EU-Chile Interim Trade Agreement takes effect, marking a new era of partnership

February 01, 2025 — In a significant move towards enhancing economic ties, the EU-Chile Interim Trade Agreement (ITA) has officially entered into force, following the successful completion of Chile’s ratification process. Signed in December 2023, the agreement is touted as a pivotal development in global trade, with its multifaceted benefits expected to boost competitiveness and foster sustainable economies on both sides of the Atlantic.

The ITA marks a major step forward in the collaboration between the European Union and Chile, aligning with global efforts toward building net-zero economies amid pressing challenges such as supply chain security and climate change. Ongoing projects under the Global Gateway initiative, including the establishment of critical raw materials value chains for lithium and copper, as well as the production of green hydrogen in Chile, will be integral to the agreement's success.

"Effective partnerships we continue to create around the world support both our economic growth and our economic security. I therefore warmly welcome the entry into force of the EU-Chile Interim Agreement. Chile is the third biggest EU trading partner in Latin America and I am confident that economic operators on both sides will be able to benefit from this agreement from day one.”
- Maroš Šefčovič, EU Commissioner for Trade and Economic Security; Interinstitutional Relations and Transparency
Key highlights of the agreement: Commitment to sustainability and equality

The ITA emphasizes a strong commitment to sustainable practices and equality through its innovative chapters on Trade and Sustainable Development (TSD), Trade and Gender, and Sustainable Food Systems. The TSD chapter reaffirms both parties' commitment to labor rights and environmental protection, aligning with the International Labour Organization (ILO) standards and the Paris Agreement on climate change. Importantly, the Trade and Gender chapter aims to eliminate discrimination against women, marking a historic first in EU trade agreements.

Safeguarding intellectual property

The agreement bolsters legal protections for investors through enhanced intellectual property rights safeguards. A notable aspect is the recognition of 234 typical European and Chilean food and drinks products, ensuring their geographical indications are safeguarded.

Looking ahead

While the ITA is now operational, the Advanced Framework Agreement (AFA) is set to become effective once all EU Member States complete their ratification processes. The shift to the AFA will mark the culmination of six years of negotiations aimed at modernizing the EU-Chile Association Agreement, which has been in place since 2003.

A partnership for growth and sustainability

The trade relationship between the European Union (EU) and Chile has blossomed into a robust partnership, marked by significant growth and an increasing focus on sustainability. Chile, Latin America's fifth-largest economy, holds a prominent position as the EU's third-largest trading partner in the region, with the EU serving as Chile's second-biggest export market. This dynamic exchange, underpinned by a comprehensive Free Trade Agreement (FTA) in force since 2003, has witnessed a remarkable expansion, with bilateral trade increasing by over 160% between 2002 and 2023. In 2023 alone, total EU-Chile trade in goods reached EUR 18.5 billion, complemented by EUR 8.6 billion in services trade in 2022, demonstrating the breadth and depth of this economic connection.

A modernised agreement to address evolving challenges

Recognizing the evolving global landscape and the need to address contemporary challenges, the EU and Chile embarked on a mission to modernize their existing agreement. This culminated in the signing of the EU-Chile Advanced Framework Agreement (AFA) and the EU-Chile Interim Trade Agreement (ITA) in December 2023. This modernized agreement signifies a commitment to deepening trade and investment relations, unlocking new opportunities for EU businesses within one of Latin America's most dynamic economies. Crucially, the agreement also incorporates substantial commitments to sustainable trade practices, encompassing environmental and labor standards, climate action, energy, raw materials, gender equality, and sustainable food systems.

Benefits to the EU

The modernized agreement is poised to deliver a multitude of benefits for both parties. For the EU, the agreement promises enhanced market access, with 99.9% of EU exports becoming tariff-free, potentially boosting EU exports to Chile by up to EUR 4.5 billion. It also secures access to vital raw materials and clean fuels, such as lithium, copper, and hydrogen, which are crucial for the EU's green transition. Furthermore, it facilitates easier access for EU companies to provide services in Chile across various sectors, including delivery, telecommunications, maritime transport, and financial services. Reciprocal treatment for investors, improved access to government procurement contracts, and a dedicated chapter for small and medium-sized enterprises (SMEs) further enhance the attractiveness of this partnership.

Gains to Chile

Chile stands to gain significantly as well. The agreement simplifies export procedures to the EU while maintaining tariff-free access for all industrial goods. Enhanced market access for agricultural products and increased opportunities for Chilean citizens to provide services in the EU, including temporary presence, are also key benefits. The agreement ensures that Chile can leverage the EU market while adhering to high standards.

An agreement beyond trade

The agreement's impact extends beyond traditional trade. It aims to foster a sustainable partnership grounded in shared values. A dedicated Trade and Sustainable Development chapter reinforces the commitment to International Labour Organization standards and the Paris Agreement. A pioneering Trade and Gender chapter seeks to eliminate discrimination against women, while a chapter on Sustainable Food Systems promotes more resilient and sustainable food supply chains.

The legal architecture of the modernized agreement is noteworthy. It comprises two parallel instruments: the AFA, encompassing political cooperation and the trade and investment pillar (including investment protection), and the ITA, focusing on trade and investment aspects falling under exclusive EU competence. The ITA, which enters into force, will be superseded by the AFA once all EU member states complete their ratification processes.

