PROPOSED LAW HR 3609 TO UPDATE TITLE 11 OF THE UNITED STATES BANKRUPTCY CODE quoted:
“SEC. 2. DETERMINATION OF SECURED STATUS. Section 506(b) of Title 11, the United States Code, is amended by adding at the end the following: `While a case is pending, no fee, costs, or charges may be added to a debt that is provided for in a chapter 13 plan and is secured by the debtor’s principal residence unless the holder of the secured claim gives timely ogle of such fee, costs, or charge to the debtor and to the trustee.’. SEC. 3. LIMITATION OF 1978 EXEMPTION THAT PREVENTS FEDERAL BANKRUPTCY COURTS FROM MAKING MODIFICATIONS TO THE TERMS OF A MORTGAGE ON A DEBTOR’S PRINCIPAL RESIDENCE. Section 1322(b)(2) of title 11, United States Code, is amended by striking `, other than a claim secured only by a security interest in accurate property that is the debtor’s principal residence,’. SEC. 4. MODIFICATION OF CLAIMS SECURED BY DEBTOR’S PRINCIPAL Site. (a) Contents of Plan- Section 1322(b) of title 11, the United States Code, is amended– (1) in paragraph (10) by striking `and’ at the end, (2) by redesignating paragraph (11) as paragraph (12), and (3) by inserting after paragraph (10) the following: `(11) provide for payment of allowed claims secured by the debtor’s principal residence consistent with section 1325(a)(5), over a period exceeding the period permitted under section 1322(d); and’. (b) Confirmation of Plan- Section 1325(b)(5) of title 11, the United States Code, is amended by inserting `except as otherwise provided in section 1322(b),’ after `(5)’. SEC. 5. ELIMINATION OF CREDIT COUNSELING REQUIREMENT FOR CHAPTER 13 DEBTORS FACING FORECLOSURE. Allotment 109(h) of title 11, United States Code, is amended by adding at the end the following: `(5) The requirements of paragraph (1) shall not apply with respect to a debtor in a case under chapter 13 who submits to the court a certification that the holder of a claim secured by the debtor’s principal area has initiated a judicial or non-judicial foreclosure on the debtor’s principal situation.’. SEC. 6. CONFIRMATION OF PLAN. Allotment 1325(a) of title 11, the United States Code, is amended– (1) in paragraph (8) by striking `and’ at the end, (2) in paragraph (9) by striking the period at the end and inserting `; and’, and (3) by inserting after paragraph (9) the following: `(10) notwithstanding paragraph (5)(B)(i)(I), the holder of a claim that is paid pursuant to section 1322(b)(11) shall retain the lien securing such claim until payment of such claim.’. SEC. 7. DISCHARGE. Section 1328 of title 11, the United States Code, is amended– (1) in subsection (a)– (A) by inserting `(other than payments to holders of allowed claims provided for under section 1322(b)(11)’ after `paid’ the 1st space it appears, and (B) in paragraph (1) by inserting `or 1322(b)(11)’ after `1322(b)(5)’, and (2) in subsection (c)(1) by inserting `or 1322(b)(11)’ after `1322(b)(5)’.”
HR 3609 IH, Emergency Home Ownership and Mortgage Equity Protection Act of 2007, 110th Congress, 1st Sess., September 20, 2007. Library of Congress, Thomas, http://thomas.loc.gov/cgi-bin/query/z? c110:h3609.
I. AN INDIVIDUAL’S FINANCIAL LIFELINE.
Troubled times often lead to declining values in the American dollar, right estate and loan/credit defaults and then Bankruptcy. Bankruptcy can be traced befriend as far as the Old Testament, “every seven years, debts are forgiven.” (Deuteronomy 15:1-2). The root of the word Bankruptcy comes from “bancus ruptus,” Latin for bench and broken, respectively. Freund, William; Lewis, Charlton T; et al, A Latin Dictionary, Clarendon Press, 1966. For decades, Bankruptcy has allowed consumers room to legally declare an incapacity to settle debts owed to creditors. Most belief a Bankruptcy in a poor light, however, when it comes to someone who relies on Bankruptcy, as a interim measure to restructure or get back on their feet, sometimes Bankruptcy is the sole option. Federal Law, Title 11 of the United States Code governs the Law of Bankruptcy, which is the law affected with the proposed bill H.R. 3609.
Corporations are downsizing, adding to one’s economic hardships. According to the Bureau of Labor and Statistics, today we have an 8.5% National Unemployment rate . As such, during a period of unemployment, bills are probably not getting paid and Credit Ratings are only becoming increasingly lower. Credit Ratings are composed of a statistical analysis of whether a person is creditworthy or not. Lenders spend this score to calculate interest rates, whether to lend to the individual based on the determination of whether the person will be able to pay them back. Many employers glimpse at a person’s credit rating and obligation to decide one’s eligibility for a job. Even with solid references and employment history, someone can be denied employment if their Credit Report consists of subjective adverse information. Thus, a Bankruptcy becomes a practical option since employers cannot deny a person employment because they are in Bankruptcy. (§525. Protection against discriminatory treatment, United States Bankruptcy Code prohibits employers from discriminating against insolvency.) Credit counseling is offered and mandated to help debtors manage their credit and spending.
Insurance Agencies also use the credit rating to determine insurance eligibility and price based on their assessment of uncertainty and insurance loss. House representatives continue to discuss legislation that will regulate the value of credit score insurance valuation. H.R. 5633 proposed the following and is quoted as follows:
“To amend the Fair Credit Reporting Act to prohibit certain discriminatory uses of consumer reports and consumer information in connection with certain personal lines of insurance, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. SEC. 2. Consume OF CONSUMER REPORTS AND CONSUMER INFORMATION IN A DISCRIMINATORY MANNER PROHIBITED.
(a) In General- Section 604 of the Fair Credit Reporting Act (15 U.S.C. 1681b) is amended– (1) in subsection (a), by striking `Subject to subsection (c)’ and inserting `Subject to subsections (c) and (h)’; and (2) in subsection (c)(1), by striking `A consumer reporting agency’ and inserting `Subject to subsection (h), a consumer reporting agency’. (b) Prohibition on Certain Discriminatory Uses of Consumer Reports and Consumer Information in Connection With Insurance- Section 604 of the Fair Credit Reporting Act (15 U.S.C. 1681b) is amended by adding at the end the following new subsection:
(h) Prohibition on Certain Discriminatory Uses of Consumer Reports and Consumer Information in Connection With Insurance- `(1) IN GENERAL- No consumer reporting agency may furnish a consumer report or consumer information with respect to any consumer to any person for use in making any decision to underwrite or rate any personal lines of insurance, and no person shall employ or obtain a consumer report or consumer information with respect to any consumer in connection with the underwriting or rating of any personal line of insurance, for which the Commission determines, including any finding or determination made in any study for which a report is submitted to the Congress, that any such use of the consumer describe or the consumer information– `(A) results in racial or ethnic discrimination; or `(B) represents a proxy or proxy effect for race or ethnicity. `(2) INSURANCE INFORMATION NOT INCLUDED- Information derived from the following data bases shall not be treated as a consumer narrate or consumer information for purposes of paragraph (1): `(A) Databases that contain information on property loss data regarding personal lines of insurance, such as the Comprehensive Loss Underwriting Exchange (CLUE) and Automobile-Property Loss Underwriting System (A-PLUS). `(B) Databases that contain information on driver history, such as accidents or moving violations, typically maintained at Site departments of motor vehicles. `(C) Databases that contain information on a consumer’s medical history, to the extent such access and use for purposes described in paragraph (1) is consistent with the requirements of section 604(g). `(3) EFFECT ON STATE LAWS- Notwithstanding section 625(b)(3)(C), no provision of this fragment shall be construed as limiting or superseding the application of any Station laws or regulations that restrict or prohibit the use of consumer reports or consumer information in the underwriting or rating of any personal lines of insurance. `(4) DEFINITIONS- For purposes of this subsection, the following definitions shall apply: `(A) CONSUMER INFORMATION- The term `consumer information’ means any information from the file on any consumer at a consumer reporting agency, or any product derived from any such information. `(B) PERSONAL LINE OF INSURANCE- The term `personal line of insurance’ means any personal automobile or homeowners line of insurance, as defined in the Uniform Property and Casualty Product Coding Matrix established and maintained by the National Association of Insurance Commissioners (or any successor to such document). `(C) PROXY FOR RACE OR ETHNICITY- The term `proxy for race or ethnicity’ means a substitute or stand-in for bustle or ethnicity, either by design or in effect, without regard to the extent of the effect.’”.
H.R. 5633 IH, Nondiscriminatory Use of Consumer Reports and Consumer Information Act of 2008, 110th Congress, 1st Sess., March 13, 2008.
H.R. 5633 was presented to the House Finance Committee to offer a non-discriminatory use of consumer confidence reports and providing limiting and prohibitory measures. The House members for the bill argued “credit-score ratings penalize consumers because of the business decisions of the lenders, unfairly penalizes consumers who are victims of medical and natural catastrophes, has an adverse and disparate impact on low-income families and credit reports often have incomplete and inaccurate information.” Hunter, Robert J. Consumer Federation of America, The Impact of Credit-Based Scoring on the Availability and Affordability of Insurance, Hearing Committee in Financial Services Subcommittee on Oversight and Investigations – House of Representatives, May 21, 2008. Those members opposed to the bill argue the requirement for credit scoring risk since “[l]ending institutions use credit to determine the likelihood of repayment… The most critical difference between insurers and lending institutions is that insurers never consider income… The latest survey shows that 90.2 percent of automobile insurance policyholders and 90.8 percent of homeowners insurance policyholders either received a discount or were otherwise unaffected by the use of credit.” Neeson, Charles, Westfield Group on behalf of Property Casualty Insurers Association of America, Hearing before the House Financial Services Subcommittee on Oversight and Investigations, The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance, May 21, 2008. The H.R. 5633 bill never passed. However, bills are often revisited.
A majority of our states have already enacted some statute which limits the application of credit scores when predicting risk, thus reflecting the grunt that consumers are often harmed without restrictions and cram-down provisions. In Folks v. Tuscaloosa County Credit Union, 989 So. 2d 531, 538 (Ala. Civ. App. 2007), an action for a deficiency claim was filed by debtor’s automobile lending company after his vehicle was repossessed. The state of Alabama enacted a statute limiting the utilize of debtor’s credit score to determine interest rates, in that a setoff approach is used in order to decide the deficiency. The Alaska Supreme Court decided against the request of an insurance companies use a debtor’s credit score in order to renew insurance, interpreting Alaska Statute § 21.36.460, Uses of and restrictions on credit history or insurance scoring applicable to personal insurance. See State v. Progressive Cas. Ins. Co., 165 P.3d 624 (Alaska 2007).
Under our current Administration and economic situation, views of a person’s insolvency are quickly changing. Analysts believe Bankruptcy filings will only increase should the new cram-down measures implement. Looking at the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA -amendments to the U.S. Bankruptcy Code) which impacted the diagram consumer debts are processed by adding more restrictions and measures to alleviate the Bankruptcy process, and how this new proposed law will reverse some of these restrictions, legislators are quickly recommending and voicing their opinions and perspectives. Our legislators address what a person’s eligibility is for bankruptcy and who decides which assets the debtor will sustain. Since the intent BAPCPA introduced was to make a less desirable way to file Bankruptcy (as some say it was too easy), the new proposed act today impacts individuals filing Bankruptcy by requiring now a credit counseling certificate and a segregation of individuals by median income levels. According to the American Bankruptcy Committee, there is not enough historical data to rely on legislator’s true intent, and we must then rely on case history and policy when determining meaning and intent of the statute. Hollowell at 175. Since there is conflict in interpretation among the courts, it is well established this means the analytical framework is not sufficient. Hollowell at id. The required computation called the means test (§1325(b)(3)) – or projected disposable income, determines eligibility. Anyone having an excess of $166 over household expenses is now required to file a Chapter 13, rather than a Choice of either Chapter 13 (reorganization) or Chapter 7 (total liquidation); thus raising the bar of expectation courts have on the debtor and a more complex path to confirming a debtor’s reorganization plan in order to prevent Chapter 7 abuse.
Normally a Chapter 11 Bankruptcy reserves application for a Business Entity reorganization. However, under the proposed Bankruptcy Code, debtors who do not qualify for Chapter 7 or 13, may only have a Chapter 11 option. (See Toibb v. Radloff, 501 U.S. 157 (1991)). §1115, 1123(a)(8), and 1129(a)(15) provide a requirement where a debtor must maintain a percentage of future income to creditors.) This may introduce problems for debtors where there is more flexibility – a good dilemma to have.
II. ACTIONS A DEBTOR HAS TODAY THAT MAYBE AFFECTED BY H. R. 3609.
A. Mortgages and Foreclosure
California and other state statutes recognize ways trusty property may guarantee the payment of debt or plan for some other obligation: 1) mortgage (Cal. Civ. Code §2922); and deed to secure debt; and deed of trust sometimes called the grant deed, or trust deed. Cal Civ Code §1092 provides the benefit of grant deeds to transfer ownership to property. Grant deeds are the most favorite instrument former in California. With the proposed law, now valuation will be determinative whether the property guarantees full payment of debt or not. The following explains the relationship between property and security deed.
