COMMISSION STAFF WORKING DOCUMENT 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2017  SWD(2017) 173 final  COMMISSION STAFF WORKING DOCUMENT  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) 172 final}  
 
 
TABLE OF CONTENTS 

INTRODUCTION .................................................................................................................... 4 

1.  WHAT IS THE PROBLEM AND WHY IS IT A PROBLEM? ................................... 6 

1.1.  What is the issue that may require an action, what is the size of the problem? .................... 6 

1.2.  What are the drivers of the problems? ................................................................................... 9 

1.3. 

Problem tree .......................................................................................................................... 12 

1.4. 

How would the problem evolve, all things being equal? ...................................................... 14 

1.5. 

Has any fitness check/retrospective evaluation been carried out of the existing policy 

             framework? What was concluded from the evaluation / fitness check? .............................. 14 

2.  WHY SHOULD THE EU ACT? ................................................................................... 15 

3.  WHAT SHOULD BE ACHIEVED? ............................................................................. 16 

3.1.  General objectives ................................................................................................................. 16 

3.2. 

Specific objectives ................................................................................................................. 16 

3.3. 

Consistency of the objectives of this initiative with other EU policies ................................. 17 

4.  WHAT ARE THE VARIOUS OPTIONS TO ACHIEVE THE OBJECTIVES? .... 18 

4.1. 

Policy option A: No policy change (baseline scenario) .......................................................... 18 

4.2. 

Policy option B: Use of the sectoral review clauses on agriculture and services .................. 19 

4.3. 

Policy option C: Comprehensive modernisation of the EU-Chile FTA ................................... 19 

5.  WHAT ARE THE IMPACTS OF THE DIFFERENT POLICY OPTIONS AND WHO 

          WILL BE AFFECTED? ................................................................................................. 21 

5.1.  Model and assumptions ........................................................................................................ 21 

5.2. 

Policy option A: No policy change (the baseline scenario) ................................................... 23 

5.3. 

Policy Option C: Comprehensive modernisation of the EU-Chile FTAs ................................. 23 

5.4. 

Impact on sectoral competitiveness ..................................................................................... 25 

5.5. 

Impact on SMEs ..................................................................................................................... 25 

5.6. 

Impact on third countries, in particular Least Developed Countries (LDCs) ......................... 26 

5.7. 

Environmental impact ........................................................................................................... 27 

5.8. 

Social impact .......................................................................................................................... 28 

5.9. 

Impact on consumers ............................................................................................................ 31 

5.10.    Impact on human rights ......................................................................................................... 32 

5.11.    Governance impact ................................................................................................................ 35 

5.12.    Administrative impact ........................................................................................................... 35 

5.13. 

Assessment of administrative capacity of Chile's customs to implement the agreement 

2 

 
                 (notably on application of rules of origin) ......................................................................... 36 

5.14. 

Impact on the budget of the European Union .................................................................. 37 

6.  HOW DO THE OPTIONS COMPARE? ......................................................................... 38 

6.1. 

    Positive and negative effects of the policy options ........................................................... 38 

6.2. 

    Summary table of the effects of the different policy options ........................................... 39 

6.3. 

    Identification of a preferred policy option ........................................................................ 40 

7.  HOW WOULD ACTUAL IMPACTS BE MONITORED AND EVALUATED? .......... 41 

7.1. 

    Operational objectives ....................................................................................................... 41 

7.2. 

    Future monitoring and evaluation ..................................................................................... 41 

ANNEXES ............................................................................................................................... 44 

ANNEX 1 - PROCEDURAL INFORMATION ............................................................................... 45 

ANNEX 2 - STAKEHOLDERS CONSULTATIONS ..................................................................... 47 

ANNEX 3 - WHO IS AFFECTED BY THE INITIATIVE AND HOW? ........................................ 55 

ANNEX 4 - ANALYTICAL MODELS USED IN PREPARING THE IMPACT ASSESSMENT. 57 

ANNEX 5 - EXTERNAL STUDY FINAL REPORT ...................................................................... 67 

3 

 
 
 
 
INTRODUCTION 

Chile,  with  its  strong  democratic  institutions,  sound  economic  policies  and  support  for 
multilateralism is a close and like-minded partner for the EU, and a key ally in Latin America. 
On  global  economic and trade  issues, Chile  is  an important  partner  e.g. in  the  World  Trade 
Organisation  (WTO)  or  in  the  Organisation  for  Economic  Co-operation  and  Development 
(OECD).  More  broadly,  Chile  and  the  EU  share  a  broad  spectrum  of  values,  ranging  from 
democracy, human rights and good governance to sustainable development, the fight against 
climate change or the essential role of the United Nations (UN).  

Relations between the EU and Chile were initially built on the 1996 Framework Cooperation 
Agreement,  which  was  replaced  subsequently  by  the  EU-Chile  Association  Agreement, 
signed in 2002 and fully in force since 2005. The Association Agreement provides the legal 
framework for our strong bilateral political, trade and cooperation relations. 

The trade pillar of the Association Agreement entered provisionally into force on 1 February 
2003.  It  is  a  comprehensive  free  trade  agreement  (FTA),  which  at  the  time  was  the  most 
ambitious FTA concluded by the EU.  

The  process  for  the  implementation  of  the  EU-Chile  FTA,  notably  though  the  work  of  the 
various  Special  Committees,  the  Association  Committee  and  the  Association  Council 
established under the Agreement, has worked very well.  

However,  since  the  EU-Chile  FTA  entered  into  force  there  have  been  substantial  economic 
changes in the EU and in Chile. There have also been significant trade policy developments in 
the world, and both parties have concluded highly ambitious and comprehensive agreements 
with third partners, which go well beyond the provisions of the EU-Chile FTA.  

Against this backdrop, between 2006 and 2010 the EU and Chile attempted to advance trade 
relations  through  the  revision  of  the  EU-Chile  FTA  review  clauses  on  agriculture  and  on 
services. However, partly due to this narrow sectoral approach, it was not possible to find a 
balanced and mutually satisfactory outcome.   

Hence, at the EU-CELAC Summit in Santiago in January 2013 the EU and Chile agreed to 
explore  the  options  for  a  comprehensive  update  of  the  EU-Chile  Association  Agreement. 
Bilateral  contacts  took  place  and  an  EU-Chile  Working  Group  was  set  up  in  2015  to  this 
effect.  

After  two  EU-Chile  Working  Group  meetings  (October  2015  and  January  2016),  in  early 
2016 the EU and Chile agreed to move forward with a joint scoping exercise. The aim was to 
test  the  degree  of  convergence  on  the  scope  and  on  the  level  of  ambition  of  a  potential 
modernised FTA so as to increase the likelihood of a successful outcome of a modernisation 
process. This was in line with the Communication 'Trade for All - Towards a More Effective, 
Transparent  and  Responsible  Trade  and  Investment  Policy',1  in  which  the  Commission  had 
announced  its  intention  to  pursue  the  modernisation  of  the  EU-Chile  FTA  and  to  request 
negotiation authorisation and directives to this effect.  

1 http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf 

4 

 
 
 
 
 
 
 
 
 
 
                                                            
The scoping exercise with Chile was completed officially on 31 January 2017, and resulted in 
an EU-Chile Joint Scoping Paper. It reflects the pursuit with Chile of the key objectives of EU 
trade  policy  established  by  the  Treaties,  and  the  priorities  highlighted  in  the  'Trade  for  all' 
Communication.  As  in  the  case  of  other  scoping  exercises,  it  does  not  prejudge  the  work 
under  the  impact  assessment  or  the  decision  by  the  Commission  to  request  negotiation 
directives.  The  Joint  Scoping  Paper  does  not  set  out  the  EU  priorities  in  a  potential  future 
negotiation. These priorities  will be set out in the Council negotiating directives, should the 
Council decide to authorise negotiations.  

In preparation for a potential Commission decision to request authorisation from the Council 
to launch negotiations with Chile, Commission services conducted work  to assess the impacts 
of a possible modernisation of the EU-Chile FTA (see Annex 1), including through a public 
stakeholder  consultation,  which  elicited  32  responses  (see  Annex  2).  An  external  ex-ante 
study on the possible modernisation of the EU-Chile FTA was carried out by an independent 
consultant (ECORYS/CASE) and concluded in January 2017 (see Annex 5).  

The aim of this Impact Assessment is to support the decision on whether to propose the start 
of negotiations, and what should be the broad outlines and the general level of ambition of a 
possible future Agreement. When the negotiating directives are approved by the Council and 
negotiations are underway, a more detailed analysis will be undertaken in the framework of a 
Sustainability Impact Assessment (SIA). SIAs, using quantitative and qualitative approaches, 
complement impact assessments by conducting a more in-depth analysis of the likely impacts 
of the future Agreement on the three pillars of sustainable development and on human rights. 
They also include wide-ranging, continuous stakeholder consultation. SIAs are carried out by 
external consultants and their findings feed into the negotiation process. They help steer the 
negotiations,  provide  recommendations  and  propose  flanking  measures  to  maximise  the 
benefits of the Agreement and prevent or minimise any potential negative impacts. 

The  potential  decision  of  the  Commission  would  take  the  form  of  a  recommendation  for  a 
Decision of the Council (authorising the opening of negotiations for the modernisation of the 
EU-Chile Association Agreement). The Commission recommendation would be accompanied 
by draft negotiating directives, which, when adopted by the Council, would provide guidance 
to  EU  negotiators,  subject  to  review  within  the  relevant  Council  Committees  during  the 
course of negotiations. 

5 

 
 
 
 
 
 
 
 
1.  WHAT IS THE PROBLEM AND WHY IS IT A PROBLEM? 

1.1. What is the issue that may require an action, what is the size of the problem? 

1.1.1. 

Overview of the current EU-Chile trade relations 

In  2015  bilateral  trade  in  goods  stood  at  €16.6  billion.  The  EU  was  Chile's  third  largest 
trading partner, representing 14.4% of Chile's total trade, and the second export destination, 
whilst  Chile  was  the  EU's  38th  trading  partner,  representing  0.5%  of  total  EU  trade.  
Regarding trade in services, in 2014 the EU exported € 3.3 billion to Chile and imported € 1.7 
billion. The EU remains Chile's first Foreign Direct Investment (FDI) provider. Total EU FDI 
flows in 2014 stood at € 7.4 billion and EU FDI stocks stood at € 38.9 billion.  

Main EU export categories in bilateral trade in goods in 2015 were machinery and transport 
equipment (52%), chemical products (15%) and manufactured goods (13%). Main EU import 
categories were crude materials except fuels (28%), manufactured goods (26%) and food and 
live  animals  (25%).    By  Member  State  the  main  partners  in  bilateral  trade  were  Germany 
(20.6%),  Spain  (16.6%),  Italy  (12.5%),  The  Netherlands  (12.3%)  France  (9%),  United 
Kingdom (8.5%) and Belgium (6.8%).    

1.1.2. 

What are the problems? 

What are the general issues at stake? 

The Trade for All Communication has three key policy messages that are also applicable to 
EU bilateral trade and investment relations with Chile:  

 

 

 

To  be  effective:  trade  needs  to  actually  deliver  on  its  promise  of  new  economic 
opportunities.  This  means  addressing  the  issues  that  affect  today's  economy,  and 
providing  the  means  and  information  necessary  to  ensure  SMEs,  consumers  and 
workers can take full advantage of - and adapt to - more open markets. It also means 
improving implementation and enforcement of our trade rights. 

To  be  transparent:  opening  up  negotiations  to  more  public  scrutiny  by  publishing 
negotiating directives and key negotiating texts from negotiations.  

To  be  based  on  values:  first  of  all,  safeguarding  the  European  social  and  regulatory 
model at home. It also calls for using trade agreements and preference programmes as 
levers  to  promote,  around  the  world,  European  values  like  sustainable  development, 
human rights, fair and ethical trade and the fight against corruption. The EU also leads 
a  reform  of  investment  policy  globally,  which  is  taking  into  account  these  non-
economic societal values. 

As highlighted in the Trade for All Communication, an ambitious programme of multilateral 
and  bilateral  negotiations  is  needed  to  deliver  the  full  potential  from  trade.  The  opening  of 
negotiations  to  modernise  the  EU-Chile  FTA  is  one  of  the  concrete  initiatives  listed  in  the 
Communication. 

6 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
What are the specific problems? 

a)  Outdated  EU-Chile  FTA  rules-based  provisions  do  not  allow  bilateral  trade  and 

investment to reach its full potential  

Fourteen years after  entry into force, the EU-Chile  FTA - considered a  very advanced FTA 
when  it  entered  into  force  in  2003  -  does  not  address  some  of  the  important  trade  and 
investment  issues  included  in  the  most  recent  Agreements  concluded  or  currently  under 
negotiation  by  the  EU  or  by  Chile  with  third  parties,  such as  the  Comprehensive Economic 
and Trade Agreement (CETA) with Canada, the FTA being negotiated by the EU with Japan, 
the modernisation of the EU-Mexico FTA or the Trans-Pacific Partnership2.   

As  a  result,  economic  operators  are  currently  subject  to  an  excessive  administrative  burden 
due  to  remaining  non-tariff  barriers  and  outdated  customs  procedures  and  rules  of  origin, 
which  is  particularly  burdensome  for  SMEs.  There  is  only  partial  coverage  of  investment 
protection (through Bilateral Investment Treaties), whilst protection and enforcement of IPR 
remains insufficient, and with no protection of Geographical Indications on foodstuffs.  This 
view  is  shared  by  many  public  consultation  respondents,  who  consider  that  there  is  a  clear 
need to modernise the existing FTA to achieve a broader and more ambitious Agreement. 

b)  Unfulfilled market access in agriculture, services and public procurement  

In contrast to the 100% tariff liberalisation brought about by the EU-Chile FTA on industrial 
products,  trade  liberalisation  on  agriculture  and  food  was  more  limited,  with  a  number  of 
products subject to partial liberalisation or excluded.  

It  should  be  noted,  however,  that  Chile  has  benefited  greatly  from  the  trade  liberalisation 
offered by the EU, especially on fruits, wine and certain fish, where Chilean exports to the EU 
have increased substantially since 2003. EU exports of agricultural products have also grown, 
but  there  is  still  scope  for  the  EU  to  exploit  its  export  potential  on  agriculture,  as  6%  of 
agricultural tariff lines were excluded from the tariff concessions offered by Chile (including 
dairy products, vegetable oils, sugar and wheat flour, as well as some types of fish, currently 
subject to partial liberalisation).  

The  public  consultation  provides  mixed  results,  with  some  respondents  considering  that 
partial liberalisation on agriculture (through quantitative measures and quotas) does not hinder 
trade, but others taking the view that both sides' export potential could be improved through 
further liberalisation of specific agricultural products.   

The EU-Chile FTA includes market access commitments on services, and Chile's economy is 
generally considered to be quite open. Nevertheless, the Agreement contains some limitations 
or  exclusions  for  the  EU  in  some  key  sectors,  in  which  the  EU  is  highly  competitive  (e.g. 
financial services). Thus, EU exporters of services are not able to take full advantage of the 
potential  of  the  Chilean  market.    Some  respondents  in  the  public  consultation  highlight  the 
existing barriers in Chile to trade in services. 

The  current  Agreement  includes  market  access  commitments  on  public  procurement,  a  key 
priority for the EU, covering both central and sub-central entities. Nevertheless, it has limited 
coverage  of  State-owned  enterprises  and  undertakings  with  special  or  exclusive  rights,  and 

2  The  Trans-Pacific  Partnership  was  negotiated  by  the  US,  Canada,  Brunei,  Chile,  New  Zealand,  Singapore, 
Australia, Canada, Japan, Malaysia, Mexico, Peru and Vietnam. It has not yet entered into force. 

7 

 
 
 
 
 
 
 
 
 
 
                                                            
 
EU operators currently forego important procurement opportunities. Many respondents in the 
public consultation who expressed an opinion on the matter highlight the difficulties faced by 
EU companies in accessing public procurement in Chile. 

c) 

EU  bilateral  trade  and  investment  with  Chile  faces  increased  competition  from 
third countries 

Bilateral trade in goods since the provisional entry into force of the EU-Chile FTA in 2003 
has  increased  11%  per  year  on  average.  However,  despite  this  prima  facie  strong  bilateral 
growth  rate,  the  EU  has  progressively  lost  market  share  in  Chile  to  other  trading  partners, 
including China and the US. Between 2003 and 2009 the EU was Chile's first trading partner, 
but it was overtaken by China in 2009 and by the US in 2011.   

This  increased  competition  from  third  countries  is  highlighted  in  the  public  consultation, 
especially on investment, where some respondents point to the preferential treatment provided 
to investors from other jurisdictions in comparison to the EU. 

An  external  ex-post  assessment  of  the  impact  of  the  EU-Chile  FTA  commissioned  by  DG 
TRADE  in  20123  concluded  that  the  EU-Chile  FTA  had  helped  to  prevent  the  EU  market 
share in Chile from falling substantially further, thereby mitigating the crowding-out effect of 
FTAs concluded by Chile with 3rd parties.  

The  2017  external  ex-ante  report  on  the  modernisation  of  the  EU-Chile  FTA  (Annex  5) 
concludes  that  despite  the  apparent  positive  evolution  in  bilateral  trade,  when  analysing  the 
evolution of Chile's trade with the rest of the world it becomes apparent that the EU and Chile 
have  been  operating  under  progressively  less  attractive  conditions  on  bilateral  trade.  The 
study notes that, due to the ambition and geographical coverage of Chile's above-mentioned 
FTAs,  trade  preferences  between  Chile  and  the  EU  are  at  risk  of  losing  progressively  their 
relevance;  and  hence  to  be  subject  to  comparatively  less  attractive  conditions  for  bilateral 
trade and investment in the years to come. 

d)  Limited possibilities to promote a greater contribution of trade and investment to 

Sustainable Development 

The  EU-Chile  FTA  does  not  include  provisions  on  trade  and  sustainable  development, 
therefore  limiting  the  potential  contribution  of  the  FTA  to  foster  a  positive  impact  on 
environmental, labour and social conditions. This limitation is strongly reflected in the public 
consultation,  with  respondents  heavily  in  favour  of  provisions  to  promote  adherence  to 
internationally agreed principles, labour rights and environmental provisions.   

The 2012 ex-post assessment of the impact of the EU-Chile FTA concluded that the impact of 
the  agreement  on  the  use  of  natural  resources  and  the  degradation  of  the  environment  had 
been  marginal.  However,  the  increased  use  of  fertilizers  for  fruits,  vegetables  and  wine 
exports  was  significant  and  this,  together  with  increased  exports  of  salmon,  molluscs  and 
wood products, might have contributed, in a limited way, to different forms of air and water 
pollution.  

