (CORMA) met with the Direccion General de Relaciones Economicas Internacionales (DIRECON) -- the Chilean equivalent of USTR -- during the week of April 20. The press and Embassy contacts at DIRECON report that CORMA demanded GOC action in response to what they perceive as a subsidy for U.S. pulp and paper companies. Because of recent changes to a U.S. tax program intended to promote alternative fuels, companies that use a mix of fossil and alternative fuels can receive tax credits. Reportedly, U.S. pulp and paper companies could receive up to $6 billion in credits, which CORMA alleges creates an unfair competitive advantage for those U.S. companies. ¶3. (U) Many U.S. pulp and paper companies use a mixture of "black liquor" (a pulp byproduct) with diesel, which reportedly qualifies them for a tax credit of 50 cents per gallon of fuel used. Chilean press quoted Charles Kimber, the corporate manager of a leading Chilean pulp company, who estimated that the credit could account for up to 50% of the cost to produce one ton of wood pulp. He noted "no company can compete with that kind of subsidy." DIRECON Writes Letter to USTR -------------- ¶4. (SBU) In response to the pressure from CORMA, DIRECON contacted USTR and the Embassy to formally object to the U.S. tax credit on April 24. DIRECON Director for Bilateral Economic Affairs Andres Rebolledo subsequently wrote a letter to USTR on April 29. The letter requests an extraordinary session of the U.S.-Chile Free Trade Commission to review the tax-credit. Finland and Canada have made similar complaints to the USG regarding the tax credit. ¶5. (U) USTR and DIRECON are currently working on next steps. Press reports on May 5 quoted CORMA's President Jose Rafael Campino as saying the GOC and USG would create a bilateral committee in May to review the issue. Also in the press, the American Chamber of Commerce in Chile (AmCham) has endorsed CORMA's position that U.S. companies are unfairly advantaged by the tax break. ¶6. (U) This cable has been cleared by USTR. SIMONS