A mortgage secures an obligation (debtor to pay) with a lien against the debtor’s real estate. Should the debtor default on her mortgage, debtor is still lawfully in possession and control of the title and the lender only has an interest in her property (Cal. Civ. Code §2923). A security deed transfers the title to the lender/mortgagee with an opportunity to direct a foreclosure or take the property. A mortgage would force lenders to proceed through judicial foreclosure, which can be time consuming and expensive. So long as there is a reasonable default, as stated in Ghirardo v. Antonioli, 14 Cal 4th 39, 57 Cal Rptr 2d 687 (Cal. 1996) “there may be only one action for the recovery of a debt secured by a trust deed, which action is one of foreclosure. Although an exception to this one action rule has developed in cases where foreclosure would be an indolent act because the security has been destroyed or has become worthless, the exception does not apply if the beneficiary is responsible for the loss of security. When the mortgagee, by his or her fill act or neglect, deprives himself or herself of the right to foreclose the mortgage, he or she no longer has a right to an action upon the imprint.” (See also Cal. Code Civ. Proc. §726.) Lenders prefer to apply the non-judicial method security deed’s require.
While a security deed (grant deed a.k.a deed of trust) is mostly preferred and used routinely in almost residential and business real estate transactions, a mortgage can be used by someone queer with California law. Fortunately, laws governing security deeds and mortgages are similar. If the mortgage contains a provision that authorizes sale, it may be foreclosed through a non-judicial exercise foreclosure sale; like the same manner as a deed of trust.
From a Debtor-Borrower’s perspective, if she goes into foreclosure, she may only have a few options. A borrower may decide to sell the property, provide a Deed in lieu of foreclosure, work out some arrangement/loan modification, file bankruptcy and finally go into foreclosure proceedings. The threat of foreclosure brings lenders to an option to negotiate a defaulted loan. July 8, 2008, California legislators passed an amendment of California Civil Code 2923.6, now requiring lenders in the Place of California to accumulate loan modifications if borrowers qualify under the unusual requirements. California Civil Code 2923.6 applies to loans made from January 1, 2003, to December 31, 2007, and secured by residential trusty estate and are owner-occupied.
B. Stay Period, ultimately delaying the Foreclosure
California Senate Bill 1137 is a result of the sub-prime loan market collapse and as an urgency measure. Until this bill, mortgage lenders were under no statutory requirement to communicate its intention to act on a non-judicial foreclosure. This law applies to loans secured by an owner occupying residential precise property and loans made between January 1, 2003 and December 31, 2007. These laws will stay in force until January 1, 2013. A new component added to the California Civil Code as follows:
“Until January 1, 2013, and as applied to residential mortgage loans made from January 1, 2003, to December 31, 2007, inclusive, that are for owner-occupied residences, this bill would, among other things, require a mortgagee, trustee, beneficiary, or authorized agent to wait 30 days after contact is made with the borrower, or 30 days after satisfying due diligence requirements to contact the borrower, as specified, before filing a seek of default. The bill would require contact with the borrower, as defined, in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. The bill would require the mortgagee, beneficiary, or authorized agent to advise the borrower that he or she has the right to demand a subsequent meeting within 14 days, and to provide the borrower the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. The bill would require the notice of default to include a specified declaration from the mortgagee, beneficiary, or authorized agent regarding its contact with the borrower or that the borrower has surrendered the property. If a notice of default had already been filed prior to the enactment of this act, the bill would instead require the mortgagee, trustee, beneficiary, or authorized agent, as part of the notice of sale, to include a specified declaration regarding contact with the borrower. The bill would authorize a borrower to designate a HUD-certified housing counseling agency, attorney, or other advisor to discuss with the mortgagee, beneficiary, or authorized agent, on the borrower’s behalf, options for the borrower to avoid foreclosure. The contact and meeting requirements of these provisions would not apply if a borrower has surrendered the property or the borrower has contracted with an organization, as specified. The bill would also require specified mailings to the resident of a property that is the subject of a notice of sale, as specified. In addition, the bill would make it a crime to stride down the notice of sale posted on a property within 72 hours of posting, thereby imposing a state-mandated local program.
Until January 1, 2013, this bill would require a correct owner to maintain vacant residential property purchased at a foreclosure sale, or acquired by that owner through foreclosure under a mortgage or deed of trust.” (Cal. Civ. Code §2923.5) (Peruse also American Housing Rescue and Foreclosure Prevention Act of 2008, H.R. 3221, 110th Cong. §§ 401-402 (2008).
The stay period will only delay the foreclosure, in my opinion, according to what I have witnessed working in my Law Firm. The whine that the debtor still does not have a job, has not been resolved. Without a job, regardless of the stay period, the debtor will quiet not be able to pay the mortgage. However, with a stay period, the debtor has time until the unique provisions are passed which then the debtor will have the option to file bankruptcy and cram-down the mortgage loan.
C. Deficiency Actions
When potentially-to-be-foreclosed property incurs a lien, at the judgment of foreclosure sells with a deficiency of proceeds to shroud the lien, a lender may file a deficiency judgment against a debtor or anyone else liable within the foreclosure of the mortgage (Cal. Code §3151).
“California’s anti-deficiency laws do not preclude a creditor from pursuing all security given to collateralize an indebtedness. Thus, a guarantor of a security deed is not protected against a deficiency judgment.” Hodges v. Mark, 49 Cal. App. 4th 651, 656 (Cal. App. 2d Dist. 1996). Cal Code Civ Proc § 580b lists prohibitory conditions applying deficient judgments .
In order to place a deficiency action after a foreclosure sale, the lender must, within 30 days of the sale, report the transaction to the court and file with the clerk an application for an order confirming the sale. (Cal. Civ. Proc. §580(b)) The mortgagee must prove the land sold for its true market value. In order to carry this burden of proof, the lender should have the property appraised shortly before sale by at least one MAI certified real estate appraiser and be willing to bid on the property in an amount comparable to the appraised value. The foreclosure bid will repay the indebtedness to that extent; therefore; it is imperative the lender bid the appraised value of the property in a deficit location with a correct legal description. (Clayton Development Company v. Michael P. Falvey, 206 Cal. App. 3d 438)
Unless the debtor appears financially sound, it is probably not helpful waste efforts obtaining an appraisal, pursing confirmation and filing a deficiency action. However, some lenders may be under instructions from governmental agencies (Fannie Mae, Freddie Mac, etc.) or mortgage insurers to cure the deficiency rights in all cases.
“California’s anti-deficiency laws do not preclude a creditor from pursuing all security given to collateralize an indebtedness. Thus, a guarantor of a promissory note secured by a deed of trust is not protected against a deficiency judgment.” Hodges v. Mark, 49 Cal. App. 4th 651, 656 (Cal. App. 2d Dist. 1996).
In order to file a deficiency action after a foreclosure sale, the lender must, within 30 days of the sale, report the sale to the court and file with the clerk an application for an order confirming the sale. (Cal. Civ. Proc. §580(b)) The mortgagee must reveal the property sold for its true market value. In order to carry this burden of proof, the lender should have the property appraised shortly before sale by at least one MAI certified exact estate appraiser and be prepared to bid on the property in an amount equal to the appraised value. The foreclosure bid will satisfy the indebtedness to that extent; therefore; it is imperative the lender bid the appraised value of the property in a deficiency situation. (206 Cal App 3d 438)
Unless the debtor appears financially sound, it is probably not worthwhile to use the time and money involved in obtaining an appraisal, pursing confirmation and filing a deficiency action. However, some lenders may be under instructions from governmental agencies (Fannie Mae, Freddie Mac, etc.) or mortgage insurers to preserve the deficiency rights in all cases.
A probable effect of the H.R. 3609 is the fresh proposed law will cram-down any deficiency above actual (appraised) value of the property.
D. Priorities
Home loans are always given a priority over other types of loans since they have high collateral value (a secured claim based on the value of the home). This means the priority of a lien applied in a home loan will generally be first. Lien priorities are charged on a property for payment of a debt on the property. Federal and state laws determine the priority of liens, i.e. federal tax liens will typically be given top priority (paid first); see Slodov v. United States, 436 U.S. 238, 257-58, 56 L. Ed. 2d 251, 98 S. Ct. 1778 (1978). “[S]tate law dictates the existence of property interests, but the priority of those interests with respect to other portions of the tax law is an issue of federal law.” Bednarowski & Michaels Dev., L.L.C. v. Wallace, 293 F. Supp. 2d 728, 732 ( E.D. Mich. 2003). “A preexisting lien, i.e., a tax lien, encumbers whatever property the lienee thereafter acquires.” Wallace, 293 F. Supp. 2d at 733.
Lien Priorities are dealt with repeatedly in Foreclosure actions. Today, real estate property may absorb multiple types of liens filed against it including a Trust Deed, a Federal Tax Lien, a Construction or Mechanics Lien. Some properties may also include a First and Second Mortgage Trust Deed, Homeowner Association (HOA) lien, or Delinquent Property taxes. Generally, lien priority attaches when the lien is recorded and expressly prioritized with the County Recorder. As such any transactions occurring during a loan re-work or foreclosure sale, it is necessary to search for any liens attached to the property.
In the United States we fight to hold our just to own property over any other right. Prioritizing home loans over all others clearly supports this policy. The cram-down goal is to give the home owner incentive to pay as much to their home loan as possible by reducing their lower priority – unsecured debt in order to free up extra cash to pay down the mortgage/home loan.
E. Loan Modifications
The decline of the American economy has led to an increase of loan modifications in order to put lender’s assets back into a working-asset rather than a loss and write-off. When a loan is modified, usually a) the loan maturity date shortens (the loan is due at an earlier date), b) the interest rate increases, or c) the entire amount of debt owed is increased. This is considered a material modification that would adversely affect the debtor and any subordinate lien holder on myth.
“Despite the waiver as to application of loan proceeds, the court held that public policy requires protection of subordinating sellers and that a lender and a borrower may not bilaterally make a material modification in the loan to which the seller has subordinated, without the knowledge and consent of the seller to that modification, if the modification materially affects the seller’s rights.” Gluskin v. Atl. Sav. & Loan Assn., 108 Cal. Rptr. 318, (Ct. App. 1973). In Gluskin, Jack Gluskin owned 172 lots of land which he sold to the corporation Pathfinder under a promissory impress secured by the Trust Deeds for the land plus fifty percent of profits on the sale of these new developments. Pathfinder then borrowed money from Atlantic Savings and Loan in order to manufacture a housing development on the land. And thus when Pathfinder defaulted, the issue ascended on whether a loan modification made without Gluskin’s consent, created a priority Atlantic has over Gluskin since in the Gluskin Trust Deed contained a subordination provision expressly stating Gluskin subordinated under Atlantic’s Trust Deeds and that loans were given in reliance on the subordination. Here the Appellate Court reversed the lower court’s ruling for Atlanta since there was no finding of the fact that Gluskin had consented to this modification.
Shane v. Winter Hill Fed. Sav. & Loan Assn. raised the question about a loan modification where interest raised on a first mortgage applies to the second mortgage. In this Massachusetts court, trustee Richard Ross provided a $450,000 mortgage and deed for the Winter Hill Federal Savings and Loan Association for a property on Turnpike Street, Canton, Mass. Two years later, Ross executed a second mortgage for $100,000 on the aforementioned property, to a Realty company. The realty company had agreed to take on an option to cure a default by Winter Hill, by increasing the first mortgage’s interest rate. When Winter Hill defaulted again, they also notified the realty company of its intent to foreclose. The realty company also purchased the property subject to the first mortgage, and then filed claims against Winter Hill for the raise in interest. The realty’s interest was only that they had a claim in the security of the property, and had requested ogle of any default and then have the option to rectify it and not be bound by any interest rate agreements she was a junior interest thereto. The court held that the interest rate increase agreed between the Ross and Winter Hill without notice to the Realty company, did prejudice the Realty company and they will not remain bound to that agreement as they were the second mortgagees.
Courts seem to stay more lenient applying loan modifications that have minimum impact on the debtor and may in some cases be of benefit to junior liens. Where loan modifications a) extend the maturity date, b) defer interest, c) reduce the interest rate or d) gash the loan amount, the extensions seemingly put a lender’s property back to a working and active status. Also, these types of modifications should not adjust the lender’s priority.
In Resolution Trust Corporation v. BVS Development, Inc., land developers sold land in exchange for deeds of trust for construction financing with subordinate interests, from Concord-Liberty Savings and Loan Assn. who partnered with Resolution Trust Corporation. When the development project soured, and the land developer’s defaulted on a $2.6 million loan, the lenders filed a foreclosure action. Defendant land developers argued that when their maturity date was extended, the subordinate clause was not appropriate and also cite the rule from Gluskin that the extension loan modification had not been consented had thus adversely affected their lien position. Here however, the amendment did not expand the chance of default, like it did in Gluskin. The land developers in fact, had more time to pay at the equivalent rate, unlike Gluskin where time was reduced and interest was increased.