3 http://trade.ec.europa.eu/doclib/docs/2012/august/tradoc_149881.pdf 

8 

 
 
 
 
 
 
 
 
 
 
 
 
                                                            
 
1.2. What are the drivers of the problems? 

There are a number of underlying  factors affecting EU-Chile  trade and investment relations 
that  could  be  addressed  by  trade  policy.  The  main  factors  that  are  susceptible  to  change 
through trade policy measures and/or regulatory coherence are listed below.  

The  problem  drivers  fall  under  two  distinct  categories,  namely  the  shortcomings  of  the 
existing provisions  of the  Agreement, and the new issues included  in the most  recent FTAs 
negotiated by the EU, and which are missing in the current Agreement. 

More  generally,  there  are  changes  in  the  global  economy  that  impact  EU-Chile  bilateral 
trade. Chile has concluded numerous and important FTAs and trade  agreements since 2003, 
including with the US (2004), China (2006) and Japan (2007). More recently, Chile has joined 
the Pacific Alliance and has signed the Trans-Pacific Partnership, which, although currently 
on hold, could come back in another form, including without the US. In the Americas, since 
the entry into force of the EU-Chile FTA the EU has concluded ambitious and comprehensive 
FTAs  with  Central  America,  with  Colombia,  Peru  and  Ecuador,  and  more  recently  with 
Canada.  Moreover,  the  EU  is  negotiating  a  modernisation  of  the  EU-Mexico  FTA  and 
negotiations for an EU-Mercosur FTA have gained momentum.   

1.2.1.  Shortcomings of the existing provisions 

The  following  problem  drivers  are  based  on  the  issues  raised  identified  by  Commission 
services or by Member States and business in the context of market access work with Chile, 
and  are  complemented  by  the  public  consultation  and  the  findings  of  the  external  study  in 
Annex 5. 

  Limited  liberalisation  of  trade  in  agriculture  and  food  products.  While  there  is  full 
elimination of tariffs for industrial products in the EU-Chile FTA, liberalisation of trade in 
agriculture and food products is partial. The EU granted partial liberalisation through tariff 
quotas  on  around  200  tariff  lines,  and  excluded  from  liberalisation  approximately  500 
tariff  lines.  Chile  excluded  6%  of  agricultural  tariff  lines  from  its  tariff  concessions, 
including  dairy  products,  vegetable  oils,  sugar  and  wheat  flour,  as  well  as  certain  fish, 
currently subject to partial liberalisation. 

  Rules of origin require updating. The EU-Chile FTA provisions on customs procedures 
are based on a framework of cooperation between the two parties and rely on an outdated 
set of rules of origin (RoOs), which pre-dates the EU RoOs reform launched in 2003. This 
leaves  the  RoOs  of  the  Agreement  at  odds  with  the  new  set  of  EU  standard  RoOs,  and 
creates an unnecessary burden for economic operators (in particular SMEs), which have to 
adapt to the variable geometry of the different sets of RoOs in force. This divergence will 
become even more burdensome for economic operators when  other ambitious  EU FTAs 
with third countries (e.g. Canada, Vietnam) enter into force. Updating the rules of origin is 
also of increasing importance, as Chile is signing agreements on cumulation of origin with 
other  trading  partners.  Rules  for  certification  and  verification  of  origin  also  need  to  be 
updated, so as to reflect newer and more efficient practices agreed by Chile or the EU in 
other FTAs. Ten respondents4 in the public consultation highlight the need to update rules 

4 Two each from business interests in the fishing and aquaculture and base metals and metal products sectors; 
two from public administrations linked to EU Member States; and four from cross-sectoral business associations. 

9 

 
 
 
 
 
 
   
 
                                                            
of origin in order to bring them in line with those agreed by the EU with other countries in 
recent trade agreements.   

  Customs  and  trade  facilitation  provisions  are  outdated.  Provisions  on  customs 
procedures rely largely on cooperation and are not adapted to the most recent international 
developments  on  trade  facilitation  such  as  the  World  Trade  Organisation  (WTO)  Trade 
Facilitation  Agreement5.  Some  respondents  in  the  public  consultation  point  at  problems 
with current customs procedures and border enforcement. 

  Non-tariff barriers (NTBs) are not addressed fully. A number of NTBs prevail in the 
agriculture sector. For instance, some specific EU exports such as beef and fresh fruits and 
vegetables  have  been  denied  access  to  the  Chilean  market  due  to  sanitary  and 
phytosanitary-related  issues  and  other  requirements  (see  detailed  qualitative  analysis  in 
the external study, in Annex 5, for further detail). There is also scope to strengthen and 
widen  TBT  provisions  in  line  with  more  recent  practice.  A  more  comprehensive 
chapter,  building  on  the  WTO  TBT  Agreement  would  address  more  effectively  the 
unnecessary obstacles to trade stemming from standards, technical regulations, conformity 
assessment  procedures  and  metrology.  This  could  address,  for  instance,  double 
certification  for  electronic  products  and  burdensome  conformity  requirements  for 
cosmetics and hygiene products, which are currently problematic for economic operators. 
A  number  of  respondents  in  the  public  consultation  highlight  the  obstacles  to  bilateral 
trade that result from divergent standards, technical regulations or conformity assessment 
procedures.   

  Market  access  limitations  remain  for  key  EU  services  sectors.  The  EU-Chile  FTA 
contains  market  access  limitations  or  exclusions  on  some  key  sectors,  where  the  EU  is 
highly  competitive,  such  as  financial  services,  telecommunications,  business  services, 
postal  and  courier,  transport  (including  maritime)  or  distribution  services.  For  example, 
very  strict  requirements  prevail  for  foreign  banks  and  insurance  companies  wishing  to 
open  branches  in  Chile.  Public  consultation  respondents  who  expressed  an  opinion 
highlight  the  lack  of  recognition  of  EU  qualifications  and  diplomas  in  Chile,  a  15% 
additional tax applied by Chile on foreign services providers, and Chile's requirement for 
85% of employees in companies to be of Chilean nationality, as key problems.  

  The Agreement lacks comprehensive investment liberalisation disciplines. In addition 
to  disciplines  on  establishment  (GATS  mode  3)  for  services  sectors,  the  EU-Chile  FTA 
in  non-services  sectors.  Three 
offers  only  national 
respondents6  in  the public consultation pointed to barriers in FDI, the main Chilean one 
being the requirement for companies with over 25 employees to employ 85% of Chilean 
nationals.  The  same  three  respondents  indicated  that  investors  from  other  jurisdictions 
were granted preferential treatment.   

treatment  for  establishment 

5 The Trade Facilitation Agreement, emanating from the 9th Session of the WTO Ministerial Conference held in 
December  2013  in  Bali,  contains  provisions  for  expediting  the  movement,  release  and  clearance  of  goods, 
including  goods  in  transit.  It  also  sets  out  measures  for  effective  cooperation  between  customs  and  other 
appropriate  authorities  on  trade  facilitation  and  customs  compliance  issues.  It  further  contains  provisions  for 
technical assistance and capacity building.  https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm. 
6  An  investment  management  company  based  in  Chile,  a  government  department  in  one  of  the  EU  Member 
States, and a cross-sectoral business association representing business interests in the EU services sector. 

10 

 
 
 
 
 
 
                                                            
  Public procurement market access does not cover all entities. The EU-Chile FTA has 
limited  coverage  of  State-owned  enterprises  and  undertakings  with  special  or  exclusive 
rights,  with  the  result  that  EU  operators,  at  present,  forgo  important  procurement 
opportunities. CODELCO, for instance, Chile's largest State-owned enterprise and one of 
the world's most important copper producers is not covered by the current FTA.  

  Procurement  rules  are  outdated  There  is  a  list  of  10  identified  barriers  to  access  the 
Chilean  public  procurement  market  that  could  be  addressed  through  a  modernisation  of 
the existing FTA.7 More generally, the provisions require some updating in order to adopt 
modern rules that would allow, for instance, the promotion of green procurement and the 
use  of  e-procurement.  Ten  of  the  thirteen  respondents  in  the  public  consultation  who 
expressed an opinion highlight the difficulties for EU companies to access Chile's public 
procurement. 

  Intellectual  property  rights  provisions  are  very  limited.  Current  IPR  provisions  are 
largely limited to respecting the WTO Agreement on Trade-related aspects of Intellectual 
Property  Rights  (TRIPs)  and  key  international  conventions.  Contrary  to  more  recent 
agreements the EU-Chile FTA lacks enhanced enforcement provisions, which are key to 
protecting the rights of EU operators,  including in the digital environment (which is not 
covered  in  the  TRIPs  Agreement)  and  at  the  border.  Seven  respondents8    in  the  public 
consultation  draw  attention  to  current  problems  with  the  protection  and  enforcement  of 
IPR in Chile. 

  The  EU  still  lacks  protection  of  its  geographical  indications  (GIs)  on  foodstuff 
products  In the case of GIs,  which are  of  importance to the EU, the current  FTA only 
affords  protection  to  EU  wines  and  spirits  GIs,  but  not  to  foodstuff  GIs.  Three 
respondents9 in the public consultation highlight current problems with the protection of 
GIs on foodstuffs, for instance for cheese. 

1.2.2.  New trade issues missing in the existing Agreement 

  Modern  standards  of  investment  protection  not  available  for  all  EU  investors.  
Currently,  investment  protection  is  only  partly  covered  by  the  Bilateral  Investment 
Treaties (BITs)  in force between 16 EU Member States and Chile.10 However, the BITs 
do  not  cover  investment  from  all  Member  States,  and  differ  in  their  level  of  ambition, 
resulting in an unlevel playing field and, potentially, in investment flows diversion. They 
are  also  not  in  line  with  key  elements  of  EU  investment  policy,  such  as  support  for  an 
Investment Court System. 

7 This includes, among others, national component requirements, discrimination against experience abroad, local 
presence  requirements  for  registration  of  suppliers,  limitations  to  register  workers  from  an  office  abroad, 
requests for official translations into Spanish or for documents in original form. Furthermore, all foreign SMEs 
are requested to pay the same registration fees as large companies, whereas Chilean SMEs benefit from a lower 
price. 
8 Including single sector business associations representing the computers/telecoms and pharmaceuticals sectors 
and the music recording industry; a cross-sectoral business association representing business interests in the EU; 
and two linked to public administrations in EU Member States.    
9  Three  respondents  indicated  particular  problems  with  respect  to  GIs,  including:  one  answering  in  a  personal 
capacity;  one  government  department  from  an  EU  Member  State;  and  one  cross-sectoral  business  association 
representing business interests in the EU.  
10 Austria, Belgium/Luxembourg, Croatia, Czech Republic, Denmark, Finland, France, Germany, Greece, Italy, 
Poland, Portugal, Romania, Spain, Sweden and United Kingdom.  

11 

 
 
 
 
 
 
 
                                                            
  Lack of Trade and Sustainable Development provisions. The EU-Chile FTA does not 
include provisions on sustainable development and therefore limits the positive impact of 
the  FTA  on  environmental,  labour  or  social  aspects,  as  well  as  on  gender  issues.  Many 
public consultation respondents who expressed an opinion are in favour of including trade 
and sustainable development related provisions. 

  There is no dedicated and binding bilateral mechanism to facilitate trade and investment 
for SMEs. Currently, some SMEs forego export opportunities due to lack of knowledge 
on  the  market  access  requirements.  A  dedicated  mechanism  would  include  information-
sharing arrangements on market access requirements that would help to solve this issue. 
Numerous  respondents11  in  the  public  consultation  highlighted  the  particular  problems 
encountered by SMEs in exporting or importing between the EU and Chile. 

1.3. Problem tree 

The  chart  on  the  following  page  relates  the  problems  identified  to  the  underlying  causes, 
grouped thematically, and links them to the actual or potential consequences for the EU and 
Chile, in the form of a "problem tree". 

11 Respondents indicated particular problems in the areas of: rules of origin as applied by both the EU and Chile; 
customs procedures as applied by Chile; technical barriers to trade arising from policies applied by both the EU 
and  Chile;  services  sectors,  especially  in  Chile;  establishment  of  companies  in  Chile;  and  policies  for  public 
procurement in Chile.  

12 

 
 
 
 
 
                                                            
13 

TRADE IN GOODS Partial liberalization of trade in agriculture and food products Rules of origin are by now outdated Customs and trade facilitation provisions are outdated, and do not take account of the WTO Trade Facilitation Agreement NTBs/TBT barriers are not fully addressedSERVICES AND INVESTMENT MARKET ACCESS Limitations on market access remain for key EU services sectors. The agreement lacks comprehensive investment liberalization disciplinesPUBLIC PROCUREMENT Access to Chile’s public procurement market has restricted coverage of state-owned enterprises (SOEs) and undertakings with special or exclusive rights Provisions on public procurement are outdated (eg, e-procurement not available)INTELLECTUAL PROPERTY RIGHTS (IPR) IPR provisions do not cover all IPR rights, and do not ensure sufficient enforcement EU geographical indications (GIs) only cover wines and spirits – foodstuffs are not protected. NEW TRADE ISSUES NOT COVERED BY EXISTING AGREEMENT Modern standards of investment protection not available for all EU investors No provisions on trade and sustainable development (trade and environment, social and labour issues) or on gender No dedicated and binding bilateral mechanism to facilitate trade and investment for SMEsDRIVERSPROBLEMSLIMITED POSSIBILITY TO PROMOTE POSITIVE CONTRIBUTION TO SUSTAINABLE DEVELOPMENT THROUGH THE EXISTING AGREEMENTUNFULFILLED MARKET ACCESS IN AGRICULTURE, SERVICES AND PUBLIC PROCUREMENTOUTDATED RULES-BASED FTA PROVISIONS DO NOT ALLOW BILATERAL TRADE AND INVESTMENT TO REACH ITS FULL POTENTIALEU BILATERAL TRADE AND INVESTMENT WITH CHILE FACES INCREASED COMPETITION FROM THIRD COUNTRIES EU – CHILE: PROBLEM TREECONTEXT: CHANGES IN GLOBAL ECONOMY IMPACTING ON EU-CHILE BILATERAL TRADE Recent entry into force, conclusion or on-going negotiations of EU FTAs with other partners such as Canada, Vietnam, Japan, and Mexico Chile has an increasing number of FTAs in place with 3rd countries (Latin America, USA, China, Japan, etc.)  
1.4. How would the problem evolve, all things being equal? 

The identified problems would persist and increase, as Chile would progressively implement 
new  FTAs  with  other  partners.  European  stakeholders,  manufacturers,  service  industries, 
traders  and  their  workforce,  as  well  as  consumers  and  regulators,  would  forgo  potential 
additional benefits if no policy action is taken. 

1.5. Has  any  fitness  check/retrospective  evaluation  been  carried  out  of  the  existing 
policy framework? What was concluded from the evaluation / fitness check? 

a) 

Evaluation of the economic impact of the trade pillar of the EU-Chile Association 
Agreement (ITAQA Sarl, 2012)12 

The  study,  commissioned  by  DG  TRADE  and  prepared  by  ITAQA  Sarl  in  2012,  evaluated 
ex-post  the  impact  of  the  EU-Chile  FTA.  Using  an  econometric  analysis,  it  concluded  that 
tariff cuts had had a significant impact on bilateral trade flows. Simulations showed that in the 
absence of an Agreement (i.e. applying MFN tariffs), Chile's exports to the EU in 2009 would 
have been 20% lower, and EU exports to Chile in 2010 would have been cut by at least 40%. 
The study pointed at the declining EU share in Chile's total trade since the entry into force of 
the Agreement, despite a substantial increase in bilateral trade flows, suggesting that, in the 
absence of an FTA, EU exporters could have been significantly crowded out from the Chilean 
market, due to the significant number of FTAs signed by Chile. 

Due to methodological challenges the study did not provide an assessment on the impact of 
non-tariff  measures.  Building  upon  a  Computable  General  Equilibrium  (CGE)  model  the 
report concluded that the sectors that had benefited most from the FTA had been fruit, wine, 
fisheries  and  fish  processing  on  the  Chilean  side,  and  machinery,  transport  equipment  and 
chemical  industries  on  the  EU  side.  Compared  to  a  counterfactual  state  without  the 
Agreement,  Chilean  exports  to  the  EU  were  assessed  to  be  20%  higher  and  EU  exports  to 
Chile  60%  higher.  The  higher  sensitivity  of  EU  exports  to  tariff  changes  was  due  to 
differences in price elasticity and stronger substitutability of the main EU exports. In terms of 
aggregate economic gain the CGE model estimated a +0.23% real income gain for Chile. 

The study encountered serious limitations when attempting to analyse quantitatively the FTA 
impact on bilateral trade in services, which had increased steeply since the entry into force of 
the Agreement. Comparing the FTA provisions with the level of commitment of the Parties 
under GATS, it concluded that EU services exports had increased more after the FTA entry 
into force in those sectors where commitments had brought a higher degree of (consolidated) 

12  http://trade.ec.europa.eu/doclib/docs/2012/august/tradoc_149881.pdf 

14 

 
 
 
 
 
 
 
 
 
 
 
 
                                                            
 
 
liberalisation.  Chile's  services  exports  to  the  EU  had  performed  relatively  well  in  several 
sectors where FTA commitments had significantly improved those made in GATS. 

Overall, the study concluded that the impact of the Agreement on the use of natural resources 
and  on  environmental  degradation  had  been  marginal.  However,  the  increased  use  of 
fertilisers for fruits, vegetables and wine exports had been significant and this, together with 
increased  exports  of  salmon,  molluscs  and  wood  products,  might  have  contributed,  in  a 
limited way, to different forms of air and water pollution.  

Finally,  the  study  estimated  the  social  impact  of  the  EU-Chile  FTA  on  Chile.  The  CGE 
analysis  concluded  that  reallocation  between  sectors  (largely  in  favour  of  fruits  and  wine 
sectors) for low and medium skills was small.  In the agriculture sector, although small farm 
households might have  lost out relative to  larger-scale farming enterprises (increasing intra-
sectoral  inequality),  globally  they  had  benefited  from  the  increase  in  overall  agricultural 
income  and  from  the  reduced  inequality  in  terms  of  market  access  between  agriculture  and 
other sectors, which had been brought about by the EU-Chile FTA.  

2.  WHY SHOULD THE EU ACT? 

The main objective of policy intervention in this case is two-fold. First, the initiative aims to 
create more favourable conditions for further increasing trade and investment between the EU 
and  Chile  by  addressing  shortcomings  in  the  existing  FTA.  Secondly,  the  initiative  aims  to 
expand the coverage of the Agreement to take account of the new economic realities and to 
enhance  the  contribution  of  trade  policy  to  other  policy  objectives  including  sustainable 
development and the particular needs of SMEs. 

