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The EU-Chile agreement explained

The EU has negotiated a trade agreement with Chile.

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The Trade Part of the EU-Chile Advanced Framework Agreement

How big is EU-Chile trade?

Chile is Latin America’s fifth-largest economy and is the EU's third-biggest trading partner in Latin America. The EU is Chile’s second-biggest market for goods exports.

With a population of 20 million, its annual output is over €340 billion.

The EU and Chile concluded an Association Agreement in 2002, which includes a comprehensive Free Trade Agreement (FTA) that entered into force in February 2003 covering EU-Chile trade relations.

EU-Chile bilateral trade grew by 169% between 2002 and 2022.

EU firms exported to Chile:

  • €10.7 billion in goods in 2022, and;
  • €4.4 billion in services in 2021.

In 2022, total EU-Chile trade in goods was €18.5 billion. In 2021, total EU-Chile trade in services was €7.2 billion.

Why has the EU negotiated an agreement with Chile?

In 2017, the EU and Chile launched negotiations to modernise the EU-Chile Association Agreement, so it can address all relevant areas of the relationship between the EU and Chile even better, in the face of political, economic and technological changes over the last 20 years. 

On 9 December 2022, the European Union and Chile concluded negotiations on the modernisation of the EU-Chile Association Agreement, now named an Advanced Framework Agreement.

The trade part of the agreement will provide new opportunities for EU businesses in Chile, one of the biggest Latin American economies.

The agreement also contains major commitments on sustainable trade, notably on multilateral environmental and labour standards, climate, energy, and raw materials, as well as gender equality and sustainable food systems.

What will the agreement with Chile achieve?

The agreement will deepen EU-Chile trade and investment relations and provide new opportunities for EU businesses in Latin America’s fifth-largest economy:

  • 99.9% of EU exports will be tariff-free, which is expected to increase EU exports to Chile by up to €4.5 billion over time.
  • Greater access to raw materials and clean fuel crucial for the transition to the green economy, such as lithium, copper, and hydrogen.
  • Easier for EU companies to provide their services in Chile, including in delivery, telecommunications, maritime transport and financial services.
  • Same treatment for EU investors in Chile as for Chilean investors, including in the energy and raw material sector, and vice versa.
  • Improved access for EU companies to Chilean government procurement contracts for goods, services, works and works concessions, and vice versa.
  • A dedicated chapter on small and medium-sized enterprises to help ensure that smaller businesses fully benefit from the agreement, including by cutting red tape.

The agreement will contribute to the EU and Chile’s shared ambition of developing a fruitful partnership based on sustainability and shared values, through: 

  • New full-fledged articles on democratic principles, human rights and rule of law, which enshrine core European values at the heart of EU-Chile cooperation.
  • Extending the political dialogue to include international peace, justice and security.
  • A renewed focus on science, technology, research and innovation.
  • An ambitious Trade and Sustainable Development chapter confirming the Parties’ commitment to International Labour Organization standards and to the Paris Agreement.
  • A dedicated Trade and Gender chapter, with commitments to eliminate discrimination against women.
  • A chapter on Sustainable Food Systems, with the objective of making food supply chains more sustainable and resilient.

What will be the legal architecture of the agreement?

The modernised EU-Chile Agreement will be composed of two parallel legal instruments:

  1. the Advanced Framework Agreement (AFA), which will include a) the Political and Cooperation pillar, and b) the Trade and Investment pillar (inclusive of investment protection provisions), subject to ratification by all Member States, and;
  2. an Interim Trade Agreement (ITA) covering only those parts of the trade and investment pillar of the AFA that are of EU exclusive competence (i.e. not including the investment protection provisions), to be adopted through the EU-only ratification process. The ITA will expire when the AFA enters into force.

What will Chile get from the deal?

It will be easier for Chile to export to the EU, while respecting the EU’s high standards. All Chile’s industrial goods exports to the EU will remain tariff-free, and its agricultural products will get better market access conditions.

The trade deal will give more opportunities for Chilean citizens to provide their services in the EU, including on a temporary basis through their physical presence in EU countries, such as contractual service suppliers or as independent professionals.