“[T]he extension was made at a time when the borrower was in difficulty; it could be reasonably argued the extension gave the borrower a chance to turn itself around and pay off its debts. By itself, the extension cannot be said to be a material modification requiring an adjustment of priorities as a matter of law.” Lennar Northeast Partners v. Buice, 49 Cal. App. 4th 1576, 1584 (Cal. App. 3d Dist. 1996). Here the interest rate changed from a variable to a status rate. The maturity date was extended as well as the primary amount in order to support the Trust company-debtor regain control of payments. The lower court ruled Trust company no longer had a priority claim since they modified the terms of the agreement. This Appellate court reversed ruling no material modification or prejudice to the subordinate lien holders.
The unusual 1322 (b) statement striken “other than a claim secured only by a security interest in loyal property that is the debtor’s principal residence[,]” modifications will be allowed to a debtor’s distinguished residence. We are looking at cramming down the value of the property to what its actual value is today in order to free up extra cash applied to other unsecured and lower priority loans. This should not be considered a material modification since it is a best-effort to pay those we owe in the fairest way possible.
F. Title Insurance
Since valuation is at stake here and title insurance covers the actual value of the property, two major organizations should be discussed regarding insurance related to real estate; The American Land Title Association (ATLA) and the California Land Title Association (CLTA). ATLA and CLTA provide title insurance endorsing that the property at issue is free and easy to transfer and provides distinct assurances. When mortgage loans are modified, ATLA will not guarantee any subsequent agreements than the first policy contracted on the land. There are other coverage options that will require extra protection and endorse modifications set forth in ATLA Form 11 and CLTA Form 110.5. However, as mentioned in Gluskin, Shane and RTC, courts do not favor material modifications that prejudice junior lien holders; so long as Produce 11 and Perform 110.5 do not contain a material modification, the title insurance coverage value should be ascertainable.
To be exhaustively diligent, the title to the property should be examined early in a foreclosure proceeding. A tubby title examination would, of course, be the most useful in that it would reveal any defects in the mortgagor’s title existing when the security deed was executed. However, where an attorney is provided with a mortgage title insurance plan (obtained when the security deed was executed) it is customary to conduct a restricted title examination coming forward from the date of the security deed (2008 Cal ALS 80, Cal. Code Civ. Proc.§880.020(a)(4)). The title insurance policy should be provided to an attorney at the outset (Cal Ins Code §1063.1).
The tiny title examination should include a search of the following public records; 1) deed records, 2) federal tax lien docket, 3) lis pendens docket, 4) bankruptcy records and 5) possibly probate records. It is also recommended to check the bankruptcy records shortly before a foreclosure sale. These factors are simply a guideline and to be sure all bases are covered, and to be sure your property does not contain any hindering constructs that Title Insurance may not mask.
I will highlight important factors to know:
1. Deed Records.
The deed records kept by the Clerk of the Superior court in the count which the land lies should be examined to ascertain the names of all persons who have held right to the property since the execution of the security deed. A chain of title is needed in order to preserve evidence of ownership.
Only litigation which goes to the validity of the security deed or the right to foreclose should stop the foreclosure sale. Any other litigation regarding the property concerns rights of parties which are subject to the security deed and thus subject to foreclosure (Cal. Code Civ. Proc.§ 880.260 (a)(1)).
If the lis pendens docket reveals the property in foreclosure is in the custody of a receiver, the foreclosure should immediately cease. Such property is in the custody of the court appointing the receiver, and its assets may not be interfered with unless the mortgagee intervenes in the proceeding and obtains authorization to foreclose. Where the due date is ascertainable from the record, the 10-year limitations period of Civ. Code §82.020(a)(1), applies. Any recorded document that contains the due date of the note secured by the trust deed in expect will suffice. Slintak v. Buckeye Retirement Co., L.L.C., Ltd., 139 Cal. App. 4th 575 (Cal. App. 2d Dist. 2006).
2. Bankruptcy Records.
The filing of a bankruptcy petition automatically enjoins a foreclosure against property of the debtor and of the insolvency estate (11 U.S.C.A §362(a) – automatic stay). All foreclosure activities should be dropped upon proper notification the present owner has filed bankruptcy. Failure to end the foreclosure could result in the lender’s (and perhaps the attorney) being held in contempt of court. Furthermore, a foreclosure sale conducted in defiance of the stay is void. Before proceeding with foreclosure, the lender must either carry out a court order lifting the stay or wait until the cease otherwise terminates under 11 U.S.C.A §362. Debtors or their attorneys generally inform the foreclosing lender of a bankruptcy filing, but not always. Therefore, it is recommended to check the Bankruptcy Court records to ensure the present owner has not filed. Since bankruptcy filings are often recall location at the eleventh hour, the bankruptcy records should be checked shortly before the foreclosure sale date.
3. Federal Tax Liens.
A tax lien against anyone in the chain of title recorded must be dealt with in a specific manner. The trust deed will maintain its priority over subsequently filed federal tax lien. 26 U.S.C.A §7425 (b). Without IRS notice or consent, the federal lien will remain on the property superior to the purchaser’s title obtained at sale. The purchaser may apply for a Certificate of Discharge From Federal Tax Lien, however. 26 U.S.C.A §6325 (b).
4. Probate Records Need Not Be Examined.
A right of sale in the security deed is a power coupled with an interest and is therefore irrevocable so that the power may be exercised regardless of the death of the mortgagor. In California, a trust state, when a trustor has died, the successors in interest are entitled to receive notice of default under certain circumstances. Essentially, proof of interest must be filed in the county where the land is located. It must provide constructive behold to the trustee prior to the recording of the notice of default. Further, it must supply an address to which notices may be mailed. The trustee should try to track down successor’s but does not include the duty to. See Estate of Yates, 25 Cal. App. 4th, 511 (1994).
In light of the title, with a due diligent search, the proposed cram-down should not have any affect on the insured amount of your property so long as modifications made have not been distinct material.
III. AN UNREGULATED INDUSTRY LEADS TO FRAUD
The Real Estate Settlement Procedures Act (RESPA) section 6, 12 U.S.C. 2605, provides consumer protection with the mortgage-industry loans. The debtor may send a Qualified Written Request to the lender who in return must provide a written acknowledgment. During a suspension period, the lender cannot record to any consumer credit agencies (i.e. Equifax, etc). A debtor may also file a private lawsuit for a RESPA violation and noncompliance. The problem is that these written requests are often ignored and usually a strategy to gather a stay order.
In my opinion, Consumer Protection is thinly spread between too many agencies. The Consumer Protection Agency, the Federal Trade Commission and the Securities and Exchange Commission all stake claims on protecting consumers. Loan servicers are usually a secondary party working for a profit. When a loan goes into foreclosure, more fees are tacked on. Because of little to no regulation in the mortgage industry abusive behavior tends to generate and fuel the already-stressed housing crisis.
Frustrated Homeowners deal with tacked on fee after fee, some services which have not even been performed (i.e. pre-paid charges for future overdue fees and inspection costs). Law Firms, such as mine, see these fees have a immediate impact on the increase of foreclosures since those fees only add to their monthly payments which preserve increasing, the homeowner can no longer pay their monthly rate and thus default.
With further regulation which will be added with the new proposed bill, I believe new administration will be able to identify, manage and address complaints with ease. I also believe ignored complaints will lessen since these complaints will now be moot if the court will now be addressing the root of the problem – valuation of the total debt.
IV. CRAM-DOWN EFFECTS.
This proposed bill may encourage more Chapter 13 bankruptcy filings. The Helping Families Save their Homes Act and HOPE for Homeowners is a rescue plan. President Obama is initiating so borrowers will have an opportunity to re-work their loan payments and pay all their debts without losing a home in foreclosure. The bill offers that legislation reimburse lenders part of their loss should a debtor is in a Chapter 13 and sells the property. Director Peter R. Orszag, of the Congressional Budget Office, analyzed forthcoming legislation and believes “the bill as a whole… would increase the budget deficit over the next decade, incur larger losses… higher coverage levels and insured deposits… gradually offset with higher future premiums.” Orszag, Peter R., Congressional Budget Office, Letter to Chairman Christopher J. Dodd- Chairman on Committee on Banking, Housing and Urban Affairs- United States Senate, October 1, 2008. The plan, designed to secure and manage failing and timid assets will require additional administrative costs. The resale values will be hard to ascertain. Orszag believes proceeds gained in sales and future valuation increases will be less than the entire acquisition cost this government will continue making.
While Chairman Orszag proves a reasonable point, the solutions used today cannot be applied in today’s world economy. It is clearly failing. Without some change that will jumpstart our economy, we will continue on the spiral downward turn. A different strategy will produce a novel mechanism (i.e. The Energy Improvement and Extension Act of 2008 is another plan to move our economy). The key here is to conserve where we never have before in order to unlock unique avenues of financing and spending.
As you see, the tide of foreclosure is bringing heavy, quick-moving change. Presently, Bankruptcy Judges do not have the accurate or authority to unilaterally create mortgage loan modifications. Also, now loan modifications are usually worked by private consumer companies and law firms, mine included. Cram-down supporters say a cram-down is the ideal tool that encourages lenders to provide loan modifications for their borrowers. The cram-down bill allows federal judges to modify note terms, decrease interest rates and mortgage loan balances of bankrupt homeowners. It also will permanently extend the Federal Deposit Insurance Corp.’s insured coverage to $250,000. Nay-sayers believe cram-downs will manufacture higher interest rates (higher costs to procure a loan) and an even-tighter credit market.
Those opposed against the proposed bill say these additions are unnecessary provisions. One provision allows bankruptcy judges the authority to change the mortgage loan terms, like the loan balance, in a Chapter 13 bankruptcy proceeding. When we allow judges to deliver these changes, a question arises as to how the collateral value of the property at issue is calculated. Many fear an economic impact. Most of the lending community (including the American Bankers Association and other Republicans) stands against the proposal declaring mortgage rates will increase, forcing lenders to require larger payments up front in order to account for the newly added risk.
I will discuss.
Bifurcation
Bifurcation means a forking; a division into two branches. Section 506 of the title 11 United States Code (a.k.a. cram-down provision) authorizes bankruptcy claims to be bifurcated or split into secured and unsecured claims. §506 (a) maybe applied to Chapters 7, 11 and 13 claims. Courts are split, however, as whether to allow bifurcation or not. See In re Mordred J. Richards et al. v. Federal Home Loan Mortgage Corp., 151 B.R. 8, *; 1993 Bankr. LEXIS 284, **; Bankr. L. Acquire. (CCH) P75, 145; 28 Collier Bankr. Cas. 2d (MB) 626. 11 U.S.C 506 provides the following:
“(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such line is void, unless -
(1)such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or
(2)such claim in not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.”
Applied to section 1325 (a)(5) as follows:
“(a) Except as provided in subsection (b), the court shall confirm a plan if — …
(5) with respect to each allowed secured claim provided for by the plan — …
(B)(ii) the value, as of the effective date of the thought, of property to be distributed under the understanding on account of such claim is not less than the allowed amount of such claim…”
Judge Feeny in Richards cites and summarizes various district court decisions in conflict with the interpretation -thus clearly ambiguous– the “denial of bifurcation would be a windfall to mortgagees whose worthless unsecured mortgages would continue to encumber debtors homes to the extent of the debt after Chapter 13. This result would counter to the reorganization provision of Chapter 13 premised upon the retention of assets and the fresh start policy of the Bankruptcy Code.” With the new provision the conflict of whether to bifurcate claims or not will likely be resolved since the courts will now be able to revise the actual secured claim amount.
Valuation of the property is “fixed at the time of plan confirmation,” Richards at 30. The result then under HR 3609, would be current asset value of homes will be significantly lower than what was originally mortgaged. The cram-down value will then be lower and the debtor pays less. Then, of course various arguments arise as to whether the loan is really secured or not since the actual value is distinguished lower. I will not address these arguments here. My goal is to simply answer the question at train which I do not occupy security is at issue – only valuation and added costs.
Filing Bankruptcy
“Under chapter 13 of the Bankruptcy Code, unless the debtor surrenders the property securing the lien to the holder of an allowed secured claim provided for by the conception or such holder accepts the concept, a chapter 13 view that provides for a secured claim may not be assured of confirmation without a cram down provision comporting with section 1325(a)(5)(B). Chapter 13 cram down is comprised of two vital elements, lien retention and equivalent value, distributed in accordance with certain rules each of which must be provided for under the chapter 13 plan itself.” Collier on Chapter 13 Cramdown, 2008 Emerging Issues 1253. In today’s market, with declining housing markets, unemployment rates rising steadily our legislators are taking action in order to stabilize what we already know is a declining economy. Most understand the definition of cram-down as “a court-ordered reduction of the secured balance due on a home mortgage loan, granted to a homeowner who has filed for personal bankruptcy.” Finance and Business Terminologies, http://www.answers.com/topic/cram-down.
A judge will then identify the actual value of the home as the secured value, and the deficient balance as unsecured, then prioritized as such. Example: A bankruptcy judge considers a $400,000 property value that contains a $350,000 first mortgage and $50,000 unsecured debt. He can then allow $350,000 to the first mortgage holders, and cram-down the $50,000 unsecured debt to $10,000. With proposed law HR 3609 a judge may alter the secured and unsecured debt as he sees it and to justify what the debtor actually owes maybe too much. If a debtor is making payments on a $200,000 mortgage on a home valued at $120,000, that debtor is paying over-the-top an unjust amount and thus not in compliance with §1325 (a)(5)(B)(ii).
