In a world of geopolitical uncertainty and shifting economic landscapes, the European Union (EU) has increasingly sought to diversify its sources of critical raw materials and renewable energy. In this pursuit, Chile has emerged as a key strategic partner. With its vast reserves of essential minerals and a growing renewable energy sector, the south American country plays an indispensable role in the EU’s push for greater economic resilience and sustainable development.
Chile’s integration into the global economy began in earnest in the mid-1970s when it transitioned from an inward-looking import-substitution model to one of the most open economies in Latin America. This shift was marked by comprehensive market reforms and trade liberalization, which saw Chile gradually reduce trade barriers and open its doors to foreign direct investment (FDI). By the 1990s, Chile had become a regional leader in free trade, signing agreements with major partners across the world, including the EU​.
Chile’s economic reforms, such as its adoption of a floating exchange rate and inflation targeting, have provided stability, even in the face of external economic shocks. The country’s open economy has diversified its export base, although copper remains its most significant export, contributing to nearly 50% of export revenue. In addition to copper, Chile exports fruits, fish, and forestry products, and has seen growing sectors in technology and services​.
Chile’s natural resource wealth has long been its economic backbone, but it is the country’s ability to attract foreign capital and implement forward-thinking policies that have solidified its role in the global economy. Chile’s extensive trade agreements, low tariffs, and competitive market conditions have made it an attractive destination for European investors, who view the country as a stable and reliable partner in Latin America.
Chile’s Strategic Importance to the EU
Chile is not just another trading partner for the EU; it is a linchpin in the Union’s strategy to diversify its supply chains and secure critical resources. One of the most vital resources Chile offers is lithium, an essential mineral to produce batteries used in electric vehicles and renewable energy storage. As the EU accelerates its green energy transition under the European Green Deal, securing a stable supply of lithium is crucial to reducing reliance on fossil fuels and meeting climate targets​.
Chile holds about 36% of the world’s known lithium reserves, positioning it as a global leader in the production of this key resource. With the rise of electric vehicles and renewable energy technologies, the demand for lithium is skyrocketing. The EU, which imports most of its lithium, views Chile as a critical supplier that can help secure the raw materials needed to meet its ambitious energy goals. Moreover, Chile’s copper reserves, which are the largest globally, are vital to produce electrical infrastructure, further emphasizing its strategic importance​.
In addition to raw materials, Chile is also a leader in renewable energy. The country has made significant investments in solar, wind, and hydropower projects, with the Atacama Desert recognized as one of the best locations in the world for solar energy generation. European companies are already investing heavily in Chile’s renewable sector, and the EU is keen to deepen this cooperation as part of its broader efforts to diversify energy sources and reduce dependency on fossil fuels​.
The EU-Chile Modernized Trade Agreement
The relationship between Chile and the EU reached a new milestone with the modernization of their Association Agreement, initially signed in 2002. This updated agreement, finalized in 2022, marks a significant advancement in trade relations, aligning both parties’ economic and environmental goals.
One of the primary outcomes of the updated agreement is improved market access for both the EU and Chile. The agreement eliminates or reduces tariffs on a wide range of products, promotes sustainable trade practices, and facilitates digital trade and services. It also enhances regulatory cooperation in key areas such as food safety, intellectual property, and environmental standards​.
Perhaps most importantly, the modernized agreement places a strong emphasis on sustainability. As the EU seeks to build a greener economy, the agreement provides a framework for responsible extraction and trade of critical materials, such as lithium and copper. The EU and Chile have agreed to collaborate on environmental issues, including climate change mitigation and biodiversity protection, ensuring that their trade relationship aligns with global efforts to combat environmental degradation​.
The trade agreement also sets a precedent for future EU trade deals, emphasizing the importance of human rights, labor standards, and environmental protections. For Chile, this deal not only strengthens its economic ties with the EU but also positions it as a leading advocate for sustainable development in Latin America.
The EU’s partnership with Chile is more than just a trade relationship; it is a strategic alliance critical to the Union’s broader goals of economic diversification, energy security, and sustainability. Chile’s vast reserves of critical raw materials like lithium and copper, combined with its leadership in renewable energy, make it an indispensable partner for the EU as it navigates the complexities of the green transition.
With the modernized EU-Chile trade agreement in place, the future of this relationship looks promising. The agreement not only enhances market access but also aligns with the shared values of sustainability and responsible economic development. As the EU continues to diversify its supply chains and reduce reliance on non-renewable resources, Chile will undoubtedly remain a key ally in achieving these goals. The partnership offers mutual benefits, driving growth and sustainability on both sides of the Atlantic, and paving the way for deeper cooperation in the years to come.
