Modernisation of the trade pillar of the EU-Chile Association Agreement

In “A Stronger Europe in the World”

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Background and state of play

On 9 December 2022, the EU and Chile reached an agreement in principle on the modernisation of the 2002 Association Agreement, which currently governs their relations. Based on a 2017 Council mandate, the European Commission held ten negotiation rounds with Chile from November 2017 to May 2021. In October 2021, the talks were concluded at technical level. However, the arrival of a new government in Chile in March 2022 required additional bilateral discussions on a number of sensitive issues, including energy and raw materials, investment and intellectual property rights.  

The agreed text, the EU-Chile Advanced Framework Agreement (AFA), has a political and cooperation part and a trade and investment part, including investment liberalisation and investment protection. It is accompanied by an Interim Trade Agreement (iTA) that contains the AFA's trade and investment liberalisation provisions that fall within the EU's exclusive competence. The iTA therefore only requires ratification at EU level. Since the AFA contains provisions on policy areas for which the EU shares competence with the EU Member States, it must be submitted not only to the European Parliament for consent but also to all EU Member States for ratification in line with their constitutional requirements. Once the AFA has entered into force, the iTA will automatically expire.  

On 5 July 2023, the European Commission submitted to the Council proposals for Council decisions on the signature and conclusion of the AFA and the iTA. On 4 December 2023, the Council adopted two decisions to sign the AFA and the iTA. The latter were signed on 13 December 2023. On 24 January 2024, Parliament's Committees on Foreign Affairs (AFET) and on International Trade (INTA) adopted their joint draft recommendation and their joint draft interim report on the conclusion of the AFA. On the same day, INTA adopted its draft recommendation on consent to the iTA. On 29 February 2024, Parliament greenlighted the AFA and iTA and on 18 March 2024, the Council gave its final endorsement to the iTA, which ends the iTA's EU-level ratification. Chile's Congress is said to start ratification procedures in April 2024.

The agreed text will liberalise 96% of the agricultural tariff lines not yet liberalised on Chile's side and 66% on the EU side, over a maximum of seven years, including existing tariff rate quotas for EU cheese and for Chilean processed cereals. This will result in over 95% of bilateral trade in goods being duty free. For very sensitive products, exclusions will continue to apply, including for sugar on both sides and for bananas and rice on the EU side. Chilean fruit and vegetables will continue to be subject to the EU entry price system. The EU will provide additional market access only in the form of duty-free quotas for poultry meat, pork, sheep meat, beef, garlic and canned fish from Chile. New such quotas for Chile will be opened for fruit preparations and other items. Bilateral trade in industrial goods was fully liberalised under the current agreement. The agreed text incorporates a chapter on sustainable food systems which foresees for instance the phasing out of the use of antibiotics as growth promoters. The chapter on energy and raw materials prohibits export and import monopolies and dual pricing, while it allows Chile some policy space to facilitate the emergence of new industrial sectors by setting a lower domestic price within certain limits.

On investment liberalisation, performance requirements (e.g. requiring a certain level of local content or technology transfer) will be prohibited. The investment protection provisions will replace the current provisions in bilateral investment protection treaties Chile concluded with 16 EU Member States. Chile agreed to apply the EU's reformed approach to investment dispute resolution, replacing the traditional ISDS based on private arbitration with the EU's Investment Court System (ICS) model. Chile will open up its central and sub-central procurement markets at lower thresholds than currently. Locally established EU firms will be granted national treatment for public procurement of goods and services in Chile. The agreement will protect 216 geographical indications (GIs) from the EU in Chile and 18 GIs from Chile in the EU more than under current arrangements. Unlike the enforcement mechanism for key provisions of the trade and sustainable development (TSD) chapter of the EU-New Zealand free trade agreement on which an agreement in principle was reached in June 2022, the TSD chapter of the new EU-Chile trade pillar does not foresee trade sanctions. But, the chapter's review clause, in conjunction with a Joint Statement expressing the parties' intention to launch a review of the provisions upon the agreement's entry into force to enhance the enforcement mechanism, provide for the possibility to bring the TSD chapter in line with the Commission's new approach to TSD chapters.

Position of the European Parliament

In its 2017 resolution the European Parliament suggested achieving better market access in trade in goods, exploiting fully the potential of trade in services, while retaining the right of the parties to regulate public services in the public interest. It recommended to include requirements to address the enforcement of competition law, ambitious provisions on the opening of public procurement, strong and enforceable provisions on the recognition and protection of intellectual property rights including GIs as well as on tax good governance and transparency standards. It suggested including separate chapters to cover SMEs, energy, investment, TSD, trade and gender equality. It also advocated for the replacement of the ISDS with a public investment court system with an appeal mechanism.

During the 8th legislative term Inma Rodríguez-Piñero (S&D, Spain) was the rapporteur for the modernisation of the trade pillar of the EU-Chile Association Agreement.  

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Further reading:

Author: Gisela Grieger, Members' Research Service, legislative-train@europarl.europa.eu

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As of 20/03/2024.