Basic Contract rules provides when asset valuation declines rapidly due to unforeseen market changes, parties to that contract may be excused from performance due to commercial impracticability or courts tend to support contract modifications. “When the occurrence of an unforeseen event would cause a promisor to bear and unexpectedly large loss in performing her contractual obligation, the parties might renegotiate and modify the promisor’s contract… The common law doctrines of impossibility and commercial impracticability release the promisor from her obligation on the grounds of an unforeseeable supervening event that increases the cost of either literal performance or damages liability to a level beyond the anticipated values at the time of contracting.” Triantis, George G., Unforeseen Contingencies. Risk Allocation in Contracts, University of Virginia Law School (1999). It is clear with today’s market changes, the debtor’s value has significantly decreases and must be allowed and addressed with modification.
Section 5, H.R. 3609 Elimination of credit counseling requirement for chapter 12 debtors facing foreclosure, offers to strike from section 109 (h) of Title 11 “shall not apply with respect to a debtor in a case under chapter 13 who submits to the court a certification that the holder of a claim secured by the debtor’s significant residence.” This somewhat loosens the restrictions for what may or may not be of benefit to the debtor. Under credit counseling advisement, a person must understand the root of the financial problem. Sometimes it may only be a hardship where no matter how distinguished credit counseling one gets, you would still have to file bankruptcy (i.e. medical costs for an unexpected accident or sickness).
V. Conclusion
H.R. 3609′s biggest impact here will be actual property valuation. Declines in property values are at the forefront. Homes that mortgaged at $200,000 may only be worth $120,000 today. While the new administration maybe and probably will be required to manage activity proposed here, I am not convinced this will negatively impact the current Mortgage business today. Will it stop excessive fees? Probably. Does that impact mortgagees? Yes. However, the leverage of these new rules will only help manage fraudulent activity. Will title insurance coverage be affected? Yes, but only in the sense of what property will be automatically valued by the court. Credit Counseling will no longer be another hurdle to jump. Since managing a credit report should be a job in itself, and identity fraud is at it highest, we cannot solely rely on credit report updates. That said, I enjoy opponents of the bill provide reasonable arguments; but do not address any other avenues resolving the conflict. If we march forward under the same rules and regulations, we will continue to spiral downward. I believe the change will a better influence and will allow debtor/homeowners the relief they need to save their most prized-possession-their home.
Raze Notes:
“Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Persons who were not working and were waiting to be recalled to a job from which they had been temporarily laid off are also included as unemployed. The unemployment rate represents the number unemployed as a percent of the labor force.” (Bureau of Labor and Statistics, as of May 4th, 2009)
2 “No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt” (Title 11 sec. 525 (b) U.S. Bankruptcy Code)
3 See Hollowell, Eileen W., Levitt, Kathleen, et al; First This Way, Then That Way -Conflicting Interpretations of BACPA, American Bankruptcy Institute, Consumer Bankruptcy Committee, Volume 4, Number 2 (2007); http://www.abiworld.org/committees/newsletters/legis/vol4num2/1.pdf. A bankruptcy judge and Chapter 13 Trustee and others came together to discuss the importance of using plain language statutes provide and when ambiguous, a statute should be revisisted.
See In re Hardacre, 338 B.R. 718. The court here sorts out the meaning of projected disposable income and actual disposable income and the means test applied.
4 Deed in lieu of foreclosure. This is usually feasible only if the property is free from junior liens and encumbrances. There is, however, a risk of the conveyance being subsequently set aside by a bankruptcy court as a preferential transfer if the property was worth substantially more than the indebtedness. If this method is used, the mortgagor should be required to sign an estoppel and solvency affidavit in addition to the deed. The mortgagee may also want to consider including non-merger language in the deed and not releasing its security deed for some time after the transfer to insure that it as least retains its secured plot in the event a bankruptcy court should set aside the conveyance. GBJ, Inc., II v. First Ave. Inv. Corp., 520 N.W.2d 508 (Minn. Ct. App. 1994).
5 The filing of a bankruptcy petition automatically enjoins a foreclosure against property of the debtor and of the bankruptcy estate (11 U.S.C.A §362(a) – automatic stay). All foreclosure activities should be dropped upon proper notification the current owner has filed bankruptcy. Failure to stop the foreclosure could result in the lender’s (and possibly the attorney) being held in contempt of court. Furthermore, a foreclosure sale conducted in violation of the stay is void. Before proceeding with foreclosure the lender must either obtain a court order lifting the halt or wait until the stay otherwise terminates under 11 U.S.C.A §362.
6 California Civil Code 2823.6(a) states that “a servicer acts in the best interest of all parties if it agrees to or implements a loan modification where the (1) loan is in payment default, and (2) anticipated recovery under the loan modification or workout view exceeds the anticipated recovery through foreclosure on a net present value basis.” California Civil Code 2823.6(b) now provides “that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority.”
7 397 Mass. 479; 492 N.E.2d 92; 1986 Mass. LEXIS 1291
8 42 F.3d 1206, *; 1994 U.S. App. LEXIS 34123, **; 94 Cal. Daily Op. Service 9295; 94 Daily Journal DAR 17208
9 “For purposes of this subsection, a gracious written request shall be a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that–(i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and(ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.” (12 U.S.C 2605 (e)(1)(B)).
10 Better Business Bureau, report # unknown, author unknown, submitted March, 2009.
11 Bifurcation. Webster’s Dictionary, Merriam-Webster 11th Edition (2007).
Filed under Automobile Insurance Company Ratings by on Mar 14th, 2011. Comment. 
Executive Summary
Since the later part of the 1990s, Chile has gone to liberalize and reform its already open investment and trade regimes. It is coping with the demands of having free trade agreements with countries from different parts of the globe. Along this line, this paper details Chile’s macroeconomy with special focus on international trade. The first part of the paper presents an overview of the Chile economy, which has experienced significant economic growth in the past few years. The second piece briefly tackles the export-import activities in the country. The third part discusses Chile’s major trading partners – the United States, Canada, Mexico, New Zealand, and South Korea.
The fourth part delves into Chile’s trade policies, their objectives, the major trade laws and regulations in the country, Chile’s participation in the World Trade Organization, tariffs as a principal trade instrument, bilateral initiatives, and cross-regional trade agreements. The final share of the paper tackles some foreign trade barriers. Overall, this paper finds that, despite the experience of Chile as one of the more competitive trading countries in Latin America, it needs further improvement regarding import policies, export controls, government procurement, intellectual property rights, and labeling, testing, standards, and certification.
Chile Economy: An Overview
With its high level of foreign trade Chile’s economy is characterized as market-oriented. Chile’s economic reform strengthened even more when the democratic government took over from the military in 1990. The country experienced high economic growth in the early 1990′s but due to the tightening of monetary policies (implemented to keep current account deficits in control and lower export earnings) it went to half that in 1998. This was also caused by the financial crisis’s that were occurring globally. In 1999, their economic growth slowed yet again due to a severe drought that lowered crop yields and hydroelectric energy. With exporting markets growing and the price of copper going up Chile started to recover in the year 2000.
Chile, with its lifted trade restrictions and reduced tariffs, has become known for its free market economic policies. It currently has the highest rating available by the International Monetary Fund for the absence of the trade restrictions. In order to diversify is economy the country has realized the need to expand its international trade and financial ties with other major trading nations. Foreign companies are allowed to own 100% of the company located in Chile.
The central bank has stopped the dollarization of the peso to the U.S. dollar as of 1999. Although the peso has declined about 20% since this action was implemented the foreign reserves remain strong. This economic strength supports the steady inflow of unrestricted foreign capital. Even though the economy on a global scale has been declining, Chile has grown. The central bank of Chile has managed to keep inflation between two and four percent.
With the economic growth, the country is experiencing, Chileans are now enjoying new financial opportunities. These opportunities include home equity loans, currency futures and options, factoring, leasing, and debit cards. Along with these new products, loans and credit cards are becoming increasingly more popular. With assets worth about $54 billion, Chile’s private pension plan is an considerable source of investment capital for the capital market. Chile currently has one of the best credit ratings in Latin America.
Real GDP growth between the years 1991-1997 was estimated at about 8%, but plunged to 4% in 1998 as a result of tight monetary policies executed to keep the current account deficit in check (CIA World Factbook). This was also because of lower export earnings, a result of the international financial crisis. In spite of the impacts of the 1999 recession due to the global economic slowdown which was worsened by a drought affecting crop yields and resulting in hydroelectric shortfalls and rationing, Chile sustained its status for sound policy and strong financial institutions that have accorded it the strongest sovereign bond rating in Latin America. Towards the slay of 1999, Chile’s economic activity and exports was on the road to recovery. In the period 2000-2007, economic growth ranged between 2%-6% (CIA World Factbook). Figure 1 below shows Chile’s GDP per capita from 1945 to 2003.
All through these years, the country sustained a low rate of inflation; GDP growth came from growing domestic consumption, solid export earnings (especially mining, fishing, and forestry), and high copper prices. In 2006, President Michelle Bachelet led the establishment of an Economic and Social Stabilization Fund aimed at holding excess copper revenues in order to bear social spending during periods of copper shortfalls. It was expected that this fund would exceed $20 billion by the closing of 2007 (CIA World Factbook).
Unemployment went beyond the country’s usual 4%-6% range during the recession and has since remained in the 8%-10% range. Unemployment dropped to 7.8% and 6.7% at the end of 2006 and 2007, respectively (CIA World Factbook). However, despite fresh labor problems, wages have risen faster than inflation in the past few years due to higher productivity, which boosts national living standards. Figure 2 illustrates inflation/ unemployment in Chile (1999-2005 annual rates).
The foremost unbiased of the Central Bank of Chile is to maintain a moderate inflation level. December-to-December inflation in 1996 remained at 8.2%, dropping to 6.1% and 4.7% in 1997 and 1998, respectively. In 1999, during the recession, the inflation rate dropped to only 2.3%. Most spending decisions and wage settlements are indexed, lessening inflation volatility. In 2000, the inflation rate was 4.75% (CIA World Factbook).
Total private and public investment in the country has remained high in spite of recent economic difficulties. The Chilean government sees the need for private investment to improve worker productivity. The country also strongly encourages diversification, including non-traditional exports such as fish, wine, and fruit to lessen the relative importance of basic faded exports like timber, copper, and other natural resources.
Chile attracts foreign direct investment (FDI), and most foreign investment goes into mining, electricity, water, and gas. The country’s welcoming and friendly attitude toward FDI is codified in its Foreign Investment Law, which provides foreign investors the same treatment as Chileans. Basically, registration is transparent and simple, and foreign investors are given access to the official foreign exchange market to send befriend their capital and profits. In May 1999, Chile’s Central Bank decided on the elimination of the one-year residency requirement on foreign capital that enters Chile under the regulations of the Central Bank, generally for portfolio investments.
Total FDI flows in 2000 contracted to 3.6 billion dollars, down from 9.2 billion dollars in 1999 and 4.6 billion dollars in 1998. The 2000 figure is about 13% of GDP. In the same year, Chile had an outflow of 1.4 billion dollars. This was largely due to diminished inward foreign investment and heightened levels of Chilean direct investment abroad (4.8 billion dollars) (CIA World Factbook).
Among the various sectors of the economy the percentage fraction of the services sector in the total GDP is the highest. It was 56.6 as in the year 2004. Chile’s important industries are textiles, cement, transport equipment, wood products, foodstuffs, iron and steel, fish processing, copper, and other minerals. The percentage piece of the industrial sector in the year 2004 was 34.5 compared to 40.5 in 1984. The services sector in the country is improving in the fresh years. The percentage share of the services sector in the total GDP as of 2004 is 56.6. The following diagram shows the percentage share of the various sectors of the economy in total GDP over the years (Economy Inspect).
Source: Economy Watch
Import-Export
The major agricultural products of the country are wheat, corn, grapes, sugar, potatoes, fruit, beans, beef, poultry, wool, fish and timber. The percentage share of the agriculture in the total GDP as of the year 2004 has reached at 8.9 as in 2004. The country has experienced both the trade surplus as well as the balance of payment surplus over the years. Figure 4 in the next page gives a clear report upon the levels of imports and exports in the country.
In 2007, it was estimated that exports reached 66.43 billion dollars. The major export partners of Chile are the United States (15.6%), Japan (10.5%), China (8.6%), Netherlands (6.7%), South Korea (5.9%), Italy (4.9%), Brazil (4.8%) and France (4.2%). Major export goods are wine, chemicals, paper and pulp, fruits, fish, and copper. The Chilean government encourages the export of non-traditional export products to guarantee diversification and limit dependency on export products. Traditional items include natural resources such as timber and copper and non-traditional export goods include fish, wine, and fruit. Non-traditional export items have far exceeded the mature ones in terms of growth (CIA World Factbook).
In the same year, Chile imported about 41.8 billion dollars worth of goods. The country’s major import partners are the United States (15.6%), Argentina (12.6%), Brazil (11.8%), and (China 9.7%). The following are the primary imported products: natural gas, vehicles, industrial machinery, electrical and telecommunications equipment, chemicals, and petroleum and petroleum products (CIA World Factbook).
Trading Partners
The country’s export markets are fairly balanced North America, Latin America, Asia, and Europe.