What will the agreement mean for trade in goods?

The agreement will eliminate tariffs on EU exports, which is expected to increase EU exports to Chile by up to €4.5 billion over time:

  • 99.9% of EU exports will be tariff-free (all products except sugar).
  • Among others, Chile will remove tariffs on EU dairy products and food preparations.
  • The existing tariff rate quota for EU cheese will be ultimately removed under the new agreement.

What will the agreement mean for trade in services?

The agreement will make it easier for EU firms to sell their services to Chile, including in:

  • Delivery;
  • Telecommunications;
  • Maritime transport, and;
  • Financial services.

The agreement will reduce and eliminate discrimination and expand opportunities for EU and Chile service providers and investors.

It guarantees the right of EU Member States' authorities to maintain public services, and it will not force governments to privatise or deregulate any public service at national or local level.

Similarly, Member States' authorities retain the right to return privately provided services to the control of the public sector. Europeans will continue to be able to decide for themselves how they want critical services such as healthcare, education and water to be delivered, for example.

What will the agreement mean for digital trade?

It will facilitate digital trade by addressing unjustified barriers and ensuring an open, secure and trustworthy online environment for businesses and consumers, along with high standards of personal data protection. It notably prohibits data localisation requirements, while preserving the EU's policy space regarding the protection of personal data. It will provide greater legal certainty for businesses engaged in digital trade through additional commitments like the validity of e-contracts and electronic authentication.

What will the agreement mean for investments?

  • It will ensure EU investors in Chile are treated the same way as Chilean investors.
  • EU and Chilean investors will be able to establish and operate their companies freely in each other’s territories.
  • It will provide a high level of investment protection coupled with an Investment Court System, which will improve transparency and accessibility to the dispute settlement mechanism.
  • The commitments on investment protection closely follow the EU's reformed approach on investment protection.

How will the agreement help small businesses?

Trade barriers disproportionately affect smaller businesses more than large companies, because they may not have the time and resources to overcome them. The agreement includes a dedicated chapter for small and medium-sized enterprises (SMEs) to address the specific challenges of small companies in international trade and investment.

EU SMEs will gain significantly from many of the more general provisions of the trade agreement:

  • Doing business will be easier with Chilean partners when they export or import goods and services, invest or work together.
  • Tariff elimination, simplified customs procedures and more compatible technical requirements will lower export-related costs, so SMEs with lower trade volumes will be able to compete alongside larger companies in Chile.
  • This also enhances SMEs' ability to participate in supply chains, e-commerce, and public procurement, and to provide Services.
  • Both the EU and Chile will provide a specific website containing information that SMEs need to access the respective markets.

How will the agreement benefit the EU's farming communities?

EU farming communities stand to gain from easier access to the Chilean market, and more opportunities to sell their produce to Chile's 20 million consumers with the 2nd highest per capita income in Latin America. The agreement will add 162 tariff lines, mainly of agricultural products, for liberalisation after a maximum staging period of seven years (for cheese, dairy, some sugar-containing products, and vegetable oils) and 34 tariff lines will already be fully liberalised at entry into force (covering notably cereals and some vegetable oils).

Chile will ultimately fully liberalise all EU dairy products and food preparations, which are important agri export categories to Chile. The existing tariff rate quotas for EU cheese will remain temporarily in place but will be finally liberalised under the new agreement. These improved market access opportunities have the potential to further allow EU farmers to increase dairy exports to Chile.

At the same time, for the first time, the 216 most relevant geographical indications of agri-food items coming from a broad variety of EU Member States to the Chilean market will be protected in Chile under the modernised agreement, thereby avoiding usurpation of iconic EU food item names such as 'Parmigiano Reggiano', 'Bayerisches Bier' or 'queso Manchego' on the Chilean market.

How will the agreement protect sensitive EU agricultural products?

The impact of the improved market access on agricultural products will be marginal, according to the ex-ante Sustainable Impact Assessment (SIA) published in May 2019 and the study on 'Cumulative economic impact of future trade agreements on EU agriculture' published in 2016.

