As the European Union (EU) divests from fossil fuels to achieve the goal of becoming the first climate-neutral continent by 2050, its demand for the critical raw materials that will power the green transition is on the rise. In December 2023, the EU signed an Advanced Framework Agreement (AFA) with Chile, the world’s largest producer of copper and the second largest producer of lithium, marking a new era in the bi-regional association.
This article analyses the geopolitical, social, and environmental implications of the EU-Chile AFA and the opportunities for economic growth and sustainable development for both parties.
Setting the scene: the Global Gateway strategy
Launched in 2021 by the European Commission and the EU High Representative, the Global Gateway initiative aims to mobilise €300 billion by 2027 to foster sustainable investments worldwide to respond to global challenges such as the improvement of health systems, the control of supply chains, climate change, and gender equality.
Over €45 billion have been allocated to investments in Latin America and the Caribbean (LAC) for projects related to green hydrogen, telecommunications, digital cooperation and critical raw materials, among others. Strengthening ties with LAC is a key element to achieving the EU’s goals envisioned in the Global Gateway strategy as securing access to raw materials plays a pivotal role in reducing energetic dependency, especially in light of the energy crisis following Russia’s invasion of Ukraine. Furthermore, as it transpired during the last EU-CELAC (Community of Latin American and Caribbean States) summit held in Brussels in July 2023, European leaders are now prioritising the need to reduce dependencies on China and Russia, which have shown a growing influence in LAC, in contrast to the relative absence of the EU bloc.
To improve its relations with the region, the EU has committed to upgrading two association agreements with Mexico and Chile, while developing a bi-regional agreement with the Mercosur bloc. Whereas this last agreement has been stalled as a result of concerns raised by some European national Parliaments over the environmental traceability of supply chains, the new Advanced Framework Agreement EU-Chile was recently signed in December 2023.
The new AFA came to consolidate a long-standing multidimensional cooperation between the EU and Chile. As with other third countries, the EU initially framed its relationship with Chile through the 2002 Association Agreement, which was initially conceived as a trade agreement, although its scope was then expanded to also include human rights, the green transition, climate change, sustainability, education, culture, and cooperation in social matters. With this instrument, Chile became the first country in LAC to sign an association agreement with the EU. Between 2002 and 2022, EU-Chile bilateral trade grew by 169%.
Beyond the Global Gateway agenda, the EU has invested in other forms of cooperation with Chile. The country has been included in various regional programmes aimed at enhancing the EU-LAC cooperation on cross-cutting priorities such as the creation of climate-neutral economies (Euroclima+); combating organised crime (ElPacto 2.0) and illicit drugs (Copolad); promoting social cohesion and gender equality (Eurosocial); and creating jobs in the context of the green transition (AlInvest). These programmes entail the participation of several stakeholders from academia and civil society.
Furthermore, the EU and Chile are currently administering two cooperation funds financed in equal parts. The bilateral fund for development in transition runs simultaneously with the joint Chile-EU triangular cooperation fund. The latter was approved in the framework of the Triangular cooperation initiative Adelante 2 and seeks to support Chile and EU initiatives in third countries in Latin America.
The new EU-Chile Advanced Framework Agreement
On 13th December 2023, the EU and Chile signed the AFA and an interim Trade Agreement (iTA) to “strengthen political cooperation and foster trade and investment”. The agreement is expected to enter into force once EU member states national parliaments and the Chilean Congress undertake the necessary legislative procedures for its ratification. At the moment, the EU has already ratified the iTA.
The main measures of the agreement include the application of a tariff reduction to 99.6% of EU products, thus ensuring more equality between Chilean and European operators. This is expected to increase EU exports to Chile by up to EUR 4.5 billion. Moreover, the agreement foresees an extension of geographical indications to Chilean agricultural products, and the promotion of investments in strategic sectors such as renewable energies, digitalisation, and critical raw materials.
The role of Chile as a supplier of critical raw materials is central to this modernised association. Chile is the world’s largest producer of copper and the second largest producer of lithium (40% of global lithium), with the EU importing around 80% of the latter. In the final stages of the AFA negotiations, both blocs signed a separate strategic partnership on raw materials. This Memorandum of Understanding (MoU) recognises the need for cooperation to improve the sustainability of global value chains –particularly of raw materials– as central for the green energy transition.
Importantly, the EU also adopted the European Critical Raw Materials Act in March 2024, which establishes the EU’s intention to create a Critical Raw Materials Club to diversify its critical raw material supply, of which Chile would be one of the resource-rich members.