This  objective  is  in  line  with  the  Foreign  Affairs  Council  conclusions  on  trade  of  21 
November 201413 which underlined that trade in goods, services and investment can make a 
significant contribution to achieve the aims at the core of the ‘Strategic Agenda for the Union 
in  times  of  change’  and  expressed  that  building  on  the  tangible  progress  made  in  the  EU's 
bilateral trade agenda, efforts should be devoted to pursuing agreements with key partners. 

The intervention is also fully in line with the Communication ‘Trade for all - Towards a More 
Effective, Transparent and Responsible Trade and Investment Policy14’ which highlighted the 
need  to  move  forward  our  bilateral  relationships  in  order  to  deliver  jobs  and  growth  by 
tackling trade and investment barriers in a comprehensive way while securing the EU's high 
level  of  social  and  environmental  protection  and  contributing  to  other  policy  objectives, 
including sustainable development and the particular needs of SMEs.  

13 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/145908.pdf 
14 http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf 

15 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
According to Article 5(3) of the Treaty on European Union (TEU), the subsidiarity principle 
does not apply in areas of exclusive EU competence. The common commercial policy is listed 
among  the  areas  of  exclusive  competence  of  the  Union  in  Article  3  of  the  Treaty  on  the 
Functioning  of  the  European  Union  (TFEU).  This  policy  includes  the  negotiation  of  trade 
agreements pursuant to Article 207 TFEU. 

In line with the principle of proportionality, all reasonable policy options are presented below 
in order to assess the likely effectiveness of such policy interventions. 

3.  WHAT SHOULD BE ACHIEVED? 

3.1.  General objectives 

The  EU  general  objective  as  regards  economic  and  trade  relations  derives  from  the  TFEU, 
which  in  Article  3(1)  (3)  establishes  the  EU  exclusive  competence  for  the  common 
commercial policy. Furthermore, Article 206 provides that the overall objective of EU policy 
as  regards  economic  and  trade  relations  is  to  ‘contribute,  in  the  common  interest,  to  the 
harmonious  development  of  world  trade,  the  progressive  abolition  of  restrictions  on 
international trade and on foreign direct investment, and the lowering of customs and other 
barriers’. 

As established  by Article 205 of the TFEU, the  common commercial policy also  serves the 
more general objectives of the Union’s External Action as described in Article 21 of the TEU. 

The  general  objectives  of  this  initiative  are  in  line  with  the  general  EU  policy  and  include 
concretely: 

  promoting  smart,  sustainable  and  inclusive  growth  through  the  expansion  of  trade15, 

investment and relevant rules,  

  creating job and labour opportunities and welfare gains16, 
 

increasing  consumer  benefits  (e.g.  in  terms  of    choice,  availability,  price  and 
maintaining high standards),  
improving Europe’s competitiveness in global markets, and 
reinforcing cooperation on trade-related issues with a like-minded partner. 

 
 

3.2. Specific objectives 

With  regard  to  future  EU-Chile  economic  and  trade  relations,  the  general  objectives  set  out 
above would translate into the following specific objectives: 

15  COM(2010)  2020,  "Europe  2020:  A  strategy  for  smart,  sustainable  and  inclusive  growth",  March  2010. 
“Trade,  Growth  and  World  Affairs”.  Trade  Policy  as  a  Core  Component  of  the  EU’s  2020  Strategy”,  2010, 
available at: http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146955.pdf 
16 36 million jobs in the EU depend directly or indirectly on trade. 

16 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
 

realise untapped market opportunities in goods, services, investment and government 
procurement  from  the  EU  and  Chile  by  further  eliminating,  reducing  or  preventing 
unnecessary barriers, 

  ensure  a  single,  effective  investment  protection  framework  for  all  EU  investments, 

enforced through an Investment Court System,  

  ensure a high level of protection of IPR, 
 

reinforce  dialogue  and  cooperation  on  regulatory  frameworks  (including  technical 
regulations  and  conformity  assessment  procedures)  and  administrative  practices  to  
improve regulatory coherence,  
increase  opportunities  through  specific  mechanisms  and  simplified  procedures  for 
small and medium-sized enterprises, and 

 

  contribute to the shared objective of promoting sustainable development and broader 
EU  values  such  as  human  rights,  inter  alia  by  including  trade-related  provisions  on 
labour, environment and gender. 

These objectives are consistent with the findings of the public consultation, with respondents 
indicating  as  key  general  priorities  in  the  FTA  modernisation  exercise:  increased  market 
access  on  agriculture  and  fisheries,  removing  barriers  and  facilitating  investment,  increased 
access  to  public  procurement,  updating  rules  of  origin,  increasing  IPR  protection  and 
enforcement,  reducing  non-tariff  barriers,  further  regulatory  cooperation,  addressing  digital 
trade and ensuring that the Agreement contributes to sustainable development.  

3.3. Consistency of the objectives of this initiative with other EU policies 

The objectives described above are fully consistent with, and indeed stem from the principle 
that  the  European  Union  should  encourage  the  integration  of  all  countries  into  the  world 
economy, including through the progressive abolition of restrictions on international trade17. 

The  objectives  are  also  in  line  with  the  Trade  for  All  Communication  of  2015,  which 
underlined  the  need  to  move  bilateral  relationships  forward  in  order  to  deliver  jobs  and 
growth by tackling trade and investment barriers in a comprehensive way while securing the 
EU's  high  level  of  social  and  environmental  protection  and  contributing  to  other  policy 
objectives, including sustainable development and the particular needs of SMEs. In particular 
the  Communication  indicated  that  "The  Commission  will  request  negotiating  directives  to 
modernise  the  FTA  with  Mexico  and  Chile  after  completing  the  scoping  exercise.  These 
agreements should be comparable to, and compatible with, our FTA with Canada (…)". 

In terms of contribution to the multilateral trading system, deep and comprehensive FTAs can 
usefully  reinforce  the  benefits  to  be  derived  from  the  multilateral  process,  in  particular  by 
providing  improvements  in  trading  conditions,  not  just  for  the  partners  who  are  parties  to 

17 Article 21 para 2 (e) TEU. 

17 

 
 
 
 
 
 
  
 
 
 
                                                            
bilateral agreements but also by providing benefits via most favoured nation treatment (MFN) 
to other WTO members, where this results from the agreement in question. 

The  objectives  are  also  fully  consistent  with  the  objectives  set  out  by  the  European 
Commission's Communications ‘Small Business Act for Europe’ (2008) and ‘Small Business, 
Big World’ (2011). Supporting SMEs economic activities outside the EU is also embedded in 
the Union's overall competitiveness strategy as outlined in the Europe 2020 Communication 
on Industrial Policy. 

The  objectives  also  comply  with  the  principles  established  in  the  TEU  stipulating  that  the 
Union's policies and actions should aim to consolidate and support human rights18 and to help 
develop international measures to preserve and improve  the quality  of the environment and 
the sustainable management of global natural resources19 in the manner set out in Chapter 5. 

The  objectives  are  consistent  with  other  EU  policies  and  with  the  Charter  for  Fundamental 
Rights. Finally, the objectives are fully consistent with the Juncker Commission’s top priority 
to get Europe growing again and to increase the number of jobs without creating new debt20, 
with the Investment Plan21, and with the specific priorities set out by the Commission Work 
Programme for 201722. 

4.  WHAT ARE THE VARIOUS OPTIONS TO ACHIEVE THE OBJECTIVES? 

With  a  view  to  attaining  the  objectives  set  out  in  Chapter  3,  this  chapter  outlines  three 
different scenarios. The impact analysis carried out in Chapter 5 of this report will assess the 
opportunity and feasibility of the various options, with a view to providing clear indications 
on what would be the best option to follow. 

4.1. Policy option A: No policy change (baseline scenario) 

The first option would be to continue to operate under the existing framework, with possible 
incremental  improvements  of  its  functioning  and  effectiveness  (e.g.  updating  the  rules  of 
origin  to  reflect  the  changes  in  the  Harmonised  System  run  by  the  World  Customs 
Organisation, or addressing some specific trade irritants). 

Thus,  the  analysis  of  this  baseline  scenario  is  essentially  based  on  the  developments  in 
bilateral trade relations likely to result from the evolution of the EU and Chile economies and 
from global economic conditions.  

18 Article 21 para 2 (b) TEU. 
19 Article 21 para 2 (f) TEU. 
20 http://ec.europa.eu/priorities/jobs-growth-investment/index_en.htm 
21 http://ec.europa.eu/priorities/jobs-growth-investment/plan/index_en.htm 
22 http://ec.europa.eu/atwork/key-documents/index_en.htm  in particular No12 in annex 1 
http://ec.europa.eu/atwork/pdf/cwp_2017_annex_i_en.pdf  

18 

 
 
 
 
 
 
 
 
 
 
                                                            
The economic modelling tool (see Chapter 5 and Annex 4) projects this baseline scenario into 
the long term (2025) for it to be comparable with policy option C. 

4.2. Policy option B: Use of the sectoral review clauses on agriculture and services 

The  existing  Agreement  includes  sectoral  review  clauses  foreseen  in  Article  74  (evolution 
clause for agricultural products), Article 100 (review on services) and Article 101 (review on 
movement of natural persons (services –mode 4)). 

An  EU-Chile  FTA  revised  along  such  lines  would  entail  keeping  the  existing  framework 
without  any  possibility  to  redesign  the  provisions  not  covered  by  the  review  clauses  (e.g. 
TBT, IPR including GIs, public procurement, competition), or to incorporate new ones (e.g. 
investment protection, trade and sustainable development). 

This  option  has  been  discarded  and  it  is  not  developed  further  in  this  report,  as  numerous 
discussions  with  Chile  between  2006  and  2010  proved  that  it  was  not  possible  to  achieve 
further liberalisation through a narrow sectoral approach. Chile was very interested in further 
liberalisation  on  agriculture  but  it  was  not  possible  to  reach  a  balanced  outcome  in  this 
sensitive area. In contrast, on services, it was not possible to reach an ambitious result in areas 
of EU interest (e.g. financial services). It was also complicated to reach a balanced result on 
movement  of  natural  persons  (mode  4).  The  difficulty  of  moving  forward  with  an  isolated 
sectoral approach was in fact part of the reason why the EU and Chile started discussing the 
possibility to upgrade the agreement in a comprehensive manner.   

In  addition  to  being  unfeasible  for  the  above-mentioned  reasons,  policy  option  B  would  be 
unsuited to meet the EU broader trade policy objectives. 

4.3. Policy option C: comprehensive modernisation of the EU-Chile FTA 

Under  option  C,  the  EU  and  Chile  would  enter  into  negotiations  to  comprehensively 
modernise the EU-Chile FTA. Such an approach would cover issues and sectors other than the 
two foreseen in the review clauses and would also allow synergies between different areas. 

In line with recent and on-going established policies both in the EU and  in Chile, Option C 
would  enable  the  parties,  inter  alia,  to  further  liberalise  services  and  investment,  to 
establish  a  single  and  coherent  investment  protection  framework,  to  address  more 
efficiently non-tariff measures (including TBT aspects), to spur regulatory coherence, to 
provide  higher  standards  of  protection  and  enforcement  of  IPR,  to  improve  access  to 
public procurement markets (including for SMEs) and to promote the contribution of trade 
and investment to sustainable development.  

19 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As the more recent FTAs concluded by the EU, Option C would include an ambitious Trade 
and  Sustainable  Development  chapter  with  robust  labour  and  environmental  protection 
provisions,  which  would  refer  to  ILO  Conventions,  other  ILO  instruments  and  multilateral 
environmental  agreements.  The  chapter  would  also  include  specific  provisions  encouraging 
trade practices and schemes that support and promote sustainable development (e.g. corporate 
social  responsibility,  voluntary  sustainability  assurance  schemes  etc.).  Furthermore,  there 
would  be  a  dedicated  institutional  set-up  including  governmental  and  civil  society 
involvement  so  as  to  foster  transparency,  accountability  and  dialogue,  as  well  as  a  tailored 
mechanism to address disputes involving third party assessment. 

In  order  to  take  account  of  existing  sensitivities,  Option  C  is  divided  into  two  different 
possible sub-scenarios, differing only on the degree of ambition in the liberalisation of  trade 
in goods: 

C1:  Conservative, partial liberalisation scenario 

C2:  Ambitious, including full liberalisation of import tariffs 

Overview of the different assumptions of options C1 and C2 in trade in goods 
Option C2 

Option C1 

Tariffs 

Full  liberalisation  by  EU  of  remaining  tariffs 
in  agricultural  goods  except  for  sugar,  beef, 
lamb, pig, turkey and poultry, which retain the 
status quo. 

Full  liberalisation  by  Chile  of  all  remaining 
tariffs in agricultural goods. 

Full liberalisation by both parties of remaining 
tariffs in agricultural goods. 

NTBs non-
agriculture 
goods 

NTBs  
services 

5% reduction rate by Chile 

10% reduction rate by Chile 

No change by EU 

No change by EU 

1% reduction by Chile 

No change by EU 

3% reduction by Chile 

1% reduction by EU 

In terms of tariffs, option C2 includes full elimination by both Parties of remaining tariffs in 
agricultural  goods.  Option  C1  includes  full  elimination  by  the  EU  of  remaining  tariffs  in 
agricultural goods except for sugar, beef, lamb, pig, turkey and poultry, which retain the status 
quo (tariff rate quotas). Option C1 foresees full elimination by Chile of all remaining tariffs in 
agricultural  goods.  In  terms  of  non-tariff  barriers  (NTBs)  for  non-agriculture  goods, 
option  C1  includes  a  5%  reduction  rate  by  Chile  (based  on  ad-valorem  equivalent),  whilst 
Chile's reduction under option C2 is at a 10% rate (based on ad-valorem equivalent).  

Due to lack of reliable datasets the effect of a reduction of NTBs in the agricultural sector was 
not  modelled.  A  qualitative  analysis  of  agricultural  NTBs  is  provided  in  the  external 
Ecorys/CASE study in Annex 5. 

20 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As  regards  NTBs  on  services  (based  on  existing  estimates  by  the  World  Bank)23,  and 
considering  that  the  existing  Agreement  has  already  achieved  a  significant  level  of  services 
bindings,  option  C1  estimates  a  1%  reduction  and  option  C2  a  3%  reduction  by  Chile.  As 
regards the EU, option C2 estimates a 1% reduction in NTBs and option C1 no reduction. 

23 Jafary, Y., and Tarr, D. G. 2014. Estimates of Ad Valorem Equivalents of Barriers Against Foreign Suppliers 
of Services in Eleven Services Sectors and 103 Countries. 
https://openknowledge.worldbank.org/bitstream/handle/10986/20620/WPS7096.pdf?sequence=1&isAllowed=y 

21 

 
 
 
 
 
 
                                                            
 
5.  WHAT ARE THE IMPACTS OF THE DIFFERENT POLICY OPTIONS AND 

WHO WILL BE AFFECTED? 

This  chapter  analyses  the  impacts  of  the  different  policy  options  outlined  in  Chapter  4  on 
different  levels.  It  first  examines  the  overall  economic  impact  resulting  from  the  different 
policy  options  for  the  enhancement  of  EU-Chile  bilateral  trade  and  investment  relations.  It 
then looks at impacts on specific sectors, SMEs and Least Developed Countries (LDCs), and 
assesses  environmental,  social  and  human  rights  impacts.  The  administrative  and  budgetary 
impacts  are  also  covered,  as  well  as  the  administrative  capacity  of  Chile's  customs  to 
implement the new Agreement.  

The  analysis  focuses  on  the  impacts  for  the  EU  and  for  Chile.  It  does  not  present  detailed 
results  at  EU  Member  State  level,  which  might  be  misleading  for  methodological  reasons. 
First, an assessment by Member State would be challenging to  conduct due to  lack of data, 
and  would  not  lead  to  further  insights  on  the  overall  benefits  of  the  trade  agreement.  For 
example, estimates of the level of non-tariff barriers (NTBs) in goods at Member State level 
by sector are not available; hence, the impact of reducing sector-specific NTBs would differ 
across  Member  States  depending  on  their  sector-specific  trade  exposure  and  the  specific 
products  that  face  problems  in  trading.  Secondly,  international  trade  in  goods  statistics  are 
accurate at EU level. At Member State level trade can be over-estimated or under-estimated 
mainly  due  to  the  "Rotterdam  effect":  a  Member  State  receiving  a  good  from  a  non-EU 
country is not necessarily the Member State of final destination, and a Member State sending 
a good to a non-EU country is not necessarily the Member State of origin of the good.  

The  analysis  in  this  chapter  is  based  on  the  economic  modelling  performed  by  the  Chief 
Economist  Unit  of  DG  TRADE,  the  study  carried  out  by  the  external  consultant 
(Ecorys/CASE),  commissioned  by  DG  TRADE  (Annex  5),  and  the  assessment  and 
information  available  to  the  Commission  services,  including  the  stakeholders'  input  to  the 
public consultation. 

Regarding  the  impact  on  sustainable  development  in  all  three  dimensions  (economic, 
environmental and social) and on human rights,  the analyses combine quantitative estimates 
modelled by the Chief Economist Unit in DG TRADE under scenarios C1 (conservative) and 
C2  (ambitious)  –  i.a.  GDP,  sectoral  output,  consumer  price  indexes,  real  wages,  welfare 
impact  and  CO2  emissions  –  with  complementary  analyses  provided  by  the  external 
consultant  study.  In  particular,  the  external  study  assesses  the  effects  of  both  scenarios  on 
employment  (combining  quantitative  and  qualitative  methods),  on 
the  environment 
(combining also quantitative and qualitative work), and identifies the key human rights issues 
and likely impacts, with particular attention paid to impacts on gender under each scenario. 

5.1. Model and assumptions  

The  quantitative  analysis  is  based  on  the  economic  modelling  carried  out  by  the  Chief 
Economist  Unit  of  DG  TRADE,  complemented  in  some  areas  (e.g.  CO2  emission)  by  the 

22 

 
 
 
 
 
 
 
external study. For the simulations made in the quantitative analysis, the global quantitative 
CGE  (Computable  General  Equilibrium)  model  GTAP  (Global  Trade  Analysis  Project)  and 
its most recent database V9, with a base year of 2011 were used.  

