COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Joint Recommendation for a COUNCIL DECISION authorising the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy to open negotiations and negotiate a modernised Association Agreement with the Republic of Chile
Date: 2017-05-24
Institutions: European Commission, European External Action Service
Subjects: Chile, European Commission, High Representative of the Union for Foreign Affairs and Security Policy, association agreement (EU), negotiation of an agreement (EU), powers of the institutions (EU), revision of an agreement, transfer of competence

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   EUROPEAN COMMISSION  Brussels, 24.5.2017  SWD(2017) 172 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Joint Recommendation for a COUNCIL DECISION authorising the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy to open negotiations and negotiate a modernised Association Agreement with the Republic of Chile {JOIN(2017) 19 final} {SWD(2017) 173 final}  
 
 
Impact  Assessment  on  a  Recommendation  for  a  Council  Decision  authorising  the  opening  of  negotiations  to 
modernise the EU-Chile Association Agreement 

Executive Summary Sheet 

Why? What is the problem being addressed?  

A. Need for action 

The Commission Communication Trade for All sets out the new approach to EU trade policy. The aim is to make 
EU  trade  policy  more  effective  in  delivering  economic  results,  more  transparent,  and  based,  not  only  on 
economic  interests,  but  also  on  values.  These  overarching  objectives  include  trade  and  sustainable 
development, facilitating trade and investment for SMEs and including modern investment protection provisions 
in  bilateral  agreements.  These  elements  are  missing  in  the  trade  part  of  the  existing  EU-Chile  Association 
Agreement ('the EU-Chile FTA'), and are what prompted the initiative to modernise the EU-Chile FTA, which was 
included among the initiatives put forward by the Commission's Trade for All Communication.  

Furthermore, there are some specific problems encountered by EU business in Chile. The EU-Chile FTA does 
not  address  appropriately  certain  important  trade  and  investment  issues,  14  years  after  its  entry  into  force. 
Unfulfilled market access in agriculture, services and public procurement, and outdated provisions on rules (e.g. 
obsolete rules of origin, non-tariff barriers not fully addressed, limited intellectual property rights provisions)  do 
not allow bilateral trade and investment to reach its full potential.  Moreover, EU bilateral trade and investment 
with  Chile  faces  increased  competition  from  non-EU  countries  (especially  China)  due  to  Chile's  prolific 
conclusion of FTAs in recent years with other trading partners.   

What is this initiative expected to achieve?  

The initiative is expected to  
(i)  improve  market  access  for  goods,  services  and  investment  (including  through  access  to  government 
procurement);  
(ii)  ensure  a  single,  effective  investment  protection  framework  for  all  EU  investments,  enforced  through  an 
Investment Court System;  
(iii)  ensure  a  high  level  of  protection  of  intellectual  property  rights  and  the  extension  of  the  geographical 
indication protection for foodstuffs;  
(iv)  reinforce  dialogue  and  cooperation  on  regulatory  frameworks  and  administrative  practices  to    improve 
regulatory coherence; and 
(v) contribute to the shared objective of promoting sustainable development by including trade-related provisions 
on labour and environment. This will help promote smart, sustainable and inclusive growth and contribute to the 
creation of job opportunities and welfare gains.  

What is the value added of action at the EU level?  

The main objective of policy intervention is two-fold:  to improve conditions for boosting EU trade and investment 
with Chile by addressing the shortcomings in the existing FTA, and to expand the coverage of the FTA to take 
account of the general EU trade policy objectives as set out in the Trade for All Communication. Under Article 3 
read together with Article 207 of the Treaty on the Functioning of the European Union (TFEU) only the EU can 
negotiate trade agreements. Under Article 5(3) of the Treaty on European Union (TEU), the subsidiarity principle 
does not apply in areas of exclusive EU competence. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  

The impacts of three policy options were analysed and compared: 

1.  No  policy  change  (baseline  scenario).  This  could  lead  to  a  relative  deterioration  in  the  bilateral  trade 

relation, while not achieving the objectives. 