The most sensitive agricultural goods are exempted from full liberalisation under the modernised agreement. These include meat (beef, poultry, pig and sheep meat), certain fruits and vegetables (e.g. garlic, apple juice, grape juices, etc.) as well as olive oil. Improved market access for Chile has been granted under limited and stable Tariff Rate Quotas (TRQs), which corresponds only to a tiny fraction of the EU’s internal consumption and production. Sugar is completely excluded from any liberalisation.

In the context of the Tariff Rate Quotas for meat (beef, poultry, pork and lamb), the agreement will put an end to the current automatic undetermined annual increase of the TRQs, and instead grant a reasonable top-up, which ensures that, in the long run, market concessions are more limited than under the status quo. Once the new TRQs are applied, these will remain stable and thereby provide a predictable, long-term limited additional market access for Chile.

How will the agreement protect distinctive EU products (Geographical Indications)?

The EU is a major producer of distinctive high-quality regional food and drink products.

In the EU, these products enjoy protection under a special status called 'Geographical Indications' (GIs). GIs guarantee to consumers that the produce is the genuine article from the specific locality or region concerned. They also allow European producers to earn a premium price for the quality of their unique produce.

The agreement will protect 216 names of EU Geographical Indications (GIs) for food and drinks in Chile, such as Parmigiano Reggiano, Comté or Gruyère cheeses, Istarski pršut ham, Jabłko grójeckie apples, and Pruneau d’Agen dried plums. This on the top of the existing agreement on wines and spirits, which protects 1,745 GIs for wines and 257 GIs for spirts and aromatised wines from the EU in Chile, such as Prosecco and Tokaji. The agreement allows adding new GIs under the protection of the agreement in the future.

This will make it illegal to sell imitations.

  • the use of a GI term for non-genuine products will be prohibited;
  • expressions such as ‘kind’, ‘type’, ‘style’, ‘imitation’ or the like will not be allowed, and;
  • protection from misleading use of symbols, flags or images suggesting a 'false' geographical origin.

For example, no-one will be allowed to call cheese 'Comté' unless it is the genuine cheese made in Franche-Comté region, France, under specific production conditions.

How will the agreement further open Chile's government procurement market?

The agreement will make it easier for European firms to bid for government contracts in Chile. The agreement will do this in three ways:

  • EU companies will be able to participate on an equal footing with Chilean companies in bids for procurement covered by the agreement and vice versa;
  • Chile will open up procurement for goods, services, works and works concessions contracts, at lowered thresholds compared to the current agreement, and;
  • Finally, it will make the tendering process more transparent. Chile has agreed to publish contract notices online at a single electronic portal for procurement covered by the agreement.

How does the agreement help secure access to lithium in a sustainable way?

Lithium is indispensable to produce batteries for electric vehicles. It is thus essential to the green transition and to achieve the EU’s Green Deal objectives.

Demand and competition for lithium will explode globally in the next decade. Reduced access to lithium threatens the future of EU battery production and could make the EU depend on other battery producers, such as China.

Chile is one of the world’s biggest lithium suppliers (40% of global lithium supply and around 80% of all EU imports (2020)).

The EU-Chile Advanced Framework Agreement ensures that we will have access to the lithium we need, while also securing the highest sustainability standards.

It ensures non-discriminatory access by:

  • Prohibiting export and import monopolies for raw materials, to ensure that no exclusive trading rights are awarded to any specific company.
  • Limiting the current existing dual prices policy in Chile for raw materials. Currently, Chile reserves 25% of the production for locally established companies at preferential prices. With the agreement, Chile commits not introduce price requirements below the market price of the previous year. This will ensure that domestic prices will not distort trade and competition.
  • Chile committing not to apply any sort of export restriction towards the EU.

It ensures environmental sustainability in energy and raw materials through:

  • A joint commitment to sustainable mining and principles for Environmental Impact Assessments that reflect the standards applied in the EU.
  • Ensuring responsible sourcing and trade that meets, for example, the due diligence requirements in the Commission’s proposal for the Sustainable Batteries Directive.
  • A joint commitment to advance cooperation in areas such as responsible mining, standards, and research and innovation in green energy and sustainable raw materials.