Goods, services, and investments

The agreement's provisions on goods, services, digital trade, and investments are designed to stimulate growth and facilitate seamless exchange. Tariff elimination, easier service provision, addressing digital trade barriers, and ensuring investor protection are all crucial components. The agreement also prioritizes the needs of SMEs, recognizing their unique challenges in international trade. Furthermore, it addresses the interests of EU farming communities by enhancing market access for agricultural products while safeguarding sensitive sectors through tariff-rate quotas and protecting Geographical Indications (GIs) for iconic EU products.

Lithium and hydrogen

Access to raw materials like lithium and hydrogen, essential for the EU's green transition, is a key focus. The agreement ensures non-discriminatory access, limits dual pricing policies, prohibits export restrictions, and promotes sustainable mining practices. Similarly, it facilitates trade and investment in hydrogen, establishing a framework for cooperation and ensuring non-discriminatory access to the Chilean hydrogen market.

Chile is the EU’s top lithium supplier, accounting for 55% of EU lithium imports. China (17%), USA (13%), Argentina (5%), UK (5%), and Russia (5%) are other lithium suppliers to the EU.

Robust provision of rules of origin

The agreement also incorporates robust provisions on rules of origin, simplifying and making them more flexible to reflect global value chains. It underscores the importance of maintaining high standards, particularly regarding food safety, emphasizing that EU standards are non-negotiable. The agreement promotes sustainable food chains through cooperation on animal welfare, antimicrobial use, food waste, and pesticide management. It reinforces the commitment to combating climate change through the implementation of international agreements and promoting trade's positive contribution to climate action. Furthermore, it includes dedicated chapters on gender equality and workers' rights, ensuring that trade and investment are aligned with social progress. Environmental concerns are addressed through commitments to environmental standards, the Paris Agreement, and the establishment of a robust dispute settlement mechanism for sustainability commitments.

Chile's lithium and hydrogen exports: Fuelling a green future

Chile, blessed with abundant natural resources, is strategically positioning itself as a key player in the global transition towards a sustainable energy future. The country's vast reserves of lithium and its potential for green hydrogen production are attracting significant attention and investment, with exports of these crucial commodities poised to reshape the global energy landscape.

Lithium: The white gold of the 21st century

Lithium, often referred to as "white gold," is a critical component in batteries that power electric vehicles, smartphones, and various other electronic devices. With the global push for electrification and decarbonization, the demand for lithium has skyrocketed, making it a highly sought-after commodity. Chile holds some of the world's largest lithium reserves, primarily found in the salt flats of the Atacama Desert. This has propelled Chile to become one of the leading lithium producers globally, with exports playing a vital role in the country's economy.

Chilean lithium exports have witnessed consistent growth in recent years, driven by increasing global demand. The country's two main producers, SQM and Albemarle, have been ramping up production to meet this demand. However, despite the rising export volumes, the value of these exports has been subject to fluctuations due to price volatility in the global lithium market. Nonetheless, lithium remains a crucial export for Chile, contributing significantly to its economic growth and development.

Green hydrogen: A promising energy source

In addition to lithium, Chile is also exploring the potential of green hydrogen as a clean energy source. Green hydrogen is produced by using renewable energy sources, such as solar and wind power, to electrolyze water. Chile's abundant solar and wind resources, particularly in the Atacama Desert and Patagonia, make it an ideal location for green hydrogen production. The country has ambitious plans to become a major exporter of green hydrogen, aiming to capitalize on the growing global interest in this clean fuel.

Chile's National Green Hydrogen Strategy outlines its vision to become a cost-competitive producer and exporter of green hydrogen by 2030. Several pilot projects and initiatives are underway to develop the necessary infrastructure and technology for green hydrogen production. While green hydrogen exports are still in their early stages, Chile's potential in this sector is immense. The country's abundant renewable resources, coupled with strategic investments and partnerships, could transform it into a leading global supplier of green hydrogen, contributing to the decarbonization of various industries and sectors.

Challenges and opportunities for Chile’s lithium and hydrogen exports

While Chile's lithium and hydrogen exports hold great promise, the country also faces certain challenges. In the lithium sector, concerns about environmental sustainability and social impact need to be addressed. Ensuring responsible mining practices, minimizing water usage, and respecting the rights of local communities are crucial for the long-term sustainability of lithium production. In the hydrogen sector, developing cost-effective production technologies, establishing efficient transportation and storage infrastructure, and creating a robust regulatory framework are essential for scaling up green hydrogen exports.

Despite these challenges, the opportunities for Chile's lithium and hydrogen exports are significant. The global demand for lithium is expected to continue growing, driven by the electric vehicle revolution and the increasing use of renewable energy storage systems. Chile's established lithium industry and its favourable geological conditions position it well to capitalize on this demand. Similarly, the growing global interest in green hydrogen as a clean fuel source presents a unique opportunity for Chile to become a leader in this emerging sector. By addressing the challenges and leveraging its natural advantages, Chile can solidify its position as a key player in the global transition towards a sustainable energy future.

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