Since 1991, Chile has entered FTAs with a number of countries such as the United States, South Korea, Mexico, Canada, Central American nations (Nicaragua, Guatemala, Honduras, El Salvador, and Costa Rica), the European Union and the European Fair Trade Association (EFTA). This shows that Chile has trade access to more or less half of the world’s GDP. In addition, Chile is currently holding free trade negotiations with Singapore and New Zealand and plans to negotiate with such economies as Japan, China, and India. Moreover, Chile is also a member of many international economical instances, such as Asia-Pacific Economic Cooperation (APEC), Organizzazione mondiale per il commercio (OMC), and Mercado Comun del Sur (Mercosur). Such diversity of trade relations makes the Chilean economy non-exclusively dependent of any major partner, providing stability.
United States
The meeting of minds between the United States and Chile has resulted in a long awaited union relating to free trade. Chile was enthusiastic when presented with the prospect to become a fraction of North American Free Trade Agreement (NAFTA) in 1994. However, the merger did not come to completion due to the issue of presidential fast-track trade negotiation authority. Now, after negotiations began in the 2000 — Chile and the United States have come to their own agreement pertaining to free trade, one that is both comprehensive and historic in nature. The Chile-United States FTA was signed on September 3, 2003 and came into effect on January 1, 2004. Chile was the first Latin American country to imprint FTA with the United States.
The benefits of an FTA for the United States are significant. One of the major factors in the Chile-US FTA is that Chile has FTAs with the European Union and Canada, two of America’s major competitors. It is estimated by the National Association of Manufacturers that, because of the lack of an FTA with Chile, US exporters lost about $800 million in sales in 2002 (Ferrer and Segatore 1). An FTA will encourage to ensure that we enjoy market access, treatment, prices and protection at least as good as our competitors. Consumers will benefit from lower prices and more choices. With an FTA with Chile, the United States will strengthen its competitive position (Ferrer and Segatore 1).
One of the instant benefits of the Chile-US FTA will be the speedy removal of tariffs on industrial goods. Over 85% of bilateral trade in consumer and industrial products became duty-free as soon as the FTA came into force (McDougall 1). The FTA will engage tariffs on services and goods, over a twelve-year period for agricultural goods and a ten-year period for industrial products. Chile’s luxury tax on cars has been phased out, and it is expected that the number of automobiles subject to the tax dropped quickly following the implementation of the FTA. Immediate duty-free access includes paper products, wood, medical equipment, computers and other information technology (IT) products, cars and automotive parts, and heavy equipment and machinery.
Service providers will be benefited in the Chile-US FTA. More to facilitating market access, the trade agreement contains provisions to fabricate sure that the following are realized: publication of all regulations; provision of advance comment and notice periods for proposed rules; discussion with concerned parties before the issuance of regulations; and the use of transparent and open administrative procedures by the regulatory authorities. Although commitments to enhance market access are applicable to almost all service division, the agreement between Chile and the United States includes special provisions pertaining to e-business, telecommunications, and financial services (McDougall 1).
The Chile-US FTA also expands America’s access to bigger markets in Latin America including Brazil and Argentina, which already have FTAs with Chile. One of the most significant benefits of the Chile-US FTA is that it creates a predictable and win legal framework for American investors in Chile. Considering the stable economic and political environment of Chile, this makes a conducive environment for US businesses (Ferrer and Segatore 1).
According to Christopher Padilla, Assistant US Trade Representative, Intergovernmental Affairs and Public Liaison Small and medium-sized enterprises will benefit from the tariff-eliminating provisions of the Chile-US FTA. In the past few years, American companies have confronted heightened competition from Canadian and Mexican firms who already reaping the benefits of their FTAs with Chile. Additionally U.S. small businesses will substantially benefit for the progressive agreements on transparency in law, customs facilitation and intellectual property rights protection.
Another support for American exporters is the abolition of Chile’s price bands on such staple goods as sugar, edible vegetable oil, wheat, and wheat flour. In addition, special provisions in the trade agreement will also serve protect American ranchers and farmers from the rush in imports from Chile that the agreement may bring about. The following are the major farm products seen to aid from enhanced market access: processed foods, feed grains, potatoes, durum wheat, soybeans, pork and pork products, and beef and beef products (McDougall 1). Tariffs on wine will be equalized with the fresh United States tariff rates and then phased out.
The Chile-US trade agreement will bring about many other benefits, such as protection of environmental and labor standards, provisions for temporary entry of personnel, and government procurement guidelines. The pact also contains up to date, high-level intellectual property protection, like trade secrets, trademarks, patents, copyrights, and strong measures to combat counterfeiting and piracy. Investors in the United States are permitted to make, get hold of, and control investments in Chile on the same footing with the Chilean investors in nearly every circumstance; this is in addition to receiving expropriation rights and due process protection.
The FTA is a victory for the Chilean government. More than 1,900 Chilean firms, almost half of which are small and medium-sized enterprises (SMEs), sell their products to the US. The evident benefits these firms, and other exporters in Chile, reap from an FTA with the US, the world’s economic and political superpower is massive. For one, the country will glean even more global reputation than it already has. This status will result in the lowering of its risk rating; as a consequence, interest rates will be poor and the country will attract more investments from many countries around the world. Chileans will also be able to have much cheaper and better technology, providing them an immense advantage over their competitors. An imperative term for Chile is that the American government allows 1,400 Chilean professionals to enter the united States every year, as compares to only 200 in 2002 (Ferrer and Segatore 1).
Chile’s labor force is well trained, innovative and productive. Democratic administrations in Chile have understood the link between education and successful development. They have consistently invested in an expanded kindergarten-through-adulthood learning system. Furthermore, Chile’s innovative and widespread private-pension fund system provides workers with long-term financial security and stability. This is why the United Nations has recognized Chile as one of the world’s “High Human Development” countries. Chile’s modern infrastructure, private telecommunications network, Internet penetration and high level of economic freedom provide for efficient, low-cost distribution channels and communications with the United States and Latin America. The Economist ranking of e-business readiness placed Chile ahead of the rest of Latin America in this area.
Chile has been the best-managed economy in Latin America, and the fourth fastest-growing in the world over the last decade and its growth continues. Chile is a symbol of economic and social progress and has surpassed numerous developed countries in international indices that measure the success of nations. Chile’s democracy is solid, accountable and growing stronger. Its commitment to human rights, including worker rights, and to a free society under the rule of law is unwavering. Chile is also committed to sustainable development and environmental protection.
Chile shares America’s political and economic values and supports freedom at home and abroad. It has been a reliable supporter of U.S. foreign policy initiatives in the Americas and around the world, including the effort to combat terrorism following September 11, 2001. The completion of the Chile-US FTA underlines the United States’ intent at negotiating and concluding trade agreements with Latin American countries, opening the door for future FTAs within the region. At present, the US is involved in negotiations for the Free Trade Area of the Americas (FTAA). While the American government considers the special state of affairs of each country with which it negotiates FTAs, the high standards and the broad scope of the Chile-US FTA should benefit additional investment and trade liberalization in the Latin American region and help in setting the tone for future FTA negotiations (McDougall 1).
Finally, the Chile-US FTA will improve the already close commercial relationship between Chile and the United States. The FTA will be very positive for the assimilation of the hemisphere (Ferrer and Segatore 1). The agreement provides another model for an FTA between the United States and small countries. As Chile has an FTA with the majority of economies in Latin America, it could possibly increase and improve trade between the United States and these countries. Considering these factors, the Chile-US FTA represents an advancement for negotiating an FTAA. Overall, the Chile-US FTA is a win-win situation for both countries.
Canada
The Canada-Chile FTA was signed in Ottawa in 1996. Included in this agreement are two parallel accords on labor and environmental co-operation, patterned after the NAFTA side agreements. One of the major features of the trade agreement is the elimination of Chile’s 11% import duty on virtually all remaining resource-based and industrial goods over five years and the immediate duty-free access for 75% of Canadian exports. Another feature is the improved access for a variety of agricultural goods. For instance, tariffs for durum wheat, representing 35% of exports in this sector, would be eliminated instantly (Government of Canada 1).
The agreement also put into place a significant original protection for Canadian investments in Chile, which included an agreement to award Canadian investors the benefits of any future liberalization. It also included an undertaking to negotiate a bilateral double taxation agreement. The Canada-Chile FTA also created a Free Trade Commission and secretariat to guarantee the effective and timely resolution of disputes. In addition, Chile and Canada had side agreements regarding labor and environment, the first of this kind ever signed by Chile. Under these agreements, Canada is allowed to actively participate in the further modernization of Chile’s environmental and labor practices and laws; Chile does not have agreements of such nature with any other country.
The two countries also agreed on the mutual elimination of anti-dumping duties. Chile and Canada agreed to exempt supply-managed products and cultural industries and fully protect health and social services. Moreover, Chile and Canada also signed an accord on social security envisioned to guarantee continued coverage when Canadian employees work in Chile. This allows Canadian employees to stay away from having to pay into the Canada Pension Idea and its counterpart in Chile. The agreement will also enable Chileans now residing in Canada to receive Chilean pensions.
Chile and Canada expected that the CCFTA would boost trade. The Canadian Embassy’s senior trade commissioner in Chile, Sylvain Fabi, describes the agreement as “completely successful”. Likewise, the website of International Trade Canada views CCFTA as a success story. However, the figures from the Chilean foreign ministry and Statistics Canada reveal a different myth. Since the agreement was implemented, Canada’s exports to Chile have hardly improved. In 2005, Canadian exports had amplified only to $411 million, compared to the $388 million increase in 1995.Additionally, trade in services presents an especially dismal characterize, decreasing to $159 million in 2004, $13 million less in 1997 (Campbell 1).
Mexico
Among Latin American countries, Mexico and Chile are the most commence economies (Cevallos 1). They are the only economies in the region to have signed FTAs with the United States and the European Union. Also, together with Peru, Chile and Mexico are the only Latin American APEC forum members. Additionally, the two countries have agreed to dozens of other free trade accords, including the agreement freeing up trade between Chile and Mexico themselves. The Chile-Mexico FTA was signed in Santiago, Chile on April 17, 1998 and came into effect on August 1, 1999.
Chile’s FTA with Mexico governs various disciplines, which is similar to the Chile-Canada trade agreement. The Chile-Mexico FTA has six parts: (1) general aspects and definitions; (2) trade in goods and matters related to safeguard measures, national treatment, customs procedures, rules of origin, and market access; (3) technical rules such as sanitary rules and phytosanitary rules and other standards; (4) services, investments, and related matters; (5) intellectual property rights application; and (6) institutional and administrative provisions.
Under the Chile-Mexico FTA, huge part of the tariff table has 100% tariff preference. Only 100 products bear various levels of taxes. Forty two products have percentual tax rebates and 58 products are not. In addition, some goods are subject to quotas, such as automobiles and non-originating apples. The two countries have put into plot a strategic association agreement with the purpose of improving trade, cultural, diplomatic, and political relations between them as well as relationships with the civil society. The Chile-Mexico FTA also establishes a fund that will supply $2 million yearly for development projects in Mexico, Chile, and third countries (Cevallos 1)
From the time Chile-Mexico FTA came into effect to 2006, bilateral trade from 1.4 billion dollars to about 3.3 billion dollars, a 130% increase. Furthermore, between 1990, when the Chilean and Mexican governments reinstated diplomatic relations, and 2006, there was an increase of about 2,000%. In spite of this tremendous growth, however, trade with Chile represents not more than 1% of Mexico’s exports and imports, whereas trade with Mexico is equal to 3.2% of Chile’s total trade (Cevallos 1).
New Zealand
As active campaigners and lobbyists for free trade, Chile and New Zealand have concurrently followed unilateral, bilateral, multilateral, and regional trade liberalization (Salazar 5). Aside from far-reaching initiatives towards the unilateral opening of their economies (New Zealand in 1984 and Chile in 1975/1976) and their continued support for multilateral discussions, since the first half of the 1990s the Chilean and the New Zealand governments also facilitated negotiations to assess the alternatives for a bilateral FTA.
It was a new option for New Zealand after its previous Closer Economic Relations (CER) with Australia. For Chile, it was a second initiative after having negotiated one with Mexico. However, following two preliminary rounds, the Chilean government requested for a postponement of the discussions because of the sustained resistance of its agricultural sector. They believed that New Zealand’s dairy was way too competitive and strong; the bilateral liberalization of the dairy industry could spell disaster to the less efficient and smaller Chilean farmers (Salazar 5).
In 1999, Singapore and New Zealand decided to negotiate their own trade agreement. In the following year, New Zealand, Singapore, and Chile considered setting into position a multiparty study assembly to watch mutual acknowledgment of standards and credentials, and the possibility for a trilateral system for a Closer Economic Partnership (CEP). The “Pacific Three” (also known as P3) was officially raised at the 2000 APEC Summit in Brunei, when Singapore’s Prime Minister Goh Chok Tong, Current Zealand Prime Minister Helen Clark, and Chile’s President Ricardo Lagos approved the concept of a broad free trade negotiation concerning the three countries as the first step for an expanded trade and investment liberalization area within APEC (Salazar 5).