How does the agreement help secure access to hydrogen in a sustainable way?

It is an EU priority to establish hydrogen partnerships with reliable suppliers that agree not to distort trade and investments according to the 2022 EU External Energy Engagement Strategy. Chile is a prime candidate for such a partnership as:

  • It has substantial potential for cheap renewable electricity generation from wind and solar energy, and therefore also for renewable hydrogen production.
  • It already has the ambition to become the world's lowest-cost green hydrogen producer by 2030, and one of the world's three largest hydrogen exporters by 2040.
  • Several EU Member States (including DE, BE and NL) have already signed Memoranda of Understanding (MoUs) with Chile with a view to enabling hydrogen trade in the future.
  • Chile plans to have more than 200 GW of renewable power capacity installed by 2040 purely for hydrogen production (ten times what they need for domestic consumption), worth an approximate $220 billion.

The Agreement with Chile provides an excellent framework for trade and investment in hydrogen and renewable electricity production:

  • It is the first agreement in which the EU has dedicated significant attention in particular to the challenges on hydrogen.
  • Hydrogen will be able to flow freely across borders: the agreement ensures non-discriminatory access to the Chilean hydrogen market (e.g. by prohibiting export monopolies, export licensing, export taxes and disciplining price regulation).
  • EU companies will be able to invest in renewable electricity or hydrogen production capacity on an equal footing with domestic companies.
  • EU companies will get non-discriminatory access to electricity grids, to be overseen by an independent body. This will be key for enabling EU companies to invest in renewable energy generating capacity and transporting electricity to hydrogen production facilities.
  • The agreement foresees in cooperation dedicated to facilitating hydrogen trade, for example by working on harmonisation of certification schemes for renewable fuels, addressing trade barriers for hydrogen, and promoting hydrogen production.
  • The deal will set a vital precedent for convincing other producers of hydrogen to make these commitments with the EU.

What are the key provisions on rules of origin?

Products that are wholly obtained in either party (by agriculture, mining, fishing, etc.) qualify as originating, as well as products containing foreign inputs, if they meet specific requirements for local production called product specific rules.

Materials from Chile can be counted as originating in the EU and vice versa, as well as any processing that has been done on non-originating materials in either party. This is called full bilateral cumulation.

For products not meeting the product-specific rules, there is an additional tolerance of 10% in value for all products except for textiles and clothing, which have a special tolerance.

How will the agreement protect European standards, including food safety standards?

As with all the EU's trade agreements, the agreement with Chile will not change European standards, including standards for food, agricultural and fishery products. EU standards are not negotiable and are applied equally to all products placed on the EU market.

  • EU stringent food safety rules will not change
    • The agreement does not affect or undermine EU food safety and animal and plant health legislation because health standards are not negotiable.
    • We keep our strict approach on health protection for any food safety matter, including genetically modified organisms (GMOs).
    • The EU maintains its right to set maximum levels of residues for pesticides, veterinary medicines or contaminants.
  • The EU remains free to regulate food safety
    • The EU remains fully independent in deciding safety criteria for products that reach our market.
    • The agreement reaffirms our right to regulate food safety in the interest of EU citizens' health.
    • The agreement includes the 'precautionary principle', allowing us to take measures to protect the health of EU citizens when the scientific evidence on whether imported food is safe or not is inconclusive.
  • All imported food must comply with the EU’s standards
    • EU rules apply to all products sold in the EU, whether produced domestically or imported.
    • Our robust system of checks allows us to make sure that EU rules are respected.

How will the agreement help promote sustainable food chains in both regions?

The agreement has a dedicated chapter on Sustainable Food Systems, a first for an EU trade agreement, and will address several aspects:

  • The EU and Chile have agreed to cooperate more closely on animal welfare standards.
  • The EU and Chile have committed to phasing out the use of antimicrobials, resistance to which is linked to the use of antimicrobials in humans and animals.
  • The EU and Mercosur have also agreed to cooperate on food waste, pesticides and fertilisers.

How will the agreement promote sustainability?