The description of the analytical model used, including its limitations, can be found in Annex 
4. However, main features should be highlighted at this stage, to help the reader understand 
the results: 

  The general model projects trade flows in the longer term (2025), factors in the measures 
impacting  on  trade  flows  and  makes  a  calculation  using  a  series  of  assumptions  on  the 
impact  of  reduced  bilateral  barriers on  trade  flows.  FTAs  are  made  up  of  market  access 
liberalisation  measures  covering  goods,  services  and  investment,  and  rule-based 
provisions. It is not possible to model rules, such as intellectual property rights, including 
GIs.  While  rules  included  in  FTAs  would  surely  increase  the  level  of  certainty  for 
business and decrease risk for business, it is very difficult to capture those effects through 
a model. The modelling, therefore, looks at tariff liberalisations that would result from the 
FTAs, reductions of NTBs and binding of market openings in services. 

  To understand output results, it is necessary to consider that the model cannot expand the 
factors of production (as might be the case in real life), but instead pulls them across to the 
most  efficient  sector.  This  partially  explains  the  decline  in  output  in  some  sectors  when 
production increases in other sectors.  

  The model works with a  so-called ‘fixed employment closure’,  meaning that the overall 
number  of  jobs  is  set  so  as  not  to  change,  and  labour  market  adjustments  take  place 
through  wage  changes.  This  approach  is  commonly  used  for  this  type  of  analyses  since 
there is no established theoretical framework linking the functioning of labour markets to 
CGE models. However, the fixed employment closure approach provides information on 
shifts  between  sectors  thus  indicating  in  which  sectors  employment  is  likely  to  increase 
and decrease as a result of the new Agreement.   

  The modelling provides figures for the impact of reduction of non-tariff barriers (NTBs) 
on trade in goods. However, as robust estimates could not be established for reductions of 
NTBs for trade in agricultural products, a qualitative assessment of agricultural NTBs has 
been  provided  in  the  external  study.  This  would  mean  that  the  likely  impact  of  NTB 
reduction as modelled by the CGE simulation for EU exports is probably underestimated. 

  For  cross-border  services,  the  assessment  of  likely  NTB  reduction is  more  difficult than 
for  goods.  This  is  mainly  due  to  the  nature  of  trade  liberalisation  of  services,  which 
usually takes place through binding, i.e. a commitment by the negotiating partner not to 
raise  the  levels  of  existing  barriers,  thus  removing  uncertainty  in  terms  of  risks  for 
economic operators. This impact is difficult to estimate since it is not a traditional cut in 
trade  barriers.  At  the  same  time,  it  is  acknowledged  that  removing  uncertainty  through 
binding  has  a  value.  Previous  empirical  work  in  this  area  has  found  that,  on  average, 
binding corresponds to a 3% reduction in trade costs (which is the reduction assumed by 
the CGE modelling on NTBs applied by Chile on services under the ambitious scenario). 

23 

 
 
 
 
 
  The model does not contain data as regards the economic impacts of liberalisation in the 
areas  of  public  procurement  and  investment  nor  on  the  impact  of  rules  regarding 
investment protection, protection of intellectual property rights, including GIs, given the 
difficulty in the quantification of these impacts. 

All  limitations  duly  considered,  the  CGE  model  remains  the  best  tool  in  the 
methodological  toolbox  of  economists  to  quantify  the  impact  of  trade  agreements.  In  this 
context,  it  should  be  mentioned  that  administrations  around  the  world,  including  in  EU 
Member  States,  rely  on  CGE  modelling  to  analyse  the  impact  of  trade  policies.  The  Chief 
Economist Unit of DG Trade actively engages in exchanges with the research community to 
stay at the forefront  of methodological progress in trade policy analysis. Recently advanced 
approaches have not been able to offer convincing alternatives. Essentially, all the limitations 
of the CGE model identified above are inherent to competing approaches too. 

5.2. Policy option A: No policy change (the baseline scenario) 

Given the results achieved so far under the EU-Chile FTA, and the scope of the agreement, it 
is  reasonable  to  assume  that  no  further  reduction  of  regulatory  trade  costs  may  be  expected 
from the operation of the Agreement, and that we should not expect it to foster any substantial 
further growth of bilateral trade and investment volumes. Thus, no significant additional gains 
in overall welfare attributed to the EU-Chile FTA may be expected in the EU or in Chile in 
the  short  to  medium  term.  The  only  possible  changes  in  EU-Chile  trade  and  investment 
relations would be those resulting from changes in the two economies, bilateral trade relations 
with third countries, the multilateral trading system and the world economy at large. 

The status quo would also imply that important policy areas, such  as investment protection, 
trade and sustainable development, digital trade and SMEs would not be addressed. 

Overall, the status quo would mean a comparatively deteriorating environment for EU exports 
and  investment  relative  to  third  countries  with  which  Chile  has  concluded  more  recent 
ambitious FTAs.  

The  economic  modelling  tool,  within  its  limits,  projects  this  baseline  scenario  to  the 
simulation  horizon  by  using  projections  e.g.  with  respect  to  GDP  growth24.  This  baseline 
scenario is compared with the policy scenarios options C1 and C2 that are based on the same 
long-term  projections  and  include  the  parameters  of  the  policy  choices  as  defined  in  the 
respective  scenarios.  So,  for  example,  the  EU  export  as  projected  by  the  model  in  the  long 
term in option A is compared to the relative change under options C1 and C2 in the equivalent 
projection  horizon.  The  figures  for  gains  in  trade  provided  for  option  C2  can,  thus  also  be 
interpreted as an estimate of untapped trade potential. 

24 Cf. annex 4 for additional details and the sources of the projections used. 

24 

 
 
 
 
 
 
 
 
                                                            
5.3. Policy Option C: Comprehensive modernisation of the EU-Chile FTAs  

The  impact  of  policy  option  C  on  key  indicators,  described  below,  illustrates  the  expected 
change relative to option A (no policy change) with a similar long-term projection.  

GDP and bilateral trade  

In the long run, the modernisation of the EU-Chile FTA is estimated to have a positive impact 
on real GDP. Chile would see a positive change in real GDP of 0.090% in the conservative 
scenario and of 0.175% in the ambitious one. As expected, the impact on EU real GDP would 
be  almost  negligible,  but  in  a  positive  direction:  a  0.001%  increase  in  the  conservative 
scenario and a 0.002% in the ambitious one.  In absolute values, the gains in real GDP in the 
long run for the EU would be € 196 million in the conservative scenario and € 391 million in 
the  ambitious  one.  Chile  would  accrue  real  GDP  gains  of  €  304  million  and  €  592  million 
under the respective scenarios.  

Bilaterally, EU exports to Chile would increase more than EU imports from Chile. EU exports 
grow at 9.91% and 21.46% respectively, in the conservative and ambitious scenarios. Chile's 
exports to the EU, on the other hand, would increase just 0.72% in the conservative scenario, 
and 1.60% in the ambitious scenario.  

Because  of  the  dynamic  baseline  described  above,  the  expected  increase  in  bilateral  trade 
under  policy  options  C1  and  C2  can  be  considered  an  estimate  of  the  untapped  trade 
potential.  Table  3  in  Annex  4  ('Expected  increase  in  EU  exports  of  goods  and  services  by 
sector  under  policy  options  C1  and  C2')  outlines  the  estimated  untapped  potential  in  the 
different  goods  and  services  sectors.  Quantitative  estimates  on  investment  and  public 
procurement are not available due to lack of sufficiently robust methodologies. However, the 
qualitative analyses included in the external study (Annex 5), and the concrete barriers set out 
in section 1.2 provide a good approximation to the untapped potential in these areas.     

The  unusually  small  increase  in  EU  imports  from  Chile  may  be  partly  explained  by  the 
assumption  that  NTB  reductions  are  asymmetric  (only  Chile  reduces  NTBs  on  non-
agricultural goods). In the longer run, however, one could also consider a reduction in the EU 
NTBs  faced  by  Chilean  importers,  if  they  start  adopting  EU  standards  and  technical 
specifications.  

It should also be noted that Chile's total exports (as opposed to bilateral exports) increase by 
0.15% in the conservative scenario and by 0.21% in the ambitious scenario, whereas EU total 
exports increase by merely 0.01% and 0.02% respectively, which is to be expected given the 
difference in size between the economies of the EU and Chile. 

Table - Estimated impact on GDP and bilateral exports (long term) 

Variable 

Scenario 

EU 

Chile 

25 

 
 
 
 
 
 
 
Real GDP  
(% change) 

GDP gain 
(€ million*) 

EU-Chile bilateral 
exports (% change)  

Conservative 

Ambitious 

Conservative 

Ambitious 

Conservative 

Ambitious 

*USD converted to EUR at 1EUR=1.1095 USD 

5.4. Impact on sectoral competitiveness 

0.001 

0.002 

196 

391 

9.91 

21.46 

0.090 

0.175 

304 

592 

0.72 

1.60 

The CGE  modelling  estimates  growth  of  EU exports to  Chile  for all 31 sectors of the CGE 
modelling under both scenarios. The impact on Chile's exports per sector is more mixed, with 
a  considerable  variation  in  the  export  behaviour  across  sectors.  Some  sectors  increase  their 
exports significantly (e.g. cereal, fruits, vegetables, rice, dairy, fishing, other food, beverages), 
but this is largely cancelled out in the final average by other sectors that contract.  It should be 
noted,  however,  that  the  fact  that  a  sector  is  seen  to  reduce  its  exports  does  not  necessarily 
mean  that  bilateral  trade  barriers  pose  a  problem.  This  is  frequently  observed  as  a 
consequence  of  stronger  liberalisation  in  certain  sectors,  which  grow  at  the  expense  of 
drawing resources (labour, capital) from other sectors of the economy. 

One  prima  facie  counterintuitive  result  across  Chilean  sectors  is  the  expected  reduction  in 
exports of ruminant meat (beef lamb) and other meat products (pig, turkey, poultry) as a result 
of further liberalisation. This is explained by the fact that none of the current tariff-rate quotas 
on meat granted by the EU in the context of the EU-Chile FTA is used fully. As a result, the 
model  considered  a  0%  baseline  import  duty,  which  is  why  we  do  not  observe  a  positive 
effect after liberalisation. On the contrary, there is a slight decrease in Chile's meat exports. 
This  would  be  the  result  of  a  re-allocation  of  resources  between  sectors,  i.e.  other  sectors 
growing at the expense of the meat sector. 

In  terms  of  relative  change  of  sectoral  output  in  the  long  term,  the  impact  on  the  EU  is,  as 
expected,  negligible, given  the difference in  size between the EU and Chile.  The impact  on 
sectoral  output  in  Chile  is  mixed,  with  fruit  and  vegetables,  beverages,  dairy,  non-metal 
products and utility sectors growing at the expense of others (e.g. machinery, motor vehicles 
and  transport  equipment,  coal,  fibers  and  crop).  It  should  be  underlined  that  these  expected 
sectoral changes are expressed in percentage, and the impact in absolute terms may differ. For 
instance, the CGE modelling foresees a reduction of motor vehicles and transport equipment 
output  in  Chile  around  1%.  However,  in  absolute  terms  the  impact  would  be  almost 
negligible, as Chile has no vehicle production and no significant component production.  

It is worth noting that, in the services sector, the modernised Agreement is expected to have a 
positive impact on all the services sub-sectors considered in the CGE modelling, both in the 
EU and in Chile, although the impact on the EU is almost negligible. 

26 

 
 
 
 
 
 
Further details on the impact of the modernised Agreement on sectoral output and on sectoral 
exports is presented in Annex 4.  

5.5. Impact on SMEs 

In general terms SMEs should gain from the modernisation of the EU-Chile FTA on a number 
of  levels:  NTB  cost  reduction,  simpler  rules  of  origin,  increased  regulatory  cooperation 
between the EU and Chile as well as further convergence towards international standards. A 
modernised FTA would also create an opportunity to strengthen existing cooperation to help 
SMEs to increase their exports.   

However, the small size of Chile's economy compared to the EU means that the impact of a 
modernised  EU-Chile  FTA  on  all  EU  SMEs,  even  under  the  ambitious  scenario,  would  be 
generally negligible. Nevertheless, EU SMEs would benefit from the overall export growth of 
an ambitious trade liberalisation (21.46% in 2025), in particular in sectors where tariffs and 
NTBs will be eliminated. 

In the case of Chile, on the other hand, the impact of the modernisation could have noticeable 
effects on SMEs. Considering the importance of SMEs for overall employment, it is important 
to identify in which sectors of the Chilean economy SMEs are predominant, and to match this 
data with the CGE estimates on the impact of a modernisation of the EU-Chile Agreement on 
these sectors. 

SMEs  in  the  Chilean  economy  are  particularly  concentrated  in  three  sectors,  which  account 
for  60%  of  the  total:  recreational  &  other  services,  communication  &  business  sectors,  and 
construction. In terms of employment, in 2014 the recreational and other services sector alone 
absorbed  almost  50%  of  the  total  SME  workforce.  Communication  and  business  services, 
transport and construction absorbed a further 29% of the SME workforce.  

The  31  sectors  of  the  CGE  modelling  cover  other  services  (including  recreation), 
communication  and  transport.  In  terms  of  sectoral  output,  the  CGE  modelling  estimates  a 
0.36% increase in  the  other services sector in  Chile  in a  conservative scenario and a 0.52% 
increase  in  an  ambitious  one.  As  regards  the  communication  sector,  it  estimates  a  0.28% 
increase in a conservative scenario and a 0.40% output increase in an ambitious one. Finally, 
regarding  transport,  it  estimates  a  0.07%  output  increase  in  the  conservative  scenario  and  a 
0.11% output increase in the ambitious scenario.  

Although the CGE model does not cover all of the sectors that absorb the majority of SMEs in 
Chile  mentioned  above,  the  data  on  other  services  (which  includes  recreation),  on 
communication and on transport provides a good approximation; and appear to indicate that a 
modernised  Agreement  with  increased  liberalisation  would  likely  have  overall  a  positive 
impact on a majority of SMEs in Chile.  

27 

 
 
 
 
 
 
 
This  conclusion  is  consistent  with  the  results  of  the  public  consultation,  with  many 
respondents25    highlighting  the  positive  impact  that  a  modernised  agreement  would  likely 
have on SMEs.  

5.6. Impact on third countries, in particular Least Developed Countries (LDCs) 

Third countries are generally impacted to a negligible degree, with some countries enjoying a 
marginal  positive  impact  (Turkey,  Colombia,  Japan,  EU  neighbours)  and  others  suffering  a 
marginal negative impact (including US, Canada and most Latin American countries). Results 
of the CGE modelling are presented in the table below. Least Developed Countries are not at 
all affected in a conservative scenario,  while under the ambitious scenario  there would be a 
negligible impact (albeit in a positive direction). 

Table - Change in exports  (% change, long term) 

Conservative 

Ambitious 

EU28 

Chile 

Turkey 

USA 

China 

Canada 

Mexico 

Mercosur 

Colombia 

Peru 

Central America 

Latin America 

EFTA 

LDC 

PVS 

Australia & New Zealand 

Japan 

Korea 

0,01 

0,145 

0,08 

-0,003 

-0,001 

-0,002 

-0,004 

-0,005 

0,017 

-0,006 

-0,002 

-0,005 

-0,001 

0 

0 

-0,002 

0,001 

-0,001 

0,022 

0,21 

0,083 

-0,005 

0 

-0,003 

-0,008 

-0,01 

0,049 

-0,014 

-0,005 

-0,009 

0 

0,001 

0 

-0,002 

0,003 

-0,001 

25 Significant numbers held the view that the benefits for SMEs of modernizing the existing agreement would 
include: higher output/employment due to higher exports (in both the EU and Chile); cheaper production costs 
through cheaper imports (in both the EU and Chile); trade facilitated with 3rd countries due to convergence of 
standards  (in  both  the  EU  and  Chile);  benefits  of  increased  technology  transfer  (especially  in  Chile);  the 
possibility  to  move  from  lower  to  higher  value-added  products  (in  both  the  EU  and  Chile);  lower  costs  for 
importation requirements (in both the EU and Chile); and possibilities for increased co-operation among SMEs 
(in both the EU and Chile).  

28 

 
 
 
 
 
 
 
                                                            
 
Singapore 

Rest of TPP 

EU neighbours 

Rest of the World 

-0,001 

-0,002 

0,001 

0 

0 

-0,003 

0,003 

0,002 

5.7.  Environmental impact 

The external study (Ecorys/CASE, 2017) has screened the potential environmental impact of a 
modernised  agreement  on  all  environmental  impacts  included  in  the  EU  Better  Regulation 
Toolbox26.  The  study  concludes  that  the  environmental  effects  of  both  the  conservative  and 
the  ambitious  scenarios  are  likely  to  be  limited  in  Chile,  and  almost  negligible  in  the  EU. 
Without  mitigating  measures,  CO2  emissions  are  likely  to  increase  slightly  in  both  regions 
because  of  the  scale  and  technique  effects,  and  by  the  projected  increase  in  transportation. 
Other  environmental  issues  that  may  require  attention  due  to  the  expected  increase  in 
agricultural activities in Chile are water (due to higher water requirements), increase in some 
of the drivers of biodiversity loss in Chile (linked to agricultural activities and associated use 
of land, water, fertilisers and pesticides), and land use. Increase in agricultural output may add 
pressure  to  the  ongoing  land  conversion  in  central  and  northern  Chile.  Further  trade 
liberalisation  is  likely  to  improve  animal  welfare  by  increasing  attention  in  Chile  to  the 
welfare of animals in the meat and dairy sub-sectors.   

Many of the respondents in the public consultation who expressed an opinion tend to consider 
that  a  modernised  Agreement  would  have  a  positive  impact  on  environmental  concerns 
overall,  and  in  particular  on  air  pollution,  waste,  energy  use  and  mix,  biodiversity  and  the 
greening of the economy.  

As  noted  in  section  4.3,  Trade  and  Sustainable  Development  chapters  in  recent  EU  FTAs 
include  provisions  on  environmental  protection  and  the  fight  against  climate  change. 
Provisions  foresee  engagement  with  partner  countries  based  on  enhanced  dialogue, 
transparency  and  civil  society  involvement.  Provisions  also  allow  for  independent  and 
impartial review. Such engagement would help to raise awareness of the policy objectives, to 
draw more attention to ratification of the relevant conventions and to enhance the quality of 
their implementation.   

5.8. Social impact 

5.8.1. 

Impact on real wages and welfare 

Real wages 

26 Climate, air quality, water quality and resources, biodiversity, flora, fauna and landscapes, soil quality or 
resources, waste production/generation/recycling, efficient use of resources (renewable and non-renewable, 
sustainable production and consumption, international environmental impacts, transport and use of energy, 
animal welfare, likelihood or scale of environmental risks and land use. 