Lagos and Clark agreed during the latter’s visit to Chile in November 2001 that the two countries should conduct a study analyzing the possible issues that could take place in the execution of a CEP between Chile and New Zealand. In 2002 the studies yielded positive results regarding the possible net economic benefits for Chile and New Zealand in the shape of scientific cooperation and technology transfer, increased bilateral services and investments, and global and regional liberalization. At the time, critics pointed out that the respective studies were only on the surface since they did not present data on the particular gains that were expected from the CEP. However, the CEP is not just about increasing bilateral flows of merchandise, it is also a structure for joint strategic activities between Chile and New Zealand in third markets (Salazar 6)
Consequently, at the 2003 APEC Summit in Mexico, the three countries – Chile, Singapore, and New Zealand – relaunched P3, an effort that meant the resumption of the Chile-New Zealand trade talks. However, once again, the negotiation process was delayed and faltered as a result of current pressures from the lobbyists of the dairy sector in Chile. Eventually, following this difficult period, a better understanding between dairy industry producers and processors in Chile and the renewed enthusiasm from the government enabled the bilateral talks to resume (Salazar 6).
There are several good reasons for a Chile-New Zealand CEP (Salazar 21-22). First and foremost, a high quality and comprehensive Chile-New Zealand CEP will contribute improved global trade liberalization in the World Trade Organization (WTO) and will help foster more cooperation within APEC. The CEP can also give each party with some benefits in the trade of products. In the first phase, it should level the playing field and recompense for the trade deviations and trade distortions as a result of the preferential rights that has been already conceded by New Zealand and Chile to third countries in prior CEPs or FTAs. However, for the medium- and long-run, a business-friendly CEP should offer a general structure for an swell of trade services and goods, and for broader economic relationships and extra cross-investments flows among the parties.
In a period of heightening globalization, where science and technology and innovation are making the difference in the improvement of competitive advantages, the CEP can give the expedient atmosphere for such small economies to increase their research and development spending by achieving greater efficiencies and avoiding duplication from their limited national resources (Salazar 22). A deeper assimilation between New Zealand, and Chile, will have a positive effect in their respective trade bargaining power and, eventually, in their individual international positioning.
South Korea
In November 1998, the Inter-Ministerial Trade Policy Coordination Committee formally declared that South Korea it was pursuing FTA with Chile. In the following month, the South Korean government formed a team on a Chile-South Korea FTA, which consisted of working groups that covered legal procedures, intelligent property, services, market access, and trade rules (Chung 74). Chile-South Korea FTA negotiations came in three different stages: the pre-negotiation stage (November 1998-September 1999); the negotiation stage (December 1999-February 2003); and the ratification stage (August 2003-February 2004).
Talks for a Chile-South Korea FTA continued, intermittently and discordantly, for nearly three years and in the course of six official rounds of negotiations from December 1999 to October 2002 (Park and Koo 263). One of the major reasons for the delay was the differences on the degree to which agricultural goods would be included in the FTA. In summer of 2000, Chile was irritated when South Korea’s proposal, excluded apples and pears. The negotiation eventually resumed in February 2002. South Korea changed its agricultural liberalization policies and made a proposal that was more in tune with Chile’s inquire, like lower off-season tariffs to Chilean grapes. In exchange for accepting South Korea’s request to exclude pears and apples, however, Chile demanded that sensitive manufactured items like washing machines and refrigerators be removed from wish list given the local opposition in Chile.
Chile and South Korea wanted to sanction the FTA as quickly as possible (Park and Koo 262). The Chilean House of Representatives, however, did not pass the agreement until August 27, 2003. The divulge regarding inter-sectoral complementarity between Chile and South Korea was considered as one of the most contentious points of debate. The structural adjustment expenditures of farming sector were a major source of conflict. While the agricultural sector represents only a portion of the national economy, South Korea’s established attachment to rural areas made many of its citizens sensitive with agricultural protectionism. Nevertheless on February 16, 2004, South Korea’s National Assembly eventually managed to ratify the agreement. South Korea agreed to remove tariffs on Chilean wheat, tomatoes, wool, copper products, and over 200 fish products. On the other hand, Chile got rid of South Korean cars, televisions, air-conditioners, computers, and cell phones.
Overall, there is a obliging environment for foreign investors in Chile. With this warm welcome, they offer liberal foreign- investment laws and a pleasurable tax regime. Decree Law 600 was established in 1974, based on promoting non-discrimination between local and foreign investors. This allows foreign investors to operate on the same level as local investors. Foreign investors can have from three to eight years to implement their investment depending on the invested amount of US dollars. In November of 2002, an investment platform initiative was launched by the Chilean Government to encourage foreign investment growth. This initiative addresses several incentives to achieve this type of growth. Exemption from the Chilean earnings tax on profits the firm receives from its overseas subsidiaries is one incentive. This addresses the pronounce of three-way taxation (Deloitte Web Guide).
Chile’s Trade Policies
Objectives
The following are seen as the most important objectives of Chile’s trade policy: (1) the stimulation of the competitiveness and efficiency of national producers; (2) the promotion of regional economic cooperation; and (3) the reduction of any existing anti-export bias in the tariff arrangement as well as the reduction of level of effective protection (WTO 14). The Chilean authorities see permanent and secured access to international markets, in conjunction with the capability to arrangement foreign investment, as vital to the country’s economic growth. In this light, initiatives about the negotiation of original preferential trade contract have been strengthened in the past few years.
Trade Laws and Regulations
The Rules on the Importation of Goods (Law No. 18.525) is the country’s major trade law. Modified and revised many times since 1997, it contains regulations on the brand band system, contingency measures, customs duties, and customs valuation (WTO 16).
In addition, the Customs Law, which integrates several former legal instruments, has provisions on import and export procedures. The modification of export promotion programs (Law No. 19.589) provides for an easing out of the Chile’s most favored nation (MFN) tariffs, revising a number of export promotion programs aimed at bringing them to fit with the country’s WTO commitments.
A draft law on miscellaneous WTO-related affairs was accepted by the Congress in August 2003. Its essential objective is to bring different individual conditions of the country’s legislation in tune with the WTO Agreements. Moreover, it also contains regulations pertaining to intellectual property, taxation, technical regulations, and customs valuation. It also provides for notification measures for conformity assessments and technical regulations, and for the eradication of the dispatch tax on products imported duty-free. It also provides for the elimination of the trade-related investment measures in the automobile sector. Moreover, it revises the intellectual property law in Chile through specification of protection for textile designs, data compilations, and computer programs (WTO 16).
WTO Participation
Chile recognized the significance of the WTO as a rules-based body for the multilateral trading procedure at the 1998 Geneva Ministerial Conference. However, it raised concerns about the extensive use of non-tariff barriers to trade. In the following year, at the Seattle Ministerial Conference, the country affirmed its commitment to open markets, arguing that going on with the process of agricultural reform will help alleviate poverty. In addition, Chile also argued that stricter disciplines should be taken up in applying anti-dumping duties. Furthermore, investment issues and competition policy should match with the current investment disciplines under the General Agreement on Trade in Services (GATS) (WTO 21).
At the 2001 Doha Ministerial Conference, Chile viewed that clear-cut objectives should be put into place for considerable reductions in the barriers to market access, for a significant reduction in trade-deforming domestic supports, and for the removal of subsidies in exports. Additionally, Chile noted the increasing spend and misuse of anti-dumping duties for protectionist reasons and that it should be resolved. Also, environmental measures should be contained within the structure of multilateral disciplines and rules, keeping away from the risks that could result in discrimination and protectionism (WTO 21).
Tariffs
Chile uses tariffs as its principal trade policy instrument. It grants MFN treatment to its trading partners. The applied MFN tariff has dropped from 11% in 1997 to 6% in 2003 (WTO viii). Tariffs are applied at a generally uniform rate. There are exceptions: a handful of agricultural goods (sugar, edible vegetable oils, and wheat and wheat flour) subject to a sign band and system vessels and aircraft, which receive duty-free treatment. The country scurry all its tariffs (most at 25%) in the Uruguay Round. Several agricultural products are subject to 31.5% jog rate at the completion of the implementation. Following the end of the Uruguay Round, Chile pursued Article XXVIII renegotiations for sugar, leading to a boost of the final bound rate to 98%, along with the introduction of the country’s single tariff quota. Reconciling the sizable gap between bound and applied tariffs would increase Chile’s trade regime’s predictability (WTO ix).
Furthermore, tariff cuts under preferential agreements have contributed to the improvement of access to the Chilean market for partners. Duty-free access is given to the majority of imports from the European Union, Mexico, El Salvador, Costa Rica, and Canada. Preferential market access is also provided within the structure of partial scope agreements. In accordance with the national treatment principle and regardless of their origin, imports are subject to home taxes, most particularly a 18% value added tax (VAT) applicable on the cost, insurance and freight (CIF) value of imported goods. Also, various goods like vehicles, jewelry, and alcoholic beverages are subject to specific consumption taxes.
The use of non-tariff barriers seems to be cramped. For one, there is no import licensing system. Chile also maintains a variety of import prohibitions and restrictions, which equally apply to its trading partners, for environmental protection and health reasons. Chile modestly use contingency measures; at demonstrate, it imposes no countervailing or anti-dumping duties. In 1999, the country took on domestic safeguard legislation in 1999 and has since imposed some measures, some of which resulted in requests for consultation in the WTO.
Bilateral Initiatives
While adequate unilateral liberalization is a requirement for a successful trade policy, opening up unilaterally is not sufficient in itself to realize most trade policy objectives pursued. This is primarily because it does not give access to other markets. One of the most effective ways to accomplish that objective, in Chile’s case, is through multilateral negotiations. Such option, however, is not always accessible. Likewise, considering the real nature of contacts among many participants with different interests and intentions, talks are likely to be slow and their outcomes do not necessarily fit with the needs and expectations of Chile at all times (WTO 9). Chile and other small countries have a limited capability to employ any influence in the resolution of such problems.
Thus, bilateral initiatives are helpful as a complementary means of obtaining significant results more quickly than would be likely at the multilateral level. Trade negotiations under the bilateral framework give an effective substitute when they are implemented with the Chile’s major markets. In the next few years, it is expected that more than 75% of the country’s foreign trade will be conducted tariff-free, suggesting a possible preferential market for producers put into place in Chile. It should be noted that 50 agreements or so for the protection of investments and reciprocal promotion have been concluded, this is in addition to 13 double taxation agreements and 37 air transport agreements (WTO 10).
It is important to brand that while the countries with which Chile has negotiated trade agreements differ significantly, it has attempted to continue a certain consistency in its trade negotiations. This means that every new agreement negotiated must be coherent with the existing ones. On top of all, the recently concluded FTAs by Chile generally do not provide for the exclusion of any products. If they do, it is only for a very small number of products. Trade agreements also have disciplines in the area of investment and services and also in other areas like bilateral dispute settlement mechanisms, transparency, trade defense mechanisms, government procurement, and intellectual property (WTO 9).
The impacts of such bilateral trade agreements go more than just advancing the reciprocal trade conditions. For instance, the increasing importance of a progressively more commence trade regime in Chile has resulted in a shift in the country’s productive structure. To some extent, this shift can already be sensed today, a case in point is the use of agricultural land, where the area devoted to forest plantations, vines, fruit, and vegetables, has significantly increased at the cost of grassland and annual crops (WTO 9). This change in production should accelerate in the next few years. The Chilean government hopes that the shift will be completely realized in the next trade policy review, which will be in 2009.
All together, these bilateral trade agreements may have significant macroeconomic impacts in that they contribute to the reduction of growth volatility. External volatility will be reduced with export diversification. It will also decrease with the stabilization of capital flows as a result of increased investor confidence in making their investment decisions. These agreements at the domestic level will strengthen the openness policy and the development strategy grounded on the attraction of FDI and exports (WTO 10).
Chile views the FTAA as representing an occasion to discuss on central subjects like investment, services, and government procurement with its Andean Community neighbors and Mecosur. At the moment, Chile has only tariff agreements with the Andean Community and Mecosur under the Latin American Integration Association (LAIA), which correspond to chief destinations for its supply of services and investments.
Cross-Regional Trade Agreements
In the beginning of the 1990s, the additive regionalism approach started to mold Chile’s trade policies. Immediately after President Patricio Aylwin Azocar assumed office, the country became one of the most active countries in Latin American pursuing FTAs. The significance of PTAs for its trade activities has increased since 1997. It has PTAs with the United States, Canada, the European Union, and some countries from Central America. Also, Chile has negotiated PTAs with the EFTA and South Korea. Chile sees that the major motive behind the policy shift is to ensure market access to its mammoth trading partners.
How and why have cross-regional trade agreements (CRTAs) become a trade policy alternative for Chile over the last decade? The search for expanded or new market access through investment liberalization and preferential trade is a potent determinant of partner selection. However, it is surprising that there is very miniature research that provides a consistent and clear rationale for selecting an ideal FTA partner.
Using the viewpoint of neoclassical trade theory, an FTA captivating two economies with harmonizing structures of comparative advantage – a labor-abundant and capital-abundant country pair – would tend to promote inter-industry trade, bringing trade benefits in the form of efficient allocation of resources and economies of scale (Krugman and Obstfeld 24) The FTA between Chile and such countries as South Korea, Original Zealand, Singapore, China, India, and the EU is apparently in line with the neoclassical prediction. On the contrary, novel international trade theories based on the differentiated products framework imply that economies that have the same structures of comparative advantage are likely to trade more through product specialization grounded on intra-industry trade resources (Krugman and Obstfeld 121). From this standpoint, an FTA involving countries with the same factor endowments would tend to maximize the gains from the trade.