The political and cooperation pillar of the agreement includes an entire chapter on Cooperation of Sustainable Development, which contains comprehensive articles on sustainable development, particularly on the environment, climate change, sustainable energy or ocean governance. The Parties commit to effectively implement the multilateral environmental agreements that they have ratified, including the Paris Agreement on Climate Change.

This comes in addition to the comprehensive Trade and Sustainable Development Chapter in the trade part of the agreement, where the EU and Chile have taken clear commitments on effective implementation of ILO conventions and Multilateral Environmental Agreements, coupled with a dedicated dispute settlement mechanism.

Will the agreement include sanctions under Trade and Sustainable Development?

The agreement includes a Joint Statement committing the parties to initiate a review process of the Trade and Sustainable aspects of the agreement, as soon as the interim Free Trade Agreement comes into force and with a clear time frame for delivery. In this review process, the EU will be guided by the principles and objectives set out in the EU policy on trade and sustainable development, which includes proposing to trade partners the possibility to resort to trade sanctions, as a measure of last resort, in certain specific cases (e.g. in case of failure to comply with obligations that materially defeat the Paris Agreement on Climate Change or in serious instances of non-compliance with the ILO fundamental principles and rights at work).

How will the agreement contribute to the fight against climate change?

Under the agreement, the EU and Chile commit to effectively implement the United Nations Framework Convention on Climate Change and the Paris Agreement on Climate Change. They also commit to promoting trade’s positive contribution to the fight against climate change.

How will the agreement contribute to gender equality?

The agreement has a dedicated chapter on Trade and Gender equality, a first for an EU trade agreement, and will address several aspects:

  • Commitment to effectively implement the Convention on the Elimination of all Forms of Discrimination Against Women.
  • Commitment not to weaken or reduce the levels of protection nor to waive or otherwise derogate from its laws aimed at ensuring gender equality or equal opportunities for women and men, in order to encourage trade or investment.
  • Priority areas for sharing of information and joint initiatives, such as policies on maximising positive impacts of women's participation in trade.

How will the agreement uphold workers' rights in the EU and Chile?

Both the EU and Chile have strong laws protecting workers' rights. They have agreed that the trade deal between them must support existing rights and not reduce or dilute them.

The agreement prohibits either side from unduly encouraging trade and investment by:

  • derogations from labour laws, and;
  • not enforcing labour laws.

The two sides have also agreed to ensure that core labour rights as defined by the International Labour Organization (ILO) are respected. These concern:

  • Non-discrimination at work;
  • Elimination of child labour and of forced labour;
  • Freedom of association and the right to collective bargaining, and;
  • Equal opportunities for women and men to obtain decent and productive work.

They have also agreed commitments on labour inspection and on health and safety at work, in line with ILO standards.

What about the agreement's impact on the environment?

The EU and Chile have agreed that the trade deal between them must support existing environmental standards and labour rights and not lower or dilute them. They have also agreed that each side has the right to regulate in order to protect the environment and workers’ rights.

The agreement prohibits either side from unduly encouraging trade and investment by:

  • derogating from environmental laws, and/or;
  • failing to enforce environmental laws.

Both sides have agreed to effectively implement the Paris Agreement on Climate Change and all other multilateral environmental agreements that Chile and the EU have ratified; for instance, the Convention on Biological Diversity (CBD) and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).

The Trade and Sustainable Development (TSD) Chapter includes further provisions on the fight against climate change and the transition to a sustainable low-carbon economy. It also identifies potential areas where trade and environmental agendas can reinforce each other, such as: the conservation and sustainable management of biological resources, forests and fisheries; the promotion of trade in legally harvested and sustainable products; or the promotion of low-carbon technologies and energy efficiency. Key relevant international instruments include:

  • Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)
  • Convention on Biological Diversity (CBD)
  • Fisheries instruments at global (FAO) and regional level (RFMOs)

Will sustainability commitments be enforceable?

Yes. The commitments set out in the section on Trade and Sustainable Development will be enforceable through a dispute settlement mechanism that includes:

  • External review by an independent panel of experts;
  • A role for civil society, including representatives of employers and trade unions, at all stages, and;
  • Calling on the expertise of international bodies such as the International Labour Organization.