2.  Partial revision of the FTA, using the sectoral review clauses in the existing FTA on agriculture and on 
services. Discussions with Chile between 2006 and 2010 proved this approach unfeasible. Furthermore, 
it would be unsuited to meet broader EU trade policy objectives. It was therefore not developed further in 
the impact assessment analysis. 

3.  Comprehensive  modernisation  of  the  FTA,  implying  negotiation  of  a  broad  range  of  issues  that  both 
parties  wish  to  address  (as  reflected  in  the  outcome  of  the  scoping  exercise  with  Chile  (finalised  in 
January  2017):  market  access  in  agriculture,  trade  in  services,  investment,  technical  barriers  to  trade, 

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intellectual  property  rights,  public  procurement,  trade  facilitation,  competition,  SME-specific  provisions 
and  trade  and  sustainable  development.  This  option  considered  two  possible  sub-scenarios,  one 
conservative and one more ambitious.  

The preferred option for the EU would be a comprehensive modernisation of the EU-Chile FTA, as demonstrated 
by the analysis in the impact assessment. 

Who supports which option?  

The  Commission  and  Chile  support  a  comprehensive  modernisation  of  the  FTA.  This  is  consistent  with  the 
outcome of the scoping exercise, which concluded that both sides share a strong interest in a comprehensive 
and  ambitious  modernisation  process.  To  note  that  only  one  respondent  to  the  public  consultation  (a  food 
production enterprise) was against this option and almost all of the expressed opinions supported it. Finally, this 
option is consistent with the policy of both the EU and Chile to negotiate a modern and comprehensive FTA. 

What are the benefits of the preferred option (if any, otherwise main ones)?  

C. Impacts of the preferred option 

The preferred policy option has a positive overall economic impact on the EU and Chile. This option is estimated 
to generate a change in real GDP of close to 0.002 % for the EU and 0.175% for Chile in the long run. Welfare 
gains in the long run would be EUR 718 million for the EU and EUR 534 million for Chile. Social impacts (notably 
wages and employment) are likely to be slightly positive in the EU and in Chile.  Overall effects on economic and 
social human rights (adequate standard of living, right to work, work-related rights and abolition of child labour) 
would be positive. 

What are the costs of the preferred option (if any, otherwise main ones)?  

Concluding a comprehensive modernised EU-Chile FTA could potentially have a limited negative impact on the 
environment  in  Chile  and  an  almost  negligible  one  in  the  EU.  In  this  context,  it  should  be  noted  that  the 
modernised FTA would include a chapter on trade and sustainable development with provisions that may help 
mitigate  such  a  potential  negative  effect.  Further  trade  liberalisation  could  lead  to  some  transitional 
unemployment in specific sectors in Chile (reallocation of resources between contracting and growing sectors). 

How will businesses, SMEs and micro-enterprises be affected?  

SMEs  would  gain  from  a  comprehensive  modernisation  of  the  EU-Chile  FTA  on  a  number  of  levels:  non-tariff 
barrier cost reduction, simpler customs procedures and rules of origin, increased regulatory cooperation as well 
as  convergence  towards  international  standards.  In  addition,  it  would  include  provisions  to  enhance  SMEs’ 
access to information and to improve transparency. 

Will there be significant impacts on national budgets and administrations?  

No  significant  impacts  are  expected  from  a  modernised  FTA  on  national  budgets  and  administrations.  The 
impact on the EU budget, due to the loss from tariff revenue, would be around EUR 3.87 million, based on the 
projected value of duty income in 2025. 

Will there be other significant impacts?  

No 

When will the policy be reviewed?  

D. Follow up 

After the conclusion, entry into force and implementation of the modernised FTA, it would be monitored with the 
help  of  monitoring  indicators.  Regular  consultations  with  stakeholders  would  ensure  effective  follow  up  of  its 
implementation. The FTA would be evaluated after being in force for sufficient time to ensure the availability of 
meaningful data. 

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