In Summary
The swift ratification of the AFA is crucial to fulfilling Dutch and European partnership commitments.
The AFA offers progressive trade, human rights and environmental rules, as well as long-term investment protection.
European investment in resource-rich Chile strengthens our strategic autonomy.
In December 2023, the EU and Chile agreed on a new trade agreement. The Association Agreement, which dates back to 2002, is being modernised into the Advanced Framework Agreement (AFA). The AFA will only enter into force once it has been ratified by all EU Member States. So far, only fourteen EU Member States have ratified it, including Denmark, Poland and Spain. Unfortunately, the Netherlands is still lagging behind. This does not help our credibility when it comes to swiftly fulfilling ‘partnership commitments’.
In March this year, Minister Klever hinted at a raw materials partnership with Chile. The Dutch organisation Invest International even set up a fund intended for investments in critical raw materials. Without the swift ratification of the AFA, these ambitions will remain nothing more than fine words. It is high time to put words into action and ratify the AFA. Until then, the less comprehensive Interim Trade Agreement (ITA) will apply.
That is a pity, as the AFA is a trade agreement in the true (EU) sense of the term.
It aims not only to increase mutual trade and investment, but also to foster a joint approach to global challenges such as climate change and to deepen cultural and political cooperation. The trade agreement is therefore progressive in its environmental rules, provisions on the rule of law and the protection of human rights. There is even a provision to combat economic discrimination against women, which is unique. Given its scope, the AFA could serve as a model for future trade agreements with countries in the Global South.
Lithium
Such trade agreements are becoming a rarity in these geopolitically turbulent times. Nevertheless, this trade agreement is characterised above all by its great geopolitical significance. Chile is, in fact, a country rich in raw materials and has great potential as a future hydrogen producer. It possesses large reserves of copper, lithium and other raw materials. Together with Argentina and Bolivia, Chile forms the world’s lithium triangle. These three countries are home to the largest lithium reserves in the world. Whilst Argentina and Bolivia have proven reserves of 23 million tonnes, Chile has known reserves of 11 million tonnes.
Argentina has a liberal mining regulatory framework and therefore attracts more private investment, particularly from the US, but political instability poses a major risk. Bolivia has a heavily nationalised mining sector and lags behind technologically. Chile offers the best combination of investment and legal certainty, good infrastructure and high-quality raw materials – provided this investment climate is supported by the AFA.
Further exploration in Chile for lithium and other rare earth metals is in full swing. It is worth noting that Chile has announced projects for rare metals that are not considered strategic raw materials and can be mined and processed entirely under private ownership. This could be of great interest to Dutch companies.
China’s Dominance
In 2024, Chile was the largest lithium producer in the region and the second-largest in the world behind Australia. However, Chile is the world’s largest exporter of lithium (carbonate). The largest buyer of Chilean lithium? China, accounting for no less than over 70 per cent of total exports. Furthermore, the Chinese state-owned enterprise Tianqi Lithium holds a 22.16 per cent stake in SQM, Chile’s largest lithium producer.
China’s dominant position in raw materials is also evident here, both in the mining of lithium and other raw materials and in their processing. The processing of lithium is, if anything, even more important than its mining. It is a crucial raw material for the production of lithium-ion batteries, which are used, for example, in electric cars, large-scale energy storage and laptops.
Global demand for lithium has therefore risen enormously as a result of the energy transition, and is set to rise even further. European demand is expected to be eighteen times greater in 2030 than in 2020 and sixty times greater by 2050, reaching – according to some scenarios – one million tonnes of lithium carbonate equivalents (LCE).
It is therefore in Europe’s vital interest to ensure a stable supply of lithium for its own industry and energy transition. Reliable suppliers are crucial in this regard, as are a degree of import diversification and securing a European stake in the value chain. Europe’s minimal lithium production, combined with growing demand, creates enormous dependence and geopolitical vulnerability, which China threatens to exploit through export controls on high-quality lithium-ion batteries.
AFA offers investment security
Chile and AFA can provide a solution here. Whilst the ITA ensures market access, AFA offers the necessary long-term investment protection. This includes protection against expropriation, the right to fair and equitable treatment, full physical protection, the free repatriation of profits and a survival clause for existing investments. This protection provides the legal framework to encourage European companies to invest in Chile, including in the lithium value chains. This is by no means a luxury, given the virtual absence of European companies in Chile’s raw materials value chains.
It is precisely (strategic) investment that is the key to successful free trade agreements and the development of robust production chains. Market incentives and a free trade agreement alone are insufficient. Through the AFA, Chile and the EU explicitly aim to become strategic partners in the green transition. The AFA is therefore not just about the export of raw materials, but also stimulates investment in processing capacity, batteries and technology within Chile itself.
The participation and interests of European companies in the Chilean mining sector provide geopolitical assurance for robust supply chains.
This article was translated, find the original here.