Does the agreement contain a reference to the precautionary principle?

Yes. The agreement asserts the right of governments to regulate on the basis of the precautionary principle.

The 'precautionary principle' means that governments have a legal right to act to protect human, animal or plant health, or the environment, in the face of a perceived risk even when scientific evidence is not conclusive. This is explicitly mentioned in the chapter on trade and sustainable development.

How will the agreement safeguard governments' right to regulate in the public interest?

The agreement will not affect the right of the EU or Chile:

  • To regulate for public policy objectives such as protecting public, animal and plant life or health, as well as the environment or workers, or;
  • To provide public services.

Like all EU trade deals, the EU-Chile Agreement leaves governments on both sides entirely free to manage water distribution or other essential services as they see fit. They continue to choose whether such services are part of the public or the private sector. The EU-Chile agreement is no different.

The agreement will enable the EU and Chile to work together on some regulatory issues – on a voluntary basis.

Cooperation will only apply to EU laws that affect trade or investment. It will not include EU Member States’ laws.

How much control do elected governments and MEPs have over the whole process?

The European Commission negotiated on behalf of the EU in line with a mandate granted to it by the governments of the EU Member States.

The Commission has always ensured that the negotiation process is accountable to EU Member States and to the European Parliament.

The Commission negotiators and services:

  • Work together with EU Member States to prepare the negotiations and negotiating texts;
  • Report back to Member States meeting in the Council on how the negotiations are going;
  • Keep the European Parliament updated of developments, and;
  • Appear before the European Parliament's International Trade Committee.

How has the Commission ensured that everyone can follow what is happening in the talks?

Throughout the negotiations, the Commission has regularly met, informed and shared information with:

  • EU Member State governments
  • European Parliament
  • Civil society organisations

On its website the Commission has published dedicated pages with links to:

  • Reports of negotiating rounds
  • Texts of EU proposals submitted to Chile
  • Press releases
  • Factsheets in plain English
  • Other background information about the negotiations

The Commission also:

  • Holds press conferences with journalists
  • Uses social media, such as Twitter

Has the Commission evaluated the impact that this agreement could have on the EU and Chile?

The EU commissioned an independent Sustainable Impact Assessment (SIA) on these negotiations. The SIA was conducted in regular dialogue with all relevant stakeholders from civil society. The SIA has been published in May 2019 and a Commission Services’ Position Paper was published in June 2020.

The EU also commissioned an independent Impact assessment study on the negotiations.

How did the Commission ensure that it listened to everyone with a stake in the agreement?

The Commission regularly reports back to the governments of the EU's Member States and keeps the European Parliament informed of progress in the negotiations.

The European Commission has also held four meetings with representatives of many of the 460+ civil society organisations registered with its ongoing dialogue on trade policy.

These EU-based, not-for-profit organisations include:

  • Trade unions
  • Consumer bodies
  • Employers' federations
  • Business federations
  • Farming organisations
  • Environmental organisations
  • Animal welfare organisations
  • Faith-based groups
  • Think tanks
  • Community-based groups

These meetings enable a wide range of bodies to make their views heard and to comment on the negotiations. At the meetings, the Commission informs and updates civil society on the negotiations.

In 2015, the European Commission issued new guidelines for transparency. Since then, the Commission has made public all new negotiating papers tabled in the talks.

What happens now after the political conclusion of the agreement?

The modernised EU-Chile Agreement will be composed of two parallel legal instruments:

  1. the Comprehensive Agreement, that will include a) the Political and Cooperation pillar ,and b) the Trade and Investment pillar (inclusive of investment protection provisions), subject to ratification by all Member States, and;
  2. an Interim Free Trade Agreement (iFTA) covering only those parts of the trade and investment pillar of the Comprehensive Agreement that are of EU exclusive competence (i.e. not including the investment protection provisions), to be adopted through the EU-only ratification process. The iFTA will expire when the Comprehensive Agreement enters into force.

As a first step, both the EU and Chile will proceed with the legal verification of the agreement. Following that, the EU will propose the Comprehensive Agreement and the iFTA for conclusion and ratification.