29 

 
 
 
 
 
 
 
 
                                                            
According to the CGE modelling, real wages would increase for both trade partners under the 
two scenarios, although the impact in the EU is, once again, almost negligible. In the case of 
Chile,  in  the  conservative  scenario  real  wages  would  increase  around  0.346%  for  unskilled 
and 0.191% for skilled labour. In the ambitious scenario real wages of unskilled labour and 
skilled labour would increase by around 0.610% and 0.370% respectively. 

Table – Estimated change in real wages (long term, % change) 

Conservative 

Ambitious 

Unskilled 
0,003 
0,346 

Skilled 
0,003 
0,191 

Unskilled 
0,006 
0,610 

Skilled 
0,006 
0,370 

         EU 
         Chile 

Welfare 

In terms of welfare (an economic indicator that compares the change in consumer utility), the 
impact on  the  EU and on Chile  is expected to be  positive. In  absolute values, the EU gains 
vary  between  €  269  million  (conservative)  and  €  712  million  (ambitious)  in  2025.  Chile's 
welfare gains would be € 369 million in the conservative and € 529 million in the ambitious 
scenario.  

Table – Estimated welfare gains in the long term (€ million) (*) 

EU 
Chile 

Conservative 
269 
369 

Ambitious 
712 
529 

(*) USD converted to Euro at 1 EUR=1.1095 USD. 

5.8.2.  Impact on employment 

Sectoral employment 

The CGE modelling estimated impact on sectoral output in Chile is mixed. Some key sectors, 
notably fruit and vegetables, beverages, dairy, non-metal products and utilities are expected to 
grow  at  the  expense  of  others.    Sectors  expected  to  contract  include  machinery,  motor 
vehicles, metal products, gas, fibres and crops and meat.  

As a result of re-allocation of resources between sectors we may expect labour (and capital) 
shifts from  contracting to  growing  sectors  (e.g. the  fruit  & vegetables sector growing at the 
expense  of  the  meat  sector).  This  is  confirmed  by  the  CGE  simulations  results  on  sectoral 
labour demand. Increase in labour demand in the EU would be lower than 0.1% in every sub-
sector  in  both  scenarios,  except  for  the  oil  sub-sector  in  the  ambitious  scenario,  where  a 
0.16%  increase  in  labour  demand  is  expected.  Table  5.1  in  the  external  study  (Annex  5), 
provides  further  details  on  the  expected  changes  in  labour  demand  in  the  EU  by  sub-sector 

30 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
category, showing that the impact on labour demand in the EU would be largely negligible for 
all sub-sectors. 

In the case of Chile, variations in labour demands would be more significant, especially in the 
dairy sub-sector, where labour demand would increase by almost 5% for both unskilled and 
skilled workers in both scenarios, in the oilseeds, vegetable oils and fats sub-sector by around 
2%, and in the vegetables, fruits and nuts sub-sector by around 1.5%. Such increases in labour 
demand come partially at the expense of the meat, cereals, and the plant and animal fibres and 
other crops sub-sector. However, a net positive labour demand effect in the agricultural and 
food sub-sector of around 1% for both unskilled workers and skilled workers is expected.  

The  public  consultation  yields  positive  conclusions  on  the  likely  social  impact  of  a 
modernised Agreement. Of those respondents who expressed an opinion, many consider that 
the modernisation would increase employment, improve the quality of jobs, and raise wages 
and household incomes.   

5.8.3.  Impact on labour standards 

Overview of the core labour standards situation in Chile 

Chile  has  ratified  all  eight  core  conventions  that  make  up  the  ILO’s  1998  Declaration  on 
Fundamental  Principles  and  Rights  at  Work,  but  still  faces  issues  in  consistently 
implementing  their  directives  in  domestic  labour  law  and  practices.  A  review  of  cases  filed 
against Chile at the ILO’s Commission on Freedom of Association and Committee of Experts 
on  the  Application  of  Conventions  and  Recommendations  (CEACR)  panels  shows  that 
freedom  of  association  is  often  breached  in  Chile,  including  through  union  motivated 
dismissals, interference in the right to strike, and non-compliance with collective bargaining 
agreements. Discrimination against women at the workplace is also widespread, and in some 
cases backed by law.  

Impact of the modernisation on labour standards 

Trade  and  Sustainable  Development  chapters  in  recent  EU  FTAs  (described  in  sections  4.3 
and 5.7) include commitments to adhere to core ILO standards and conventions and to their 
effective  implementation  in  law  and  in  practice,  as  well  as  the  pursuance  of  high  levels  of 

31 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
labour protection, and the effective enforcement of and non-derogation from domestic laws in 
these areas, in order to prevent a ‘race to the bottom’. They also include specific provisions 
encouraging trade practices and schemes that support and promote sustainable development, 
such as Corporate Social Responsibility.  

The  internationally  recognised  ILO  core  labour  standards  related  to  freedom  of  association 
and  the  effective  recognition  of  the  right  to  collective  bargaining,  the  effective  abolition  of 
child  labour,  the  elimination  of  all  forms  of  forced  or  compulsory  labour  as  well  as  the 
elimination  of  discrimination  in  respect  of  employment  and  occupation  would  therefore 
potentially be impacted positively by a revised FTA, since the Parties would be bound by the 
Agreement to effectively implement and uphold core labour standards.  

The  labour  provisions  in  the  Trade  and  Sustainable  Development  chapter  of  a  modernised 
EU-Chile FTA would also consider how both Parties can further cooperate in promoting the 
ILO  Decent  Work  Agenda  as  provided  by  the  ILO  Declaration  on  Social  Justice  for  a  Fair 
Globalization  of  2008  and  its  four  pillars  on  promoting  jobs,  guaranteeing  rights  at  work, 
extending social protection and promoting social dialogue. Particular attention should be paid 
to  developing  and  enhancing  measures  for  occupational  safety  and  health  and  for  working 
conditions and living wages, as expressed in the 2008 ILO Declaration on Social Justice for a 
fair  Globalisation  and  in  related  ILO  Conventions  as  well  as  other  international 
commitments.  Particular attention should also be paid to labour inspections through effective 
implementation of relevant ILO standards. 

5.9. Impact on consumers 

The  potential  enhancement  of  trade  and  investment  relations  with  Chile  may  impact  on 
consumers in various ways, including in terms of expenditure, prices, and choice.  

The CGE modelling estimates that by 2025 a modernised EU-Chile FTA would increase the 
consumer  price  index  in  Chile  by  0.20%  in  the  conservative  and  0.23%  in  the  ambitious 
scenario. As expected, given the considerable difference in size the impact in the EU would 
be negligible in a conservative scenario and a mere 0.01% in an ambitious scenario. It should 
be noted however that (as explained in more detail in section 5.1 and in Annex 4), one of the 
limitations  of  the  CGE  modelling  is  a  fixed  employment  closure,  with  labour  market 
adjustments  therefore  taking  place  through  wage  changes.  This  means  that  an  increase  in 
wages automatically translates into higher consumer prices. Thus, the CGE modelling results 
on  consumer  prices  should  be  taken  with  caution,  as  they  may  overestimate  the  increase  in 
prices.     

Table – Estimated change in Consumer Price Index (long-term, % change) 

Conservative 

Ambitious 

32 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
            EU 

            Chile 

0,00 

0,20 

0,01 

0,23 

As explained in sub-section 5.8.1, in terms of welfare (an economic indicator that compares 
the  change  in  consumer  utility),  the  impact  on  the  EU  and  on  Chile  would  be  positive.  In 
absolute  values,  the  EU  gains  would  vary  between  €  269  million  (conservative)  and  €  712 
million  (ambitious)  in  2025,  whilst  Chile's  welfare  gains  would  be  €  339  million  in  the 
conservative  and  €  529  million  in  the  ambitious  scenario.  Moreover,  expanding  trade  will 
provide a wider choice for consumers in the EU and in Chile.  

The 2017 ex-ante study (Annex 5) concludes that consumer welfare is expected to increase. 
Although in Chile the relative increase in consumer  prices for goods typically purchased by 
low-income  earners  could,  at  first  sight,  possibly  impact  income  inequality,  this  does  not 
appear  to  be  the  case,  as  the  purchasing  power  of  low  skilled  workers  (who  may  be  safely 
assumed to be more than proportionately represented among low-income earners) increases at 
a higher rate than the overall consumer price index.  

EU policy not  to  lower standards  for safety,  environment and  other  considerations  will  also 
ensure  that  the  current  level  of  protection  is  upheld.  Therefore  the  FTA  is  not  expected  to 
have  any immediate impact in this area. However, the intended improvements to  regulatory 
cooperation  could  result  in  higher  protection  in  these  areas  in  the  future.  Expanding  trade 
would  provide  more  choices  for  consumers  in  the  EU  and  in  Chile.  Consumers  could  also 
benefit indirectly from cooperation on consumer protection. 

The outcome of the public consultation is consistent with these results.  Of the 32 responses 
received, a third of respondents expect a positive impact on EU consumers, whilst half expect 
a positive effect on Chilean consumers27. 

5.10. 

Impact on human rights 

The  modernisation  of  the  EU-Chile  FTA  would  be  part  of  the  modernisation  of  the 
Association  Agreement  as  a  whole.  Both  sides  have  expressed  their  commitment  in  the 
scoping process to the respect of human rights and fundamental freedoms. The outcome of the 
preparatory work on the modernisation of the  political chapter indicates that the Parties will 

27  Among  various  types  of  possible  positive  impacts/benefits  for  EU  consumers  identified  by  respondents: 
prices,  choice  and  availability  of  goods  or  services  (a  third  of  respondents);  quality  and  safety  of  goods  or 
services,  information  available  to  consumers,  and  protection  and  enforcement  of  consumer  rights  (about  a 
quarter  of respondents). Among the  various types of possible  positive  impacts/benefits  for  Chilean consumers 
identified by respondents: choice and availability of goods and services (a half of respondents); prices, quality 
and safety of goods and services (a third of respondents); and information available to consumers (a quarter of 
respondents).  

33 

 
 
 
 
 
 
 
 
 
 
                                                            
base  the  new  Agreement  on  values  of  human  rights,  democracy,  rule  of  law  and  good 
governance.  It  also  indicates  that  the  existing  dialogue  on  human  rights  (outside  the  FTA 
pillar) should be maintained.  

Both  the  EU  and  Chile  are  committed  to  high  standards  of  protection  for  human  rights  (as 
proclaimed in the main UN conventions on human rights, the Charter of Fundamental Rights 
of  the  European  Union,  the  European  Convention  on  Human  Rights,  or  the  American 
Convention on Human Rights); and both Chile and EU Member States are signatories to all 
the main international conventions. 

The EU and Chile conduct a regular Human Rights Dialogue where major issues of concern 
for human rights are discussed, in particular gender and violence against women,  children’s 
rights  and  rights  of  vulnerable  groups  (including  indigenous  peoples  and  LGBTI).  The  EU 
and Chile also cooperate fully in multilateral fora on protection of human rights.  

The establishment in the political chapter of respect for human rights as an essential element 
of  the  new  Agreement  is  a  key  feature  for  ensuring  proper  compliance  with  human  rights 
under the future agreement. 

Notwithstanding the fact that human rights will be addressed more generally in the political 
and cooperation part of the agreement, the Trade and Sustainable Development chapter of 
the  trade  pillar  of  the  modernised  Agreement  would  include  core  labour  rights  (see 
section 5.8.3), as this is a subset of human rights that may be affected by a modernised trade 
and investment framework. 

As  highlighted  in  the  Guidelines  on  the  analysis  of  human  rights  impacts  in  impact 
assessments  for  trade-related  policy  initiatives,  impact  assessments  should  focus  on  the 
potential impacts of the different trade policy options under consideration. The external study 
(Ecorys/CASE,  2017)  has  identified  the  specific  human  rights  likely  to  be  affected  by 
modernisation of the FTA and has analysed the potential impact upon them of the particular 
trade measures under consideration. The main findings are presented below. 

In  addition,  the  forthcoming  sustainability  impact  assessment  (SIA)  will  provide  a  more 
detailed  analysis  and  assessment,  taking  into  account  a  more  extensive  consultation  of 
stakeholders  in  this  context  and  possible recommendations  as  to  maximising the  benefits  of 
the proposed Agreement and minimising potential negative effects.  

Overview of human rights situation in Chile 

Chile  has  signed  and  ratified  sixteen  of  eighteen  international  human  rights  treaties  of  the 
United  Nations  (UN).  Chile  participated  in  the  Universal  Periodic  Review  by  the  Human 
Rights  Council  of  the  UN  in  2009,  during  which  a  report  assessing  the  human  rights 
challenges  Chile  was  facing  at  that  time  was  filed.  A  second  Universal  Periodic  Review  in 
2014 further detailed the administrative reforms and changes that were implemented by Chile 

34 

 
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                                                   
 
in  response.  A  number  of  human  rights  issues  were  mentioned:  past  use  of  torture, 
extrajudicial killings and enforced disappearances; police conduct, and repression of the right 
to  assembly;  discrimination  against  women;  the  recognition  of  rights  of  indigenous 
populations; and discrimination against sexual minorities.  

Both Universal Periodic Reviews praised Chile for the work the government continues to do 
on addressing the human rights violations of past governments, while at the same time they 
recognized areas where the use of force by police should be addressed.  

The rights of women, sexual minorities and indigenous peoples are still not fully secure, often 
due  to  stigma,  institutionalized  discrimination,  and  legislative  bottlenecks  to  resolve  them, 
although Chile was praised for its 2012 Anti-Discrimination law.  

Impact of the modernisation on human rights 

Among  the  current  human  rights  issues  in  Chile  -  use  of  force  by  police,  gender 
discrimination,  the  rights  and  recognition  of  indigenous  peoples,  and  the  rights  of  sexual 
minorities  -  all  but  two  are  essentially  questions  of  domestic  legislation.  Both  gender 
discrimination and the rights and recognition of indigenous peoples are two areas where the 
intensification  of  trade  and  investment  with  the  EU  through  a  modernised  Association 
Agreement could influence the human rights panorama, at least at the margins.  

Specifically  in  relation  to  gender  discrimination,  the  issue  at  hand  is  twofold:  the  equal 
participation  of  women  in  the  work  force,  and  significant  gap  in  equality  of  opportunity 
between  men  and  women  for  permanent  employment.  Women’s  seasonal  and  temporary 
employment  is  largely  centred  in  the  fruit  export  sub-sector,  a  major  source  of  EU  imports 
from Chile. Intensification of trade in this sector could increase employment for women, but 
as such work is largely unskilled or temporary it would not impact the gender gap in pay, nor 
would it address the imbalance in opportunities for permanent employment for women.   

As  for  the  rights  of  indigenous  peoples,  although  increased  investment  in  mining  could 
heighten  land  conflicts  at  the  core  of  indigenous  rights  claims  –  in  part  because  mining 
interests  are  in  geographic  regions  covered  by  such  claims  –  mining  has  been  so  far  a 
marginal  source  of  conflict.    Moreover,  the  modernised  Agreement  is  expected  to  result  in 
very modest changes in mining activities in Chile (well below 1%), which is not surprising, as 
these products are already free of tariff, and investors are largely covered by BITs. Thus, the 
effect on indigenous peoples is expected to be negligible. 

In  the  context  of  the  broader  social  or  sustainable  development  commitments  in  trade 
agreements,  which  also  include  corporate  social  responsibility  (CRS),  the  modernised 
Agreement  could  also  foment  the  contribution  of  private  businesses  in  promoting  and 
furthering labour rights, complementary to the role of the states. 

35 

 
 
 
 
 
 
 
 
 
 
 
 
Generally  speaking,  participants  in  the  public  consultations  considered  that  the  reduction  of 
trade and investment barriers between the EU and Chile would have no significant impact on 
human rights, with some suggesting that this was due to the already highly developed social 
and human  rights standards in  both the EU and Chile.  Respondents  considered  in particular 
that the availability and the affordability of essential goods and services would be positively 
impacted.  

Summary of potential impacts 

The table below summarises the potential impact on human rights. The possible impact on the 
right  to  an  adequate  standard  of  living  and  on  the  right  to  work  are  based  on  the  CGE 
modelling  results  on  GDP,  welfare,  real  wages  and  employment.  The  possible  impact  on 
work-related  rights  and  child  labour  draws  from  the  detailed  impact  analysis  on  labour 
standards  included  in  the  external  study  (Annex  5)  and  summarised  in  section  5.8.3.  The 
possible  impact  on  the  right  to  a  clean  environment  is  based  on  the  environmental  impact 
analysis  carried  out  in  the  external  study  and  summarised  in  section  5.7.  Finally,  the 
negligible expected impact on the rights of indigenous peoples and on gender equality is also 
based on the analysis carried out in the external study.  

Nevertheless,  it  is  important  to  underline  that  this  analysis  does  not  consider  the  possible 
positive  impact  of  the  Trade  and  Sustainable  chapter  and  the  potential  trade  and  gender 
provisions  of  a  modernised  Agreement.  The  dialogue  and  activities,  based  on  the 
commitments  in  the  chapter,  together  with  involvement  of  civil  society,  will  provide  the 
means to address relevant trade-related issues covered by the chapter, as well as to develop a 
positive agenda. Experience with similar chapters in other agreements suggests that a useful 
role  can  be  played  by  international  organisations  such  as  ILO  in  relation  to  relevant 
multilateral agreements and conventions.  

36 

 
 
 
 
 
 
 
 
 
 
 
Particular rights 

Options C1 and C2 

Right to an adequate standard of 
living 

Right to work 

Work-related rights and child 
labour 

EU 

Chile 

EU 

Chile 

EU 

Chile 

Right to a clean environment 

EU 

Chile 

Rights of indigenous peoples 

EU 

Gender equality 

Chile 

EU 

Chile 

Direct effect: 0 
Indirect effect: 0/+ 
Direct effect: + 
Indirect effect: + 
Direct effect: 0 
Indirect effect: 0/+ 
Direct effect: + 
Indirect effect: + 
Direct effect: 0 
Indirect effect: 0 
Direct effect: + 
Indirect effect: + 
Direct effect: 0 
Indirect effect: 0 
Direct effect: -/0 
Indirect effect: -/0 
Direct effect: 0 
Indirect effect: 0 
Direct effect: 0 
Indirect effect: 0 

Direct effect: 0 
Indirect effect: 0 
Direct effect: 0 
Indirect effect: 0 

5.11. 

Governance impact 

The  trade  pillar  of  the  existing  EU-Chile  Association  Agreement  includes  some  very  basic 
provisions on transparency and provisions on anti-corruption, but does not include provisions 
on anti-fraud.  