The gravity model provides an alternative elucidation that connects economic size and geographic distance to the option of an FTA partner (Frankel, Stein, and Wei 49). To trim down the costs associated with geographic distance and to make the most of the benefits from economic size, the gravity model implies that neighboring countries structure FTAs with each other, thus establishing a natural trading bloc. Although the establishment of natural trading blocs enhances economic benefits, the creation of unnatural trade blocs between small and/or distant economies possibly has minor positive impacts (Frankel, Stein, and Wei 149). From this view, Chile’s FTA with countries from other regions is a characteristic example of an unnatural trading bloc. This is not only because of geographic separation, but also because of the fact that the country’s economy is fairly small (Koo 144).
The gains to particular industries from CRTAs may aid otherwise unlikely FTAs involving distant trading partners. Nonetheless, the early doubts regarding economic benefits on the one hand and the mixed forecasts of international trade theories on the other hand display that CRTAs do not make convincing economic sense at the early phase of negotiations. Consequently, it can be argued that many economies enter an agreement for instrumental and political, rather than simply economic, reasons.
CRTAs are a major characteristic of Chile’s eagerness for a multi-track FTA approach. From an institutional perspective, it looks like the country’s adoption of FTAs has been molded by a top-down political scheme rather than just bottom-up demand from the general public and different interest groups. Chile’s motivations to go after CRTAs are very complex. These include leverage/diplomatic, political, and economic motives. Before further establishing FTAs with other trading partners, Chile needs to choose to pursue strategic FTAs with relatively smaller partners to minimize possible losses and risks and to obtain negotiation skills. It should also consider opening trade policies of other countries and their accumulated experience in FTA negotiations before considering them as trading partners. While Chile has to pay expensive tuition for its learning experience with its trading partners, it will certainly acquire technical know-how and negotiating skills.
Overall, the strategic and economic driver of the political leadership and the new bureaucratic balance of power have played an important role in Chile’s disappear toward regional trade agreements (RTAs) in general and CRTAs in particular. As evidenced by its previous and existing FTAs, Chile is trying to strike the suitable balance between cross-regionalism and intra-regionalism. The country’s CRTAs will in effect strengthen its intra-regional policy goals. Even though its pursuit of FTAs does not essentially mean that it has entirely abandoned the multilateral trading system, Chile’s trade policy departure is becoming increasingly significant and obvious.
Foreign Trade Barriers
Import Policies
There are very few restrictions inhibiting imports and company growth for foreign agency wishing to do business in Chile. Trade regulations and standards that may affect importation to Chile include tariffs, trade barriers, import requirements and documentation, export controls, labeling and marketing requirements, prohibited and restricted imports, and customs regulations and contact information. The Chile-US FTA lifted tariffs on 90% of U.S. exports such as automobiles and parts, technology equipment, construction and agricultural equipment and medical devices. The FTA also states the Chile agrees to phase out its luxury tax on American automobiles. Other luxury goods, such as alcoholic beverages, jewelry, pyrotechnics, and tobacco products are subject to additional taxes. All imports are still subject to the same 19% Value Added Tax that is imposed on domestic goods.
The country’s trade regime provides for the free importation of goods, except for those goods that are banned under existing legislation. Sometimes a potential import to Chile, because of its nature, might be subject to special authorization or oversight by an enforcement agency such as the Directorate for Borders and Limits, General Directorate of National Mobilization, National Health Service, or the Agricultural and Livestock Service.
Customs authorities need to approve and issue a recount for all imports valued at more than three thousand dollars. Imported goods must generally be shipped within 30 days from the day of the recount, but longer periods may be authorized. Commercial banks may authorize imports of less than three thousand dollars (Office of the US Trade Representative 71). Larger companies need tot report their export and import transactions to the Central Bank of Chile. Commercial banks may sell foreign currency to any importer to conceal the price of the imported goods and related expenses, as well as to pay interest and other financing expenses that are authorized in the import report.
Overall, there are very few import or investment barriers in Chile. In general, foreigners receive the same protections and operate under the same conditions as local firms. The Health Service Office at the port of entries must grant permission for all imports after testing and taking samples of the goods. Imported items for consumption must display country of origin as well as list all primary information in Spanish. Temporary admission on equipment or samples necessary to conduct business are duty free under Chilean law.
Few items of importation are prohibited in Chile. Used cars and cargo vehicles are prohibited. However, restrictions depend on Chilean approval. Products that are considered non-lateral with Chilean morals, public health, national security, or not favorable to the environment are such items. Chile’s overall policy is to comply with international standards, specifically the WTO Committee on Technical Barriers to Trade, barring that they look towards Chilean trade norms of their largest trading partners (European Union and the United States).
Chile has a complex price band system for sugar, wheat, and wheat flour that will be phased out under the Chile-US FTA for imports from the US by 2016. This system intends to guarantee a minimum and maximum price for the covered commodities. When certain CIF prices fall below the floor, a special tax is added to the uniform tariff rate to raise the price to the minimum floor level. Heed bands effectively set a minimum import price that is normally higher than both international and Chilean domestic prices. On October 23, 2002, the WTO Declare Settlement Body (DSB) ruled, however, that the country’s price band system was inconsistent with Article 4.2 of the Agreement on Agriculture. Consequently, Chile agreed on a compromise proposal eliminating the imprint band system on vegetable oils.
The proposal also introduced several modifications for sugar, wheat, and wheat flour. Starting in 2008, the floor would be adjusted downward by 2% annually, until 2014, Mixtures that fill over 65% sugar express are now covered by the sugar price band system. On December 8, 2006 the DSB maintained their original ruling that Chile’s price band system is inconsistent with Article 4.2 of the Agreement on Agriculture as it is a border measure similar to a variable import levy and to a minimum import price (Office of the US Trade Representative 72).
Export Controls
Customs authorities in Chile have to approve and negate export reports. Basically, exported products must be shipped within 90 days following the date of the export report, however this period may be extended under some special conditions. Exporters may use the formal or informal exchange market. Large corporations are required to report all exports to the Central Bank of Chile. Copper exports, which are authorized by the Chilean Copper Commission, are an exception.
Duty-free import of materials used in products for export within 180 days is allowed with prior authorization. Free-zone imports are free from VAT and duties if re-exported. The import/export process necessitates contracting the services of a specialized professional called a Customs Agent, who is the connection between the National Customs Service and the importer/ exporter. It is the mission of the Agent to smoothen the progress of foreign trade operations and to act as the official representative of the importer/exporter in Chile. Agent fees are not standardized (Office of the US Trade Representative 74).
Labeling, Testing, Standards, and Certification
Prior to the Chile-US FTA, many of Chile’s trade-restrictive sanitary and phytosanitary requirements prevented the entry of some US food and agricultural exports. During the FTA negotiations, an ad hoc SPS working group was created to address a number of issues of concern to both Chile and the United States. Through this, significant progress was made, including gaining novel market access for US beef and processed beef products. In addition, under the current Chilean requirements, imported food products must provide physical and chemical, dietetic, and microbiological analyses and samples, regardless of whether the pleasurable has been reviewed and approved previously for another applicant. Also, imported food products must file a request for a Certificate of Exercise and Disposal. However, the requirement for repeated sampling and reviews of imported products previously approved does not attain a fine balance between cost and effectiveness. With risk-based testing system, it would be possible to obtain the same level of public health protection at a reduced cost.
Government Procurement
Usually, it is the individual government entities in Chile who conduct their own procurement. Law in Chile law requires public bids for large purchases, even though procurement by negotiation is acceptable in some cases. Local and foreign bidders on government tenders need to register with the Chilean Bureau of Government Procurement. In addition, they must also post a bank and/or guaranteed bond, more often than not equivalent to 10% of the total stammer, to guarantee compliance with specifications and delivery dates (Office of the US Trade Representative 73). Chile is not a member of the WTO Agreement on Government Procurement.
Patents, Data Protection and Trademarks
It is reported that Chile is not meeting its FTA commitments in terms of the protection of patents and pharmaceutical test data. In December 2004, Chile’s Congress current legislation intended to bring the country into compliance with a number of its Trade-Related Aspects of Intellectual Property Rights (TRIPS) commitments. It was entered into force on November 28 in the following year. It contains limitations and exceptions that may undermine the effective protection of undisclosed safety and efficacy information. In general, Chile’s Trademark Law is along the line of international standards. However, legislation bringing Chile’s law fully into compliance with its obligations under the FTA is still pending. Several trademark holders have complained of inadequate enforcement of trademark rights in Chile. The Chile-US FTA also requires Chile to respect the principle of “first in-time, first-in-right” with respect to geographical indications and trademarks (Office of the US Trade Representative 75).
Summary
In summary, the paper tackles international market conditions in Chile. It focuses on trade balance, what is traded, historical trade balance, the major trading partners (export and import), and trade diversification in terms of types of goods and destinations. This paper also discusses Chile’s trading arrangements with other countries (preferential and regional trading arrangements) and analyses current trade policies and foreign trade barriers. Overall, this paper shows that Chile is and has been a competitive player in the international trading regime. However, it is suggested that Chile should further enhance its import policies, export controls, government procurement, intellectual property rights, and labeling, testing, standards, and certification.
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Filed under Automobile Insurance Company Ratings by on Feb 27th, 2011. Comment.
With more domestic news than we can handle, we are apt to ignore some global news which can impact us.
One such item was the repeat downward revision of world growth forecast by the IMF for both 2008 and 2009. For this year IMF down-rated world growth from 4.1% to 3.9%. For 2009, from 3.9% to 3.7%. A 0.2% change may not appear significant in percentages but we should not forget that that by itself it represents billions of dollars.
How this impacts us?
We usually console ourselves that a falling dollar will become advantageous by making our exports cheaper and competitive in the global market. But that is based on the assumption that economies of foreign importer nations, especially Europe, will maintain a status quo, if not attain upward growth. After all, dollar being the benchmark currency, any adverse move of dollar can reasonably expected to push up other currencies.
Not so this time. The report specifically mentions the state of European economy as the reason for the repeat revision of the forecast. That means, the hopes of a cheaper dollar pushing up our exports may not happen even next year. European business mavens should be blaming the day they decided to forsake their conservative methods and to transplant the unruly, uneconomic CEO culture from the other side of the Atlantic.
Bear Sterns and Lehman Bros sagas don’t give noteworthy for us to brag about our CEOs. When the CEO of Toll Bros openly and honestly admitted that the likes of him are waiting for the arrival of Barak Obama at the White House, it shows how bad things are.
With South Korean regulators breathing down the neck of the Korea Development Bank, chances of a Korean accumulate of LEH has become remote. And when a high-profile US regulatory authority has to debase itself for the sake of the prodigal financials and arm-twist Credit Suisse into NOT denying short-term credit to Lehman, that shows how desperate the place is.
Our preoccupation with pampering errant financial CEOs meant we ignored other sectors like agriculture and cannot take advantage of the encourage provided by those ignored sectors.
Yes, our agricultural sector has returned stellar harvests. Our farmers have stumped us and have caught us with our pants down because we forgot to provide them with adequate transportational infrastructure. Every day delayed means losses in millions for the farmers and all business links in the food chain until it reaches the end-user.
Where did we go gross? Agriculture should have been given an equal footing with housing; so that when other sectors failed, we would
have another sector to cushion the losses.
But for many, providing government subsidies, fighting on WTO forums or destroying excess production to protect the prices is agriculture. For most of us,
especially metro-dwellers, agriculture is the hobby of some laid back guys and gals in our prairie states.
Forget about haggling with foreign buyers or sellers. How about getting the golden harvest of our farmers to American homes and bring succor to our gain people?
As for the housing sector,July saw existing home sales rise by 3.1%. However, that is unbiased a drop in the ocean as house prices are still
suppressed by a relate high unsold inventory and stagnant near a ten-year lows.
Support to Wall Street:
Indices took a severe drubbing. The only consolation for the bull is that volume in NYSE didn’t reach the billions. Volume in NYSE was
only 865 mln and in Nasdaq it was 1.44 bln.
As happened in the first half of last week, Advance/Decline data confirms a bearish picture. Bearish stocks out-maneuvered by bullish stocks by a margin inexcess of 2:1. In NYSE, 2424 stocks declined against only 710 advanced. In the Nasdaq it was 2212 declined against 603 advanced.
Dow went down by -241.81 (-2.12%) to 11386.25
Nasdaq down by -49.12 (-2.08%) to 2365.59
S&P 500 down by -25.36 (-2.00) to 1266.84
Will Disney (DIS) succeed where Microsoft (MSFT) failed. We will have to await confirmation from Disney or Yahoo (YHOO) whether any formal
talks are on.
One of the few financial companies that could pad the recent onslaughts on the sector is Wells Fargo (WFC) – commendable considering the fact that they were also into mortgages in a big way. Now we hear that they won’t be bailing out Wachovia (WB) and Washington Mutual (WM). Good for their shareholders.