The exploitation of critical raw materials has gained momentum under the mandate of President Gabriel Boric. In April 2023, Boric launched the National Lithium Strategy to position Chile as a leader in global lithium trade and increase the participation of the Chilean state in the extraction and production of lithium by creating a state-owned lithium company –although subject to the support of Congress’ absolute majority. In line with the Global Gateway initiative, the strategy places special emphasis on reducing the social and environmental impact of mining activities, as well as enhancing the participation of local communities.
In a similar vein, Boric recently expressed his support for the state-run copper company Codelco and attributed many of the hard-won social benefits and rights to the development of a national-owned copper industry.
Despite Chile’s alignment with the EU, Boric advocates for a multilateral foreign policy and has shown willingness to maintain relations with partners such as China and the United States, who have shown great interest in investing both in renewable energy and critical raw materials.
Implications and opportunities of the AFA
The AFA has been referred to as a “truly progressive and modern deal” and an “exemplary framework” for responsible and fair trade given that it includes dedicated chapters on gender –the first ever gender chapter in an EU trade agreement– and sustainable development, including provisions on sustainable food systems and rules of origin procedures. In addition, it incorporates concerns with several sectors, namely cyberspace, ocean governance, social matters and public health. The latter is also integrated with a dedicated thematic chapter centred on Small and medium Entreprises (SMEs) (Chapter 30).
However, as for the environmental concerns, it has been suggested that the dispositions of these chapters are not legally binding. Indeed, some of the language in the agreement also denotes reliance on the voluntary best practices of the participants. For instance, article 10.23 on Responsible Business Conduct states that “The Parties reaffirm the importance of investors conducting a due diligence process to identify, prevent, mitigate, and account for the environmental and social risks and impacts of its investment”. However, reaffirming its importance does not equate with a mandatory due diligence process subject to sanctions in case of non-compliance. If European corporations could get away with operating without upholding environmental and social standards and safeguards, the environmental and social costs of the European green transition would be externalised. In this regard, multiple concerns have been raised regarding the potential consequences of the expansion of lithium mining in Chile on the livelihoods and health of local communities –particularly Indigenous ethnic groups– and the exacerbation of the water crisis.
Nonetheless, to avoid a lack of enforcement, the AFA includes a joint statement commitment to establish a review process of the trade and sustainability clauses of the agreement which could ultimately lead to the implementation of trade sanctions in case of failure to fulfil the Paris Agreement (Article 26.10) or the International Labour Organisation (ILO) obligations.
Despite the above, it is not yet possible to assess the practical effect of such a procedure, which has led to some criticism over the absence of the necessary sustainability assurances.
Other criticism around the agreement refers to the impact it could have on small-scale farmers, who could be displaced from the markets by larger companies benefiting from tariff reductions for agricultural products. Indeed, a joint statement by several South American and European peasant organisations states that the UN Declaration on the Rights of Peasants and Other People Working in Rural Areas is not mentioned anywhere in the agreement.
Furthermore, the agreement is said to compromise Chile’s ability to regulate its own exports and supply chains, as any attempt to impose prices, taxes, subsidies, or performance requirements could be considered a breach of the agreement.
Some guidelines to ensure conformity with social and sustainability standards
For the AFA to generate mutual benefits and to prevent Chile from falling into the ‘resource curse’, the roadmap for its implementation –and that of the MoU on Sustainable Raw Materials Value Chains– needs to be developed through comprehensive consultations of the relevant stakeholders of both blocs, with a special focus on the engagement of marginalised and vulnerable groups that could be impacted as a result of the renewable energy, critical raw materials, or digitalisation projects.
In addition, the commitments made in the AFA regarding sustainable development, gender equality, transparency, sustainable food systems, etc. need to be translated into concrete measures to ensure that local value is added (e.g., by contributing to resilience-building, job creation, and the enhancement of natural ecosystem services).
Although Chile has graduated from being a recipient of development assistance, it is still yet to be ascertained if this agreement will be able to overcome the current economic model based on the export of raw materials in exchange for manufactured goods from the EU. Even though the agreement is progressive in many aspects, the trade review will prove to be essential to determine the possibilities of reconciling trade needs with sustainability and human rights concerns.
On this matter, the use of the review mechanism as an institutionalised platform would allow for a risk-based approach to achieve an effective impact assessment of investments under the AFA scope. Conformity measures also entail the need to accomplish regulatory cooperation aimed at developing an effective framework capable of tackling any disruptions to the sustainability standards.
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