A  modernised  EU-Chile  FTA  would  include  transparency  rules  that  would  ensure  proper 
involvement  and  consultation  of  stakeholders,  and  publication  of  rules  and  measures 
impacting  trade  and  investment.  Enhanced  rules  for  public  procurement  would  prescribe 
transparency, fairness, legal predictability and judicial review and would thus have a positive 
impact.  In  line  with  the  longstanding  EU  policy  on  trade  agreements,  a  dedicated  set  of 
commitments under a specific Trade and Sustainable Development chapter of the modernised 
EU-Chile FTA would ensure the necessary promotion of environmental and labour standards. 
Anti-fraud provisions are included in comprehensive FTAs negotiated recently by the EU, and 
would be the case for the modernised EU-Chile FTA as well. 

5.12. 

Administrative impact 

37 

 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
Administrative impact can be defined as the costs incurred by economic operators and public 
authorities  in  meeting  legal  obligations  stemming  from  a  new  framework  for  trade  and 
investment  relations  with  Chile.  For  example,  these  could  be  obligations  to  provide 
information  on  their  action  or  production,  either  to  public  authorities  or  to  private  parties, 
register and enforce certain obligations and rights, carry out cooperation activities etc. 

The  details  of  implementation  and  associated  administrative  cost  would  depend  on  the 
negotiated  provisions.  The  administrative  impact  of  the  two  sub-options  C1  and  C2  can  be 
assumed to be of similar magnitude, with a somewhat more important impact under option C2 
due to more intense cooperation of regulatory bodies as more changes to NTBs are foreseen.   

Although the modernisation of the EU-Chile FTA may require improved administrative and 
legislative  procedures  to  implement  the  new  provisions  on  both  sides,  the  institutional 
structures under the existing Agreement are already quite developed, and the need to set up 
additional institutional structures is therefore expected to be limited.   

Moreover, modernisation of the EU-Chile FTA would also create simplification benefits and 
would  reduce  administrative  costs  in  both  the  EU  and  Chile.  The  elimination  of  NTBs  and 
cooperation in the area of harmonisation of standards could greatly reduce such administrative 
costs and create mutual benefits.  

5.13. 

Assessment of administrative capacity of Chile's customs to implement the 

agreement (notably on application of rules of origin) 

Chile has full administrative capacity to properly implement the provisions of the modernised 
agreement.  On  the  basis  of  Commission  services’  practical  experience  with  Chilean 
authorities  for  implementing  the  existing  preferential  agreement,  which  has  been  very 
positive, it can be concluded that Chile has the capacity to implement a modernised version of 
the FTA. 

The  protocol  on  the  definition  of  the  concept  of  originating  products  and  methods  of 
administrative cooperation contains provisions relating to proofs of origin, arrangements for 
administrative  cooperation  and  mutual  assistance.  Products  originating  in  Chile  are  granted 
preferential tariff treatment when they comply with the provisions of this protocol and when 
covered by a proof of origin, which may be either a EUR.1 certificate issued by customs or 
competent  governmental  authorities,  or  an  invoice  declaration  made  out  by  approved 
exporters.  Subsequent  verifications  may  be  carried  out  at  random  or  whenever  the  customs 
authorities  of  the  importing  country  have  reasonable  doubts  on  the  originating  status  of 
products or on the authenticity of submitted documents. The verification process is based on 
administrative  cooperation  between  the  importing  and  the  exporting  authorities,  the  latter 
being in charge of verification and of visiting the premises of the exporter. These procedures 
have been established practice in the management of the origin protocol with Chile since the 
entry into force of the current agreement. 

38 

 
 
 
 
 
 
 
 
 
 
 
 
Issues  related  to  the  interpretation,  management  and  correct  implementation  of  the  protocol 
are  regularly  discussed between  the  EU  and  Chile  officials in  the  framework  of  the  Special 
Committee  on  Customs  Cooperation  and  Rules  of  Origin.  Moreover,  a  key  element  of  EU 
trade agreements is the reliance and trust placed on the partner country to verify, on request 
from  the  EU,  the  originating  status  of  their  goods  so  that  they  can  benefit  from  preference 
when  entering  the  EU.  In  this  regard  figures  show  that  in  2013  a  total  of  69  verification 
requests were sent by the EU to Chile, of which only 10 were based on reasonable doubt, the 
rest being routine requests. In all cases the proofs were found to have been correctly issued.  

All  this  would  indicate that the procedures and practices in place by the Chilean authorities 
are of a sufficient capacity to correctly apply and control the application of the Agreement as 
regards the rules  of  origin  for  their exported  goods  at  least under  the  schemes  of  proof  and 
verification currently applicable under the EU-Chile FTA. 

Looking at the long list of Chilean FTAs, it can be noted that Chile is also used to different 
schemes of proof and verification, implying official and also self-certification approaches in 
relation  with  the  proofs  of  origin.  With  regard  to  the  verification  schemes,  Chile  is  used  to 
systems  based  on  customs  cooperation  but  also  on  direct  visits  to  the  premises  of  the 
exporters.  Therefore  Chile  has  experience  in  the  different  types  of  schemes  for  proof  and 
verification that could be agreed during the modernisation exercise of the EU-Chile FTA. 

CHILE 

2012 

2013 

Request 
sent "at 
random" 

Requests sent 
based on 
"reasonable 
doubts" 

Request 
sent "at 
random" 

Requests sent 
based on 
"reasonable 
doubts" 

Request 
sent "at 
random" 

2014 

Requests sent 
based on 
"reasonable 
doubts" 

Total 
number of 
verification 
requests sent 
to CL 
No reply 
after 10 
months 
Correct 
proofs 
Wrong 
proofs 

33 

1 

32 

0 

28 

5 

23 

0 

20 

2 

17 

1 

8 

0 

8 

0 

59 

10 

59 

10 

5.14. 

Impact on the budget of the European Union  

Modernising  the  EU-Chile  FTA  would  have  very  limited  effects  on  the  budget  of  the  EU, 
notably through the loss of own resources in the form of customs duties, as most of the tariff 

39 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
lines are already eliminated and a modest increase in Commission staff resources to address 
new areas of the modernised Agreement.  

Based on the projected value of duty income in 2025 the loss from tariff revenue is estimated 
at € 3.34 million in the conservative scenario and € 3.87 million in the ambitious scenario.  

Table - Impact on the EU budget (*) 

Modernised EU-Chile FTA 

             € 3.34 million 

             € 3.87 million 

Conservative 

Ambitious 

(*)Foregone customs revenue at full implementation of the modernised FTA in € million. Original calculation in USD and 
converted at 1 €=1.1095 USD.  

6.  HOW DO THE OPTIONS COMPARE? 

This Chapter links both the positive and negative impacts of each policy option described in 
Chapter 5 directly to the objectives mentioned in Chapter 3. The comparison of the different 
policy  options  has  been  conducted  according  to  criteria  of  effectiveness  in  achieving  the 
operational objectives, efficiency, and coherence with overarching EU policy objectives. The 
analysis has taken into account not only the trade and economic impacts (including on SMEs 
and  on  specific  sectors)  of  each  alternative;  but  also  their  environmental,  social  and  human 
rights impacts, as well as the budgetary and administrative impacts. 

6.1. Positive and negative effects of the policy options 

Option A: Baseline 

The baseline option calls for maintaining the existing framework, with possible incremental 
improvements.  However,  the  EU-Chile  FTA  entered  into  force  in  2003  and  its  expected 
benefits  have  already  been  achieved.  Therefore,  the  possible  effects  achieved  under  the 
baseline option are expected to be marginal and would not translate into perceptible growth of 
bilateral  trade  and  investment  volumes.  No  significant  further  gains  in  overall  welfare 
attributable to the EU-Chile FTA would be expected in either the EU or in Chile. 

Likewise, the baseline option would not have any additional environmental or social effects 
(positive  or  negative).  Clearly,  the  baseline  scenario  -  with  no  fresh  policy  action  -  is 
ineffective  in  reaching  the  desired  policy  objectives.  If  bilateral  trade  between  the  EU  and 
Chile  is  compared  to  the  bilateral  trade  volumes,  which  each  could  now  enjoy  with  a  more 
ambitious FTA (comparable to those recently concluded with third partners), it could even be 
considered that the baseline scenario represents a negative outcome for both parties. 

40 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In this context, the baseline option could effectively lead to an overall reduction of the share 
of bilateral trade in total trade of both the EU and Chile. Furthermore, the baseline option is 
not consistent with overall EU policy objectives calling for further trade liberalisation as an 
instrument  for  increasing  economic  growth.  It  is  also  worth  noting that  the  vast  majority  of 
respondents to the online public consultation are in favour of upgrading the EU-Chile FTA, 
and therefore do not support the status quo. 

Option C: Comprehensive modernisation of EU-Chile FTAs (with conservative and ambitious 
liberalisation assumptions) 

As  regards  option  C,  comprehensive  modernisation  of  the  EU-Chile  FTA,  the  conservative 
scenario  (C1)  aims  at  the  degree  of  elimination  of  remaining  tariffs  and  a  reduction  of  the 
costs stemming from NTBs that has been found to be achievable in certain recent agreements. 
The more ambitious scenario  (C2) will lead to higher reduction  of the costs  of NTBs. Such 
reductions  in  the  costs  of  trade  are  likely  to  allow  both  the  EU  and  Chile  to  achieve 
considerable benefits. 

Such benefits include increases in GDP and welfare, increases in exports, overall increases in 
employment,  increases  in  wages  for  both  less  skilled  and  more  skilled  employees,  together 
with increases in competitiveness and an improved standing for both the EU and  Chile with 
respect to other global competitors. While the figures, relative to the size of the EU economy, 
might  at  first  sight  appear  modest,  they  nevertheless  represent  interesting  gains  in  absolute 
terms.  The  above-mentioned  figures,  estimated  through  the  CGE  modelling,  are  highlighted 
throughout this report and in Annex 4. 

It is also important to note that the problems presented in Chapter 1 could only be addressed 
through  a  comprehensive  and  ambitious  modernisation  of  the  Agreement.  Concluding  an 
ambitious  modernised  FTA  may  be  considered  to  have  potentially  negative  impacts  on  the 
environment arising from an increase in trade and production. However, this should be seen in 
light of the overall policy and regulatory framework in which trade and production take place, 
e.g. the overall impact on global emissions is mitigated by emission ceiling commitments by 
both Parties. The limited expected environmental effects should also be mitigated by a long-
term  increase  in  trade  in  environmental  goods  and  services,  as  well  as  the  possible synergy 
effects resulting from increased cooperation and dialogue on key environmental issues. 

While the impact of specific trade measures in a modernised Agreement is generally expected 
to be positive for human rights, it is difficult to assess thoroughly at this stage, including on 
gender  discrimination  and  the  rights  on  indigenous  people.  Strong  labour  provisions  in  the 
Trade  and  Sustainable  chapter  of  a  modernised  Agreement  would  help  to  mitigate  any 
possible negative effect. Moreover, to fully appreciate the impact of a modernised Agreement 
on  human  rights,  it  should  be  kept  in  mind  that  this  modernised  FTA  would  be  part  of  a 
modernised  EU-Chile  Association  Agreement,  in  which  provisions  enjoining  the  parties  to 
respect and cooperate on human rights play a prominent role outside the trade pillar.  

41 

 
 
 
 
 
 
 
 
 
 
6.2. Summary table of the effects of the different policy options 

CRITERIA 

GENERAL OBJECTIVES 

Promoting smart, sustainable and inclusive growth through the 
expansion of trade 

Creating job and labour opportunities and welfare gains 

Increasing benefits to consumers (i.e. in terms of choice, availability 
and price) 

OPTIONS 

C1 

C2 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

A 

0 

0 

0 

0 

Improving Europe’s competitiveness in global markets 

0/- 

0/+ 

0/+ 

Reinforcing cooperation on trade-related issues with a like-minded 
country 

SPECIFIC OBJECTIVES 

Increase market access for goods by further eliminating or reducing 
unnecessary barriers 

Increase market access for services by further eliminating or 
reducing unnecessary barriers 

Increase market access for investment by further eliminating or 
reducing unnecessary barriers 

Ensure a high level of protection of investment  

Achieve better access to Chile's public procurement 

Ensure a high level of protection of intellectual property rights 

Reinforce dialogue and cooperation on regulatory frameworks 
(including technical regulations and conformity assessment 
procedures) 

Contribute to sustainable development by including trade-related 
provisions on labour and environment 

OVERALL EFFECTIVENESS 

Efficiency (time and resources spent in relation to estimated 
effectiveness) 

Coherence with overarching EU policy objectives (for example, 
outlined in the EU 2020 strategy) 

Gains from simplification effects (e.g. through NTB reduction) 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0/- 

0 

0/- 

0 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

++ 

++ 

++ 

++ 

++ 

+ 

+ 

+ 

++ 

+ 

++ 

++ 

++ 

++ 

42 

 
 
 
 
 
 
 
 
 
6.3. Identification of a preferred policy option  

When looking at the tabular presentation in sub-section 6.2, option C appears as the preferable 
option. Each of the two sub-scenarios of option C would be preferable to the baseline scenario 
(option A) for all criteria (general objectives, specific objectives and overall effectiveness). 

Furthermore,  the  ambitious  C2  scenario  would  be  more  beneficial  for  some  of  the  specific 
objectives (market-access related) and in terms of overall effectiveness, including in terms of 
simplification gains, which would be particularly beneficial for SMEs.  

Therefore,  the  preferred  option  for  the  EU  would  be  to  enter  into  a  comprehensive  and 
ambitious  modernisation  of  the  trade  pillar  of  the  EU-Chile  Association  Agreement  –
acknowledging the existence of some sensitivities for which appropriate treatment would be 
considered, in accordance with the outcome of the scoping exercise – something which would 
also be consistent with Chile's political will to opt also for a high level of ambition.  

This preference is consistent with recent and on-going established policies both in the EU and 
in Chile to negotiate modern FTAs of a deep and comprehensive nature. 

7.  HOW WOULD ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

7.1. Operational objectives 

The operational objectives are to: 

  provide  further  reciprocal  and  effective  market  opening  for  goods,  services  and 
investment (including through access to government procurement), based on a high level 
of ambition;  
tackling  barriers  in  a  comprehensive  way,  along  with  effective  implementation  and 
enforcement,  without  leaving  room  for  new  barriers  to  replace  old  ones,  including  for 
SMEs; 

 

  ensure  a  high  level,  effective  and  coherent  investment  protection,  enforced  through  an 

Investment Court System; 

  ensure a high level of protection of IPR, both in the EU and in Chile; 
 

reinforce  dialogue  and  cooperation  on  regulatory  frameworks  (including  standards, 
technical regulations and conformity assessment procedures) and administrative practices 
to improve regulatory coherence;  

  contribute  to  the  shared  objective  of  promoting  sustainable  development,  inter  alia  by 

including trade-related provisions on labour and environment; and 

  support  and  promote  EU  values  and  standards  such  as  human  rights,  labour  rights  and 

environmental, health and consumer protection, as well as gender issues. 

43 

 
 
 
 
 
 
 
 
 
 
 
 
 
7.2. Future monitoring and evaluation  

Monitoring  and  evaluation  of  the  specific  objectives  will  have  to  use  several  means  of  data 
collection, as not all objectives are equally quantifiable and some monitoring may depend on 
a qualitative evaluation based for example on feedback from stakeholders obtained through a 
survey.  Moreover,  the  monitoring  needs  would  depend  on  the  outcome  of  the  negotiations 
with Chile, and those identified in this impact assessment would need to be updated when the 
negotiations are concluded.  

Monitoring  can  be  facilitated  by  short  and  medium-term  analysis  of  the  measurable 
indicators mentioned below: changes in the relative value of bilateral exports and imports as 
well as the change (number, value and share)  in  public procurement tenders secured by EU 
companies in Chile. Concerning the operational objectives, the same is valid for monitoring of 
tariff reductions and changes of trade flows, as these become apparent in tariff schedules and 
trade statistics. A more complex set of indicators is necessary for monitoring reductions in the 
cost of NTBs. Convergence of standards and changes in regulations and law can be analysed 
in a qualitative manner by gathering information on the legal and administrative measures, on 
their implementation and on any related impact on trade and investment activities. 

The  increase  in  transparency  or  the  availability  of  information  as  well  as  the  general 
perception of a reduction in the cost of doing business could be analysed by surveys among 
stakeholders. 

Operational objectives 

Indicators 

Unit of 
measurement 

Source of data 

Target 

MONITORING INDICATORS 

Provide reciprocal and 
effective market opening 
for goods, services and 
investment (including 
through access to 
government procurement), 
based on a high level of 
ambition  

Tackling barriers in a 
comprehensive way, along 
with effective 
implementation and 
enforcement, without 
leaving room for new 
barriers to replace old 
ones, including for SMEs 

Ensure a high level of 
investment protection 

Value of bilateral 
trade in goods and 
services and of 
investment flows  

Value of EU share 
in total Chile trade  

Number of public 
procurement tenders 
won by EU bidders, 
value of bids 

 Number of trade 
and investment 
barrier cases 
resolved 

Bn €, % change  

Eurostat 

Chilean statistics 

% change 

Number of 
tenders won, Bn 
€, % change 

Increase the value 
and share of 
bilateral trade  

Increase in value 
and  number of 
tenders won by 
EU bidders in 
Chile 

Number of trade 
and investment 
barriers resolved 

DG TRADE  
(Macflow 
Database) 

Reduce the 
number of trade 
barrier cases 

Value of investment  Number of 

DG TRADE 

FDI increases 

investors' 

Chilean  

44 

 
 
 
 
 
 
 
 
 
complaints 

government 
departments 

Ensure a high level of 
protection of IPR, 
including Geographical 
Indications 

Number of protected 
GIs 

Number of 
protected GIs 

DG TRADE/DG 
AGRI 

Exports of GI 
products 

Volume and 
change in exports 
of GI protected 
products 

Chilean  
government 
departments 

Increase the 
number of 
protected GIs 

Number of policy 
areas where 
regulatory coherence 
has been improved 

Number of policy 
areas 

DG TRADE, 
Chilean 
government 
departments 

Greater regulatory 
coherence 
achieved in more 
policy areas  

Reinforce dialogue and 
cooperation on regulatory 
frameworks (including 
standards, technical 
regulations and 
conformity assessment 
procedures) and 
administrative practices to 
improve regulatory 
coherence 

Contribute to the shared 
objective of promoting 
sustainable development, 
inter alia by including 
trade-related provisions on 
labour and environment  

Monitoring of 
ratification and 
implementation of 
relevant 
international 
conventions  

Number of 
positive 
assessments 

Ensure labour rights & 
environmental, health and 
consumer protection, as 
well as respect for human 
rights in the EU-Chile 
trade context. 