Recently our government had promised automobile manufacturers 25 billion dollars in developmental loans to tide over difficult times. Now, the manufacturers are demanding twice as much. While auto manufacturers need tax-payers’ help, if those billions are used only to shroud up the failures of the CEOs and the top brass without increasing jobs, then that second tranche will only add to money thrown down the drain. So, government should ask for performance guaranty and proof of increased employment before handing out that second tranche of tax-payers’ money.
Asking for performance guaranty is not socialism, it is raising standards of accountability for tax-payers’ hard earned money.
Will Boeing (BA) be able to ward off the impending strike by its workers? The company has now offered offered 6.5% spread over three years, while union leaders query a 9-13% pay raise in addition to expanded benefits.
XShares will be closing 15 healthcare sector ETFs under their management. May be it gives credence to the observation that ETFs are suffering from too early expansion. Many times jumping on to the bandwagon need not mean you got an adequate foothold for settling down.
China watchers should be interested in the positve company reports from there. While yearly revenues of China Life Insurance Company
(LFC)and China Netcom (CN) fell, their net profits were somewhat better than those predicted by the market. China Unicom (CHU) shwowed
better than expected results in higher quarterly net profit and half-yearly revenues.
Surprisingly, Freddie Mac (FRE) shares sprang up by 17% + when it became known that their $2 billion debt auction was in demand and well attended. Fannie Mae (FNM) went up 3.8%.
M&A:
Precision Drilling Trust (PDS) is acquiringGrey Wolf (GW) for $2 billion.
Broadcom (BRCM) will acquire Devices’s (AMD) digital TV business.
ANALYSTS’ RATINGS:
Today’s company upgrades include:
AnnTaylor (ANN), BB&T Corp (BBT), China Sunergy (CSUN), GOL Linhas Areas Inteligentes S.A. (GOL), Leggett & Platt (LEG) and TAM S.A. (TAM).
Analysts downgraded:
Alpharma (ALO), Cablevision (CVC), Headwaters (HW), Healthways (HWAY), Knight Transportation (KNX), The Parent Company (KIDS) and Werner Enterprises (WERN).
Ben Bernanke spoke again today. This time he wants to impose new regulations and oversight on individual financial institutions, in addition to the present sectorial approach. At least good that we are becoming wiser after the events to restore the lost faith of the short-changed depositors.
But Ben will probably wait to see a change in the White House before that.
As for the daily procure, bearish sentiments today will be strengthened tomorrow if they are accompanied by convincing volume.
Filed under Automobile Insurance Company Ratings by on Feb 24th, 2011. Comment.
It is the new Millennium, yet the equilibrium between women and men in the corporate world still has not been reached. Even though society has come a long way in attaining more opportunities for women, there is mild a long way to go in order to reach legal equality. This inability to reach equality is sometimes called the “Glass Ceiling” which refers to an artificial barrier that prevents genuine individuals advance within their organization and reach their full potential. Specifically, in the Information Technology field, there has been significant evidence which shows that both women and minorities have been prevented from attaining their true potential and have been undermined when it comes to wages and executive positions in this particular industry. The problem in a wide range of careers had become so troublesome that The Glass Ceiling Commission was created as part of the Civil Rights Act of 1991. Its responsibility was to identify glass-ceiling barriers in order to promote employment opportunities for minorities and women, however barriers in the IT profession still need to be further discussed.
Interestingly enough, the Bureau of Labor Statistics has done research on women and men in the labor force and the numbers seem to be somewhat unsettling. In terms of managerial and professional specialty, it is stated that men, on average, in the year 2000, had 15,739,000 workers while women had 15,866,000 workers in the same fields. In the year 2001, the numbers were very similar, men with 15,947,000 workers compared to women with 16,155,000 workers. Nevertheless, even though the numbers for women workers are somewhat larger, the wages they obtain are significantly lower. For the year 2000, median weekly earnings for men were recorded at $1009 compared to $726 for women. Similarly in the year 2001, median weekly earnings for men were $1046 compared to $742 for women. That is a $15,000 annual income difference for people who are supposedly completing the same jobs and receiving a drastically different amount on their paycheck
However, the numbers can be somewhat explained under the present conditions. Characteristically, individuals in upper level Executive positions earn more than those in lower positions, and since women only hold a shrimp fraction of the upper level positions, it is no surprise that women earn less money. Thus, the quiz becomes as to why women do not hold more of the upper level positions in the IT profession. For example, out of the Chief Information Officer’s or CIO-equivalents at 300 Fortune 1000 companies and the 100 fastest-growing companies recently surveyed by Amsterdam, N.Y.- based Sheila Greco Associates, there were only 41 women (13.7 percent), compared with 259 men (86.3 percent). Sheila Greco Associates say that the percentage of women CIO’s has not changed since their research consultancy began its annual survey in 1998(Paul).
According to the 1996 Information Week 500 list of leading IT users, women held the highest-ranking IT positions at only about 7% of the 500 companies listed. Five years later, the number only rose by 1.8 percent to 8.8% of the positions held by women or 44 out of 500 Executives. Among them were Farmers insurance Group, Cecilia Claudio, and New York Life Insurance Co., Judith Campbell. Not surprisingly, the Society for Information Management, an organization of senior IT executives, counts only 195 women among its 2700 members. According to ongoing research by Robert Zawacki, professor emeritus of management and international business at the University of Colorado and distinguished scholar in residence at accounting firm KPMG Peat Marwick in New York, fair 20% of senior IT executives are women, while nearly 40% of all IT employees are female. These findings were based on a study conducted every year for 20 years in IT departments at 200 companies in different industries (Wilde).
Amid all of these statistics, it looks like companies are getting the idea, slowly but gradually allowing women to be active in its upper level positions. Xerox, for example, received several awards for its diversity programs. Now, the company has about one-third of its IT department composed of women workers. Xerox CIO Wallington says that 10 years ago a woman in the computer industry had to be “a harder worker, a smarter person, a more qualified” than her male peers to go beyond the ranks of programming into management. Now that she has arrived, Wallington says, being a woman often makes it easier for her to be heard than her male counterparts. Still, Wallington notes that outside the walls of Xerox, IT is like the rest of corporate America- dominated by white males. She adds, “But hope can be taken from the fact that you can point to those exceptions, exceptions that weren’t there 10 years ago, so clearly there has been progress (Paul).” It seems that having a woman already in a higher area at a company makes it easier for other women to follow suite.
It seems that in IT at least, women are beginning to become a winning force in the Glass Ceiling war. Ann Winblad, founder of Hummer Winblad Venture Partners, a $95 million venture-capital fund in Emeryville, Calif., says the software industry is a meritocracy. “Skills matter more than gender,” she says, “It’s an industry where the intellectual capital wins.” For men and women, Winblad says, keys to success are intellectual stamina and common sense. Winblad, who started her career as a systems analyst in 1973, encourages women to be themselves, and to not adjust their personalities to fit a man’s world. “Having a personality that is the same whether it’s with friends or business colleagues is the key to success- and so far less stress, ” she adds (Paul). Thus, individualism is supposed to give women the upper hand when going out for jobs in the upper ranks of the IT field.
IT, it seems, when it comes to sexism, is not much different from other careers. Computer consultant and author Ellen Ullman is quoted as saying “Sexism is everywhere, but technology is one place where for the first two-thirds of your career- if you’re good at it- you’ll be on equal footing with people around you. Other consultants agree with Ullman that “IT is one of the best equal-opportunity areas in our society today,” says Victor Janulaitis, president of Positive Support Review, an IT management and consulting firm in Santa Monica, Calif. “It doesn’t care what race, color, creed, or sexual preference you are. If you as an individual can acquire results, you’ll be rewarded, and you’ll proceed and progress (Wilde).” While this sounds very reassuring, it might unexcited be a small far advanced into the future for current times.
As far as minorities are concerned, a study was done in order to attribute the Glass Ceiling as a factor in the advancements or lack thereof of black IT workers. The Glass Ceiling Commission has suggested that there might be a glass ceiling that prevents them from reaching the top levels of IS and non-IS management positions. The commission’s figures show that managers were 92% white and 8% minority in 1988, identical to percentages found in 1980 and 1985. A sample of 138 employees were used, 50% dark and the other half white, and 52% of the sample were women. Eighty-two of the IS participants held managerial positions, and the remaining 41% percent held professional positions without supervisory responsibilities. The sample customary was also of similar age. The measurements were done through a job performance rating and job performance attributions with a rating scale included on the Supervisor Survey. The study confirmed the presence of race differences in job performance evaluations, attributions, career advancement prospects, and career satisfaction. Black IS employees received lower job performance ratings, were less likely to have their job performance attributed to internal causes, were less successful in their jobs, were perceived as having less reliable advancement prospects, were more likely to be plateuad in their careers, and experienced lower career satisfaction than white IS employees (Igbaria, Wormley).
Alright, so there are fewer women Executives in IT then men, and minorities face a glass ceiling when trying to excel. The question is, why is this the case? Quite frankly, as some put it, women acquire the demands of IT a little bit too demanding. Karen Hogan, acting deputy CIO of the Department of Commerce in Washington, D.C. says that she wouldn’t want to take the CIO job at her agency because the time demands the position would impose on her life would be too grand to bear. Women, due to the fact they need to care for children, regain themselves more at odds with the near-constant recede and intense 24/7 demands of being a CIO (Paul). However, several surveys have found that the problem of balancing work and life are a major concern of male CIO’s as well. According to a new online survey by CIO of 310 IT professionals, almost as many men as women (57% versus 63%, respectively) felt they did not have an appropriate work and life balance in their current job. “Both men and women realize this is an issue,” says Judy Rosener, professor at the Graduate School of Management of the University of California at Irvine. Rosener believes the eventual dismantling of the glass ceiling in IT will take pressure off both sexes. Rosener says, “A lot of men are saying they no longer want the burden of feeling they have to get to the top.” However, still more men than women are willing to sacrifice their personal lives in exchange for a successful professional life, while women may not be ready to leave their instilled domestic responsibilities.
Even though all of this sounds very promising, the numbers themselves present that this equality still has a long procedure to go in order to reach reality. Another reason why IT might not favor women is because of the sheer fact that women, throughout history, have not been the major proponents of math and technology. According to Charles W. Moore, the dissatisfaction of females in the IT profession can be explained through a simple observation of the way that women and men act on a daily basis. Men, when they get together, tend to talk about cars and the intricate parts of their hardware in their different machinery systems. Even though women might be better IT workers they will never get ahead due to the fact that they do not have the drive in IT that men have, thus giving them less satisfaction from working in the industry (Moore). While this is a very risky argument and exceptions do occur, it does tend to get sense. When most women use a computer, they are more interested in the software and what the computer can do for them than the machine part of the system and the means it takes in order to achieve the ends. Thus, in the job aspect of IT, that drive from the enthusiasm gained from the machine aspect in Information Technology, can be the factor that get men most of the executive level positions. Just as when women pick out a car, most women tend to care more about the color and accessories of the automobile than the gas per mileage of the auto. Thus, grouped with the fact that women through history have had more domestic demands put on them, this lack of enthusiasm might be a factor that keeps women out of the front lines of the field.
Information Technology might be one of those modern careers of skill that acts very similarly to the oldest game of skill: the game of Chess. Being the oldest game, Chess if much more than just a game of skill. Few people realize this but the queen is the only piece on the board that represents a woman, and she is the most powerful piece of the game. In medieval times, the surrender of the king would mean the loss of the kingdom to invading armies and that could mean change for the worse. The king is the most indispensable, but not the most powerful portion in Chess. Thus, if the king is not protected, the game is lost. Perhaps, not noteworthy is different in world of Information Technology. Even though women might have the same or more skill in IT, they are also bound by the demands of domestic responsibility, and their female drive may not include the same interests in technology and machinery as the drive expressed within the male characteristic, giving males corpulent control of the game. Furthermore, putting a woman in a high level situation might be seen as a risk to many companies, not knowing how the public will acknowledge to a woman run game. Thus, when it comes to wages, executives and workers in upper positions tend to make more money. When it comes to those upper positions, women may not possess the characteristics or the time needed to fill those positions, and that is why it might seem that women are more prone to topple prey to lower pay and lower jobs while in reality it might just be a consequence of the historical trends still evident in modern life today. Contrastingly from the recommendations of the Glass Ceiling Commission, affirmative action should not be applied; rather women and minorities should be promoted due to their efforts, drive, and skill, and not because of their gender or ethnicity. Therefore, until the queen and other minor pieces makes it evident that they rule the chess game, there will be, for some time to reach, a struggle of women and minorities trying to attain higher level positions, and white men will continue to rule the field.
Bibliography
Moore, Charles W. “Female Dissatisfaction in the IT Industry.” (2001) 8 Feb. 2002
http://www.lowendmac.com/misc/01/0611.html.
Paul, Lauren Gibbons. “Why IT Hates Women (and the Women Who End Anyway).”
CIO Magazine 15 Sept. 2001: 1-10.
Wilde, Candee. “Women Cut Through It’s Glass Ceiling.” InformationWeek 20 Jan.
1997: 83.
Wormley, M. Wayne and Igbaria, Magid. “Rush Differences in Job Performance and
Career Success.” Communications of the ACM March 1995: 82.
Filed under Automobile Insurance Company Ratings by on Jan 23rd, 2011. Comment.