Qualitative 
indicators in the 
policy areas, e.g. 
from SDG reporting. 

Monitoring 
reports of 
International 
Organisations 

DG TRADE, 
other 
Commission 
services, EEAS 

Chilean 
government 
departments  

Increased number 
of areas with 
satisfactory 
situation 

Note:  The  frequency  of  measurement  for  all  operational  objectives  is  annual.  The  baseline  for  all  operational 
objectives is 2017. 

As regards evaluation, in line with the commitment made in 2015 Communication Trade for 
All – Towards a more responsible trade and investment policy, there will be an in-depth ex 
post  evaluation  of  the  effects  of  any  modernised  agreement  concluded  with  Chile  when  the 
agreement will have been in force for sufficient time to ensure availability of meaningful data. 

*** 

45 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEXES 

46 

 
 
 
 
 
 
 
 
 
ANNEX 1 - PROCEDURAL INFORMATION 

The  Directorate-General  for  Trade  is  the  lead  service  for  this  Impact  Assessment  Report 
(Agenda planning: 2015/TRADE/039). 

An  Interservice  Steering  Group  (ISG)  was  created  on  9  December  2015  inter  alia  for  the 
purpose of this Impact Assessment. 

The services invited to join the IASG were: the General-Secretariat, DG AGRI, DG BUDG, 
DG CLIMA, DG CNECT, DG COMM, DG COMP, DG DEVCO, DG DIGIT, DG EAC, DG 
ECFIN, DG ECHO, DG EMPL, DG ENER, DG ENV, DG ESTAT, DG FISMA, DG GROW, 
DG HOME, DG JUST, JRC, DG MARE, DG MOVE, DG NEAR, OLAF, DG REGIO, DG 
RTD, DG SANTE and DG TAXUD. The EEAS has also been involved. 

The  ISG  met  seven  times  on  16  December  2015,  13  May  2016,  28  June  2016,  4  October 
2016, 13 January 2017, 18 January 2017 and 9 February 2017. 

The  evidence  used  for  the  impact  assessment  included  input  by  stakeholders  to  the  public 
consultation  (see  Annex  2),  a  quantitative  econometric  modelling  simulation  (see  Annex  4) 
and  external  expertise  via  the  study  commissioned  to  feed  into  the  impact  assessment  (see 
Annex 5). 

The draft Impact Assessment Report was submitted to the Regulatory Scrutiny Board (RSB) 
on 15 February 2017 and was examined during the RSB meeting of 15 March 2017.  

Brief  overview  on  how  have  the  Recommendations  of  the  Board  been  integrated  in  the 
revised Impact Assessment Report: 

Recommendations of the Regulatory Scrutiny 
Board 

Modifications to the Impact Assessment Report 

The  report  fails  to  clearly  describe  the  policy  context 
and  the  main  objective(s)  of  the  initiative:  whether  it 
aims  to  address  specific  shortcomings  of  the  existing 
EU-Chile  Association  Agreement  or  if  it  its  part  of  a 
broader  strategic  agenda  to  modernise  EU  FTAs  with 
partner countries.  

  The following sections have been modified to 
better reflect the dual objective as well as the 
different categories of problems and problem 
drivers: Chapter 1 (sections 1.1.2,  1.2,  1.2.1 and  
1.2.2), Chapter 2, Chapter 3 (section 3.1).   

The report does not prioritise the problems it identifies 
and does not describe how big they are.  

  Section 1.1 has been modified to better 

 

differentiate between general issues and specific 
problems. 
 Section 1.2 has been modified to (i) present in 
more detail the general context, and (ii) 
differentiate between the shortcoming of the 
existing provisions and the new issues missing in 
the existing Agreement. 

47 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
The 
report 
consequences 
ambition 
in 
standards is unclear.  

not 

present 

distributional 
does 
level  of 
in  sufficient  detail.  The 
terms  of  social  and  environmental 

reporting  of 

The 
specificity 

the  consultation 

results 

lack 

The  report  insufficiently  qualifies  the  results  of  the 
modelling exercise and other supporting evidence, and 
does  not  fully  address  contradictions  across  evidence 
sources. 

  Specific shortcomings in section 1.2.1 have been 
described in more detail, including concrete 
examples.   

  An extra paragraph has been included in the 

Introduction to clarify the aspects of the analysis 
that would fall under the framework of a 
Sustainability Impact Assessment (e.g. flanking 
measures) rather than the Impact Assessment. 

  Additional paragraphs have been included in 
sections 4.3, 5.7, 5.8.3 and 5.10 to clarify the 
scope and the concrete issues on environment, 
social and labour matters that would be tackled by 
the Trade and Sustainable Development chapter of 
a possible future Agreement.   

  An additional paragraph has been included in 

section 5.9 on consumer protection. 

  As explained in Chapter 5 it is not feasible to 

disaggregate expected impacts by Member State. 
However, a brief overview of bilateral trade flows 
by key Member States and by key sectors has 
been included in section 1.1.1.  

  A reference to the table in the external study 

(Annex 5) on the % change in labour demand in 
the EU by sub-sector has been included in section 
5.8.2. 

  Additional detail has been included throughout the 
Report (mainly in footnotes) to better explain 
which stakeholder groups expressed which views. 

  References in the main text to 'a majority' have 

 

been eliminated. 
Information from the regular dialogues that the 
Commission maintains with Chile and with 
business is reflected in the report, for instance in 
the description of the specific problem drivers, 
most notably the shortcomings of the existing 
provisions.  

  Section 4.1 has been amended to clarify the 
similarities and the differences between the 
conservative and the increased liberalisation 
scenario (C1, C2), and an overview table on the 
differences included. 

  Sections 4.1, 4.3, 5.1, 5.2 and 5.3 have been 

amended to better explain why the CGE model 
remains the best available tool, despite the 
limitations, and to clarify that the baseline (policy 
option A) is dynamic, with a similar long-term 
projection (2025) as for policy option C. It is 
further explained that, as a result, the untapped 
trade potential is the expected increase in bilateral 

48 

 
 
 
 
 
trade under policy options C1 and C2. 

ANNEX 2 - STAKEHOLDERS CONSULTATIONS 

The information and views in this Annex do not necessarily reflect the official position of the 
European  Commission.  It  summarises  the  input  by  the  stakeholders  who  participated  in  the 
public consultation on the future of economic and trade relations between the EU and Chile. 

1. Background 

The  public  consultation28  was  designed  to  gather  detailed  views  relating  to  the  future  trade 
and  economic  relationship  between  the  EU  and  Chile,  respectively  to  feed  into  the  Impact 
Assessment  Report  on  a  possible  modernisation  of  the  trade  part  of  the  Association 
Agreement between the EU and Chile.  

Between  8  June  and  8  September  2016,  the  Commission  carried  out  an  online  public 
consultation,  which  was  launched  on  the  DG  TRADE  website  and  posted  on  'EU  Survey'29 
(the  Commission's  online  tool  for  conducting  such  public  consultations).  Stakeholders  – 
interested parties within the EU and in third countries - were invited to answer 48 questions. 
The  Commission  received  31  submissions  from  a  range  of  respondents.  Stakeholders' 
responses were published, unless otherwise explicitly indicated by the respondent. 

2. Overview of respondents 

Altogether, 32 responses were submitted via the online EU Survey tool. 

Responses  were  received  from  a  range  of  respondents,  including  single  sector  business 
associations, businesses, public administrations, and individuals responding in their personal 
capacity.  Respondents  were  stakeholders  from  the  EU  and  Chile  who  feel  they  could  be 
affected  by  the  negotiations  to  modernise  the  trade  pillar  of  the  EU-Chile  Association 
Agreement.  

From  the  26  respondents  that  identified  the  sectors  which  they  represented,  the  most  came 
from  the  food  sector  (8)  (fishing  and  aquaculture,  food  production,  and  farming).  Other 

28 Public online consultation on a possible modernisation of the trade part of the EU-Chile Association 
Agreement, http://trade.ec.europa.eu/consultations/index.cfm?consul_id=209   
29 https://ec.europa.eu/eusurvey/runner/EU_Chile_association_agreement  

49 

 
 
 
 
 
 
 
 
 
 
 
                                                            
sectors contemplated in the submissions pertained to the metals, construction, pharmaceutical, 
and information technology and communication sectors, as well as the recording industry. 

 Over  half  of  the  respondents  (17)  were  from  business  associations.  Enterprises  (9),  public 
administrations (2), personal views from citizens or private individuals (2), and consultancy 
or professional services (1) compose the remaining types of respondents.  

Notably absent are any submissions from trade unions, or from NGO's.  

Figure 1: Breakdown of respondents by category30 

3% 

7% 

6% 

Personal views as a citizen or
private individual - 2

Enterprise - 10

29% 

Business Association - 17

55% 

Public Administration
(Government institution,
regulatory authority) - 2

Consultancy/Professional
Services - 1

In terms of geographical distribution, 11 respondents identified they were located in one of 
the MS of the EU; 2 respondents identified themselves as being located in Chile. None of the 
respondents identified themselves as being from a third country. 

About  a  third  of  respondents  (10)  indicated  that  they  are  involved  in  trade  between  the  EU 
and Chile, a number of which (3) stated that they had cross-border investments in the EU or 
Chile.  A  Chilean  respondent  claimed  interest  in  exploring  the  possibility  of  cross-border 
investment in the EU.    

3. Limitations of the consultation 

30 Figure resulting from the analysis of the online submissions on the EU Survey website. 

50 

 
 
 
 
 
 
                                                            
Firstly,  as  in  any  such  online  public  consultation,  the  replies  submitted  by  the  respondents 
cannot  be  seen  as  representative  of  the  views  of  all  stakeholders.  This  is  intrinsic  to  this 
method of consultation, particularly when one considers that the number of questions and the 
length of the questionnaire have to be balanced with the aim of collecting as comprehensive 
information as possible in a period of three months.  

Secondly, the response rate to this public consultation was  modest. This fact impacts on the 
possibility to claim that the responses provide any strong evidential support for policy action, 
or inaction, in any given direction.  

It is nevertheless important to note that some of the submissions, in particular from the single 
sector  business  associations,  are  representing  the  views  of  a  significant  number  of  member 
organisations. Looking at some of the single sector business associations from the food sector, 
for example, one is answering on behalf of 155 member organisations and businesses active in 
the  European  fresh  fruit  and  vegetables  supply  chain,  another  represents  267  member 
businesses in the fish canning industry in Spain. 

Thirdly,  it  is  noteworthy  to  recall  that  this  Impact  Assessment  Report  aims  to  support  the 
Commission's proposal to modernise the trade part of the Association Agreement between the 
EU  and  Chile,  without  knowing  the  final  outcome  of  the  negotiations.  The  potential 
economic, social, human rights, and environmental impacts of the eventual agreement will be 
examined by means of an independent Sustainability Impact Assessment (SIA), which will be 
carried out by external consultants as the negotiations are carried out. 

The SIA's will rely on a wide-ranging consultation of stakeholders – notably civil society – in 
the EU and in the partner country. The SIA's will be finalised ahead of the initialling of the 
agreement and its findings will feed into the negotiating process. The SIA's will aim to: (a) 
assess the likely effects of the agreement on sustainable development and human rights in the 
EU, Chile, and other relevant countries, particularly Least Developed Countries (LDC's); and 
(b) to make recommendations and propose flanking measures to maximise the benefits of the 
agreement and prevent or minimise potential negative impacts.    

4. Summary of stakeholders' contributions by issue 

4.1. Current state of openness to trade between the EU and Chile 

Fourteen respondents, mainly from business associations and companies, considered that the 
current state of openness to trade between the EU and Chile is not satisfactory, with a clear 
need for improvements to be made. On the other hand, ten thought otherwise. The remaining 
respondents, especially individuals, did not express an opinion on this matter.  

51 

 
 
 
 
 
All but one of the respondents were aware of the existence of an FTA between the EU and 
Chile. Over half of the submissions indicated that the EU-Chile FTA brought partly satisfying 
results, considering that further improvements could be made. Seven submitters noted that the 
FTA brought satisfactory results to them, whilst two respondents claimed it had not brought 
about satisfying outcomes. 

In  what  pertains  to  the  achievement  of  the  objectives  of  the  existing  EU-Chile  FTA, 
submissions, mainly from business associations and individual companies, tended to indicate 
that  they  were  only  partly  achieved.  This  tendency  was  particularly  pronounced  on  the 
questions of whether the FTA had facilitated trade in goods, liberalised trade in services, or 
enhanced  dialogue  and  strengthened  cooperation  between  the  Parties  on  matters  of  mutual 
interest.  

On whether the FTA achieved a growing structured and economic relationship between Chile 
and the EU, slightly over half of responses were affirmative, while no one replied negatively. 
Moreover,  the  majority  of  respondents  considered  that  the  objective  of  expanding  and 
diversifying EU-Chile trade was either achieved (10), or partly achieved (15).   

Respondents,  once  again  mainly  business  associations  and  individual  companies,  clearly 
indicated  that  the  EU  and  Chile  should  modernise  the  existing  FTA  in  order  to  achieve  a 
broader  and  more  ambitious  agreement.  The  only  respondent,  a  food  production  enterprise, 
that  replied negatively to  this  question  considered  that  the current  FTA  brought  satisfactory 
results and that all of the objectives had been achieved.          

4.2. Overview of priority sectors 

Respondents  were  asked  to  identify priorities  for  an  ambitious  modernisation  of  the present 
trade relationship between the EU and Chile. They indicated the following general priorities: 

removing barriers to Foreign Direct Investment; 

-  market access in agriculture and fisheries; 
- 
-  a revision of rules of origin to reflect latest developments in EU trade policy; 
- 
the recognition of EU engineering and architecture qualifications in Chile; 
-  a strong protection and enforcement of Intellectual Property Rights;  
- 

the  reduction  of  tariff  barriers  (for  all  sectors,  goods  and  services)  and  non-tariff 
barriers to trade (SPS and TBT); 
regulatory cooperation, including in the services sector; 

- 
-  a digital trade chapter; 

4.3. Trade in Goods 

52 

 
 
 
 
 
 
Overall,  respondents  did  not  consider  that  import  tariffs  hinder  trade  between  the  EU  and 
Chile.  Despite  this,  some  respondents  indicated  that  they  have  experienced  problems  in  the 
following sectors: seed products, security and defence, and stainless steel.  

Similarly,  submissions  indicated  that  quantitative  measures,  such  as  quotas  or  licensing,  do 
not hinder trade between the Parties either. Two respondents specified that export potential to 
Chile  could  be  improved  through  the  increase  in  the  tariff  quota  for  EU  canned  tuna,  and 
specific dairy products.  

As regards rules of origin, no specifics were given as regards problems caused by the rules 
applied  in  the  existing  EU-Chile  FTA.  Despite  this,  seven  respondents  stated  that  they  be 
could  be  improved  upon  by  reviewing  the  rules  of  origin  requirements  and  certifications 
procedures in order to take into account the latest developments in EU trade agreements with 
other countries.  

Some respondents noted potential  issues with  current practices  in customs procedures and 
border  enforcement,  referring  to  documentary  requirements  and  onerous  procedures  to 
request preferential treatment. 

Differences  between  EU  and  Chilean  regulations  or  standards  have  been  indicated  by  a 
number  of  respondents  as  hindering  trade  between  the  two  Parties.  Some  of  the  problems 
highlighted  refer  to  divergent  standards,  technical  regulations,  conformity  assessment 
procedures, and sanitary and phytosanitary (SPS) measures.      

4.4. Trade in Services 

Some  respondents  indicated  that  there  are  barriers  in  Chile  to  trade  in  services  between  the 
EU and Chile. A common theme that can be extracted from these submissions pertains to the 
issue of the supposed lack of recognition of European engineering and architect qualifications 
in Chile, which impedes the provision of such services by EU economic operators. 

One  respondent,  a  business  association,  noted  that  the  "additional  tax"  (impuesto  adicional) 
that  is  applied,  by  Chile,  to  service  providers  from  abroad  makes  the  provision  of  their 
services more costly, thus favouring local companies. In the same spirit, another respondent, a 
public  administration  stakeholder,  stated  that  they  encountered  difficulties  with  the  Chilean 
requirement  that  enterprises  with  more  than  25  employees  have  to  have  85%  personnel  of 
Chilean nationality. 

Beyond  the  above  mentioned  issues,  a  business  association stated  that  they  would  welcome 
the extension of Chile's mode 4 commitments, and considered that, given Chile is a Party to 
TPP,  TiSA,  and  a  large  number  of  FTA's,  the  modernised  FTA  ought  to  bind  all  existing 
commitments. 

53 

 
 
 
 
 
4.5. Investment 

Three  respondents  considered  that  there  are  barriers  to  flows  of  direct  investments  between 
the EU and Chile. On the Chilean side, the main restrictive measure highlighted refers to the 
aforementioned requirement for 85% of Chilean nationals to be employed by firms with over 
25 employees. No European barrier was specified by any of the respondents. The majority of 
respondents did not express an opinion on this matter.   

Three respondents indicated that, both in the EU and Chile, investors from other jurisdictions 
were given preferential treatment.  

4.6. Intellectual property rights (IPRs) 

Six  respondents  considered  that  there  are  problems  with  the  protection  and  enforcement  of 
IPRs  in  Chile,  while  none  identified  such  problems  in  the  EU.  Some  of  the  issues  raised 
concerning Chile include: 

- 

the  high  rate  of  unlicensed  use  of  software,  which  includes  unauthorised  pre-
installation of software by hardware retailers, and in-house and external providers of 
IT services;  

-  an uneven playing field for competing content services due to deficiencies in the IPR 

system; 
the length of data exclusivity for biological products (5 years); 

- 
-  GI protection.  

4.7. Public procurement 

Of the thirteen respondents that expressed an opinion, ten considered that there are difficulties 
for  companies  from  the  EU  to  access  public  procurement  in  Chile.  In  this  regard,  the 
modernisation  of  the  Agreement  was  seen  by  respondents  as  an  opportunity  to  open  up  the 
Chilean public procurement market further for EU companies, in particular in the following 
sectors: sanitation, construction and construction-related services, and other services such as 
banking  insurance,  telecommunications,  security  services,  catering,  security  services  and 
accounting. 

One  of  the  problems  that  were  emphasised  was  that  only  companies  that  are  registered  in 
Chile can participate in public procurement. The time span for submitting offers for Chilean 
procurement  was  also  considered  by  some  as  being  too  short.  Furthermore,  the  non-
recognition  of  EU  academic  titles  and  degrees  was  highlighted  once  again,  this  time  as  an 
impediment to the participation in public procurement procedures.   

54 

 
 
 
 
 
 
On  the  other  hand,  difficulties  were  identified  for  Chilean  companies  to  access  public 
procurement  in  the  EU.  The  highlighted  difficulties  mostly  referred  to  the  lack  of 
transparency on procurement opportunities, and vague  technical specifications. Respondents 
did not specify further the difficulties faced in the EU procurement market.  

4.8. Competition Policy 

Whilst some respondents considered that the regulatory system ensures fair competition in the 
EU and in Chile, a number of them expressed a contrary opinion. 

Those that underlined issues in the EU noted these pertain to  abuses of dominant  positions, 
and  vertical  or  horizontal  restrictions  of  competition.  One  submission  from  an  enterprise 
claimed  that  there  is  an  uneven  regulatory  scenario  for  telecom  operators  vis  a  vis  internet-
based service providers which, despite often providing equivalent services, are subject to less 
regulatory  obligations.  According  to  the  same  respondent,  this  concern  also  includes 
consumer protections issues, including the protection of personal data. 

The  main  issues  identified  by  respondents  that  concerned  competition  policy  in  Chile  were 
abuse  of  dominant  positions,  and  enterprises  being  granted  special  or  exclusive  rights  or 
privileges.  One  respondent,  an  enterprise,  highlighted  issues  in  private  concessions  in 
sanitation works.  

4.9. SMEs 

Respondents were invited to express their opinion on what aspects of trading between the EU 
and Chile pose particular challenges for SMEs in either the EU or Chile. In this light, tariff 
barriers, rules of origin, customs procedures, and technical barriers to trade were underlined. 
The  following  topic  areas  also  received  noteworthy  attention  by  respondents  as  posing 
challenges for SMEs: services, establishment of companies, and public procurement.  

As  regards  the  potential  benefits  a  modernised  EU-Chile  FTA  ought  to  bring  to  SMEs, 
respondents  considered  these  would  be  more  output  and  more  employment  as  a  result  of  a 
higher  level  of  exports,  cheaper  production  costs  through  cheaper  imports,  facilitated  trade 
with other countries resulting from the convergence of standards, technology transfer,  lower 
costs  for  import  requirements,  the  possibility  to  move  from  lower  to  higher  value  added 
products/services, and the possibility for increased business cooperation between SMEs.  

4.10. Consumers 

When  asked  whether  there  could  be  an  impact  on  consumers  as  a  result  of  further 
liberalisation  of  trade  between  the  EU  and  Chile,  eleven  expected  a  positive  result  for  EU 

55 

 
 
 
 
 
consumers; sixteen expected a similar impact on Chilean consumers. None of the submissions 
expressed any expectations for negative impacts on consumers.  

Specifically, respondents considered that positive impacts could be expected in the following 
areas: 

-  prices of goods and services; 
-  choice and availability of goods and services; 
-  quality of goods and services; 
- 
-  protection and enforcement of consumer rights.   

information available to consumers; and 

4.11. Trade and Sustainable Development 

Respondents  were  invited  to  provide  their  opinion  on  whether  there  could  be  an  impact  on 
social issues, such as labour or human rights or gender related issues,  from the reduction of 
barriers  to  trade  and  investment  between  the  EU  and  Chile.  Of  the  seven  that  expressed  an 
opinion,  most  considered  that  social  issues  such  as  the  number  of  jobs,  the  quality  of  jobs, 
wages,  and  household  incomes  would  be  positively  impacted,  both  in  Chile  and  in  the  EU. 
Only one respondent considered that there could be a negative impact.  

A respondent from a business association elaborated that a modernised FTA between the EU 
and Chile should pay particular attention to the informal labour sector in Chile.  

Respondents  generally  either  expressed  no  opinion  or  tended  to  consider  that  reduction  of 
trade and investment barriers between EU and Chile would not have a significant impact on 
human rights. respondent stakeholder from a business association explained that, since social 
conditions in  both  the EU  and  Chile  are, all  in  all,  highly  developed,  the  direct  impact  of  a 
modernised FTA, although positive, will be limited. 

There were some categories, however, that respondents felt would be positively impacted, in 
both the EU and Chile: the availability of essential goods and services, and; the affordability 
of essential goods and services.  

Similar considerations were given by respondents to the questions of whether there would be 
an environmental impact from the reduction of barriers to trade and investment between the 
EU  and  Chile.  Those  that  expressed  an  opinion  tended  to  consider  that  a  modernised  FTA 
would  have  a  positive  impact  on  environmental  concerns  overall  and  in  particular  on  air 
pollution, waste, energy use and mix, biological diversity, and the greening of the economy. 
As  with  social  issues,  only  one  respondent  claimed  that  they  expected  some  negative 
environmental impacts from the modernisation of the EU-Chile FTA.  

56 

 
 
 
 
 
 
One  of  the  submissions  from  another  business  association  stressed  the  desire  for  the 
modernised EU-Chile FTA to have a strong chapter on sustainability, similar to the one in the 
EU-Vietnam FTA. 

Respondents emphasised that the EU and Chile should cooperate further in order to promote 
adherence  to  internationally  agreed  principles,  rights,  and  agreements  on  labour  and  the 
environment.  

4.12. Other issues 

Sixteen respondents considered that the EU and Chile ought to include specific provisions on 
energy  and  raw  materials,  which  would  include  measures  aimed  at  transparency,  ensuring 
non-discrimination and limiting anti-competitive practices. Similarly, twenty-one respondents 
were  receptive  to  the  idea  that  a  revised  trade  agreement  between  the  EU  and  Chile  should 
include provisions on improving future regulatory coherence, such as measures providing for 
cross-cutting  disciplines  in  order  to  develop  and  implement  more  efficient  and  compatible 
regulations. 

57 

 
 
 
 
 
 
 
 
 
ANNEX 3 - WHO IS AFFECTED BY THE INITIATIVE AND HOW? 

Based  on  the  proposed  policy  choice  in  question,  i.e.  an  ambitious  and  comprehensive 
modernisation of the trade pillar of the EU-Chile Association Agreement, this Annex aims at: 

  setting  out  the  practical  implications  (such  as  key  obligations  or  timescale)  of  the 
initiative  for  a  representative  enterprise  and/or  public  administration  (or  particular 
groups or individuals if directly regulated), 

  describing  the  actions  that  the  enterprise  or  public  authority  might  need  to  take  in 
order  to  comply  with  the  obligations  under  the  proposed  intervention  and  indicate 
wherever possible the likely costs to be incurred in meeting those obligations. 

In  the  specific  case  of  an  Impact  Assessment  Report  concerning  negotiating  authorisation/ 
directives, it is not possible at this stage to have a clear picture of the final provisions to be 
concluded at the end of the negotiating process. 

Moreover, free trade agreements are not sectorally or timely limited. They potentially cover 
all economic activities as from entry into force and theoretically indefinitely. In this respect, 
the Communication ‘Trade for all - Towards an More Effective, Transparent and Responsible 
Trade  and  Investment  Policy’  highlights  that  EU  trade  policy  is  for  all:  consumers, 
employees, small and medium sized enterprises, and the poorest in developing countries. 

Finally, trade operators can always use the non-preferential treatment. 

In this context, at this very early stage, only a general and simplified attempt can be made to 
summarise the likely implications for the various groups of stakeholders: 

  Exporting producers of industrial goods: will benefit from new trade opportunities and 
cost  savings  due  to  liberalisation  and  reduction  of  NTBs.  Liberalisation  of  trade  in 
services will also further support the economic integration in manufacturing. 

  Exporting  producers  of  agricultural  products:  as  for  industrial  goods,  the  producers 

will benefit from new trade opportunities and cost savings due to liberalisation.  

  Small- and medium sized enterprises will benefit from new trade opportunities and cost 
savings due to liberalisation, as well as from provisions covering regulatory cooperation 
and other rules. See the related part of the Impact Assessment (section 5.6). 

  Traders will benefit from lower trade costs due to reduction or elimination of tariff and 
non-tariff trade barriers, and from increased trade opportunities due to the various ways of 
liberalisation under the agreement.   

58 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Service  providers  will  also  benefit  from  trade  liberalisation,  enabling  new  economic 

opportunities and cost savings.  

  Workers  of  the  above  mentioned  businesses  will  also  benefit  from  the  new  economic 

opportunities. 

  Consumers: see the related part of the Impact Assessment (section 5.10). 

  Authorities: see the related parts of the Impact Assessment (section 5.13).  

  Customs authorities: as there is an established practice for implementing FTAs in the EU 

and in Chile the impact of the new Agreement will be marginal in this context. 

  Third countries, notably LDCs: see the related part of the Impact Assessment (section 

5.7).  

59 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 4 - ANALYTICAL MODELS USED IN PREPARING THE IMPACT 
ASSESSMENT 

AGGREGATION 

The geographical and sectoral disaggregation chosen for the CGE simulations is shown in the 
two tables below. These aggregations have been validated by the members of the ISG before 
running the simulations. It is important to note that the model disaggregation is limited by the 
data source that is the elements and level of disaggregation of the model database31.  

Sector 
number 

Sector name 

1  Cereals  
2  Rice 
3   Vegetables, Fruits, nuts 
4   Oil seeds, vegetable oils & fats 
5   Sugar 
6  Plant & animal fibres and other crops 
7  Bovine and other ruminant meats 
8  Other meat (poultry, pig)  
9  Dairy products 
10  Wood and paper products 
11  Coal 
12  Oil 
13  Gas 
14  Minerals 
15  Fishing 
16  Other food products 
17  Beverages and tobacco 
18  Textile, apparel, leather 
19  Chemicals, rubber, plastic 
20  Petroleum, coal products 
21  Metal products  
22  Non-metallic minerals 
23  Motor vehicles & transport  equipment 
24  Machinery  
25  Electronic equipment and other manufacture 
26  Electricity 
27  Utility (construction, water) 
28  Transport 
29  Communication and business service 
30  Financial service and insurance 
31  Recreational and other services 

GTAP sectors 

2, 3 
1, 23 
4 
5, 21 
6, 24 
7. 8, 12 
9, 19 
10, 20 
11, 22 
13, 30, 31 
15 
16 
17, 44 
18 
14 
25 
26 
27, 28, 29 
33 
32 
35, 36, 37 
34 
38, 39 
41 
40, 42 
43 
46, 45 
48, 49, 50 
51, 54,  
52, 53 
55, 56, 57, 47 

31 GTAP 9, base year 2011 

60 

 
 
 
 
 
 
 
 
 
 
                                                            
  Region  

Remarks 

1 

2 

3 

EU 

Chile 

Turkey 

4  USA 

5 

6 

China 

Canada 

7  Mexico 

8  MERCOSUR 

including Venezuela 

9 

Colombia 

10  Peru 

11  Central America 

12  Latin America 

Guatemala, El Salvador, Nicaragua, Honduras, Costa Rica, Panamá 

Except Latin American countries included in the groups above 

13  High income countries 

Japan, Korea, EFTA 

14  LDCs 

Except Latin American LDCs included in the groups above 

15  Other developing countries 

BASELINE 

Step 1: Improving the market access representation 

In  order  to  build  a  comprehensive  assessment  of  market  access,  the  database  has  been 
amended introducing ad valorem equivalent (AVE) estimates of the non-tariff barriers in the 
manufacturing sectors.32 NTBs for agri-food sectors are ignored in the simulations for lack of 
a robust methodology of quantifying these barriers and the impact of their reduction.33 As a 
final  amendment  to  the  database,  AVEs  of  TRQs  in  the  meat  sector  have  been  corrected  in 
order to more realistically reflect TRQ fill rates. Finally, the tariff rate in the oilseeds sector 
was corrected based on actual tariff data.  

Additionally, FTAs that are not reflected in the GTAP database but have been concluded by 
either of the two partners meanwhile are introduced.  

32 Ad valorem equivalents of NTB are introduced ‘on’ the standard tariff variable already in the model. This has 
the  inconvenience  that  they  create  government  revenue  even  if  this  is  not  the  case  in  the  ‘real’  world.  To 
minimize this, only the part of the NTB that is eventually reduced (cf. the section on scenarios) is added to the 
model.   
33 This is not to say that there will be no ambition in the negotiations to achieve progress on SPS issues. 

61 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
To introduce such changes into the model, at 2011, a specific closure has been adopted. This 
closure  ensures  that  the  consistency  of  the  database  remains  after  the  introduction  of  these 
estimates. In other words, since the database contains the “picture of the world trade” at 2011, 
any  change  to  the  data  will  have  broader  effects  and  change  other  variables  from  their 
observed values when the model finds a new equilibrium. The “alter tax” closure overcomes 
this issue by allowing the introduction of new data minimizing the impacts of the changes on 
the value flows in the database.34  

It is worth noting that a number of agreements are not included in the baseline, and therefore 
also not in the policy projections. It is not possible to model agreements that have not been 
finalised,  such  as  the  Regional  Comprehensive  Economic  Partnership  (RCEP),  the  Trade  in 
Services Agreement (TiSA) and Environmental Goods  Agreement (EGA). The Government 
Procurement  Agreement  (GPA)  is  not  included  in  the  model  because  there  is  no  reliable 
methodology for modelling the impact of government procurement issues. The expansion of 
the  Information  Technology  Agreement,  to  which  all  partners  are  members  cannot  be 
modelled, as the final schedule is not yet available. 35 

Step 2: Updating database to long term 

Macro variables, GDP, population and labour force (skilled and unskilled) have been updated 
to 2025: 

  GDP from the World Bank. To shock the GDP, usually endogenous, a standard swap 

with Total Factor Productivity has been implemented 

  Population from the ILO 
  Labour  force  from  the  ILO;  The  respective  shares  of  skilled  and  unskilled  labour 

CEPII 

  Small  increase  in  natural  resources  to  reflect  the  developments  around  shale  gas 

technology 

  A  productivity  growth  for  energy  inputs  reflecting  the  implementation  of  the  Kyoto 

and Paris agreements 

SCENARIOS 

In order to simulate a modernisation of the FTA between EU and Chile, two scenarios have 
been simulated, labelled “Conservative” and “Ambitious”.  

In both of these scenarios, tariffs in the NAMA and most agricultural sectors are reduced to 
zero. However, liberalization assumptions differ in other categories: 

34 GTAP technical paper No. 12 
(https://www.gtap.agecon.purdue.edu/resources/res_display.asp?RecordID=315) 
35 The fact that all these agreements are plurilateral ones is a coincidence, rather than a defining feature. 

62 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
Agricultural TRQs upon import into the EU, simulated by an AVE tariff (cf. above), are left 
unchanged in the first scenario, but abolished, (i.e. the corresponding AVE tariff reduced to 
zero) along with tariffs in the second scenario (“Ambitious”). 

AVE of NAMA NTBs are reduced by 5% in the first scenario of their values in literature for 
EU exports to Chile. This increases to 10% in the second scenario (“Ambitious”). For imports 
from  Chile  to  the  EU,  no  NTB  reductions  are  simulated.  The  reason  for  this  assumed 
asymmetry is twofold. First, EU barriers in key NAMA sectors are already rather low vis-a-
vis the two countries.36 Second, past experience shows that as a result of NAMA negotiations, 
small  partners  are  more  likely  to  adapt  their  internal  regulation  than  large  partners  like  the 
EU. 

For  services,  liberalization  of  NTBs  also  follows  an  asymmetric  approach.  In  the  first 
scenario, a 1% AVE cut is introduced for EU exports to Chile, but no cut for EU imports from 
Chile  is  simulated.  In  the  second  scenario,  a  3%  AVE  cut  is  introduced  for  EU  exports  to 
Chile, and a 1% cut for EU imports from Chile. 

In  both  scenarios,  these  cuts  are  embodying  the  effect  of  binding  of  existing  liberalization. 
The  starting  point  for  the  approach  is  the  observation  that  FTA  negotiations  usually  lead  to 
only a binding of the existing level of liberalization in services trade (for the cases where this 
level  is  lower  than  the  GATS  commitments)  as  opposed  to  achieving  new  market  access. 
However the insurance policy effect of binding current levels of liberalization has a positive 
effect on services trade, equivalent to some degree of ‘real’ market access. The methodology 
applied  for  this  and  other  IA  simulations  aims  to  translate  this  insurance  effect  into 
liberalization  parameter  for  CGE  modelling.  In  an  earlier  study37  such  ‘binding’  has  been 
quantified  as  being  equivalent  to  a  reduction  of  3%  in  services  barriers  for  the  DDA 
negotiations among 46 participating countries.  

RESULTS 

GDP and welfare gains of the EU and Chile, which are extensively discussed in section 5.4 of 
the  main  report,  are  presented  in  table  1  of  this  annex.  At  this  point  it  may  be  useful  to 
mention that the database of the model is compiled in US dollars. Results for the end of the 
projection period (2025) are converted in Euros by the ECB/Eurostat rate recorded for 2015. 

36 EU requirements are largely based on international standards, and in most cases products can be placed on the 

EU market on the basis of the supplier's declaration of conformity.  

37 Decreux, Y. and L. Fontagné (2011), Economic Impact of Potential Outcome of the DDA. 

63 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
Table 1: GDP and welfare results (long term) 

Variable 

GDP  
(% change) 

GDP gain  
(€ million*) 

Welfare gain  
(€ million*) 

EU-Chile Bilateral 
exports  
(% change) 

Scenario 

Conservative 

Ambitious 

Conservative 

Ambitious 

Conservative 

Ambitious 

Conservative 

Ambitious 

EU 

0.001 

0.002 

196 

391 

269 

712 

9.9 

21.5 

Chile 

0.090 

0.175 

304 

592 

369 

529 

0.7 

1.6 

* US dollars were converted to Euros as $1.1095 to €1   

Table 2 shows the results for total exports of both partner countries under the two scenarios. 
As  has  been  the  case  for  welfare  and  GDP,  the  percentage  increases  are  a  full  order  of 
magnitude smaller for the EU than for the two partners. This is quite natural given the relative 
size of the two economies.  

Table 2: Change of the value of total exports (long term) 

Conservative 

Ambitious 

EU 
Chile 

0.01 
0.02 

0.15 
0.21 

Tables  3  and  4  display  the  relative  changes  in  bilateral  trade  simulated  under  the  two 
scenarios.  In  relative  terms  the  EU’s  bilateral  exports  to  Chile  increase  strongest  in  gas, 
fishing  and  coal  sectors.  It  should  however  kept  in  mind  that  the  baseline  exports  in  these 
sectors  are  rather  small.  In  absolute  terms,  exports  expand  most  strongly  in  the  sectors  of 
machinery and motor vehicles. Imports on the other hand, increase most strongly in beverages 
and tobacco and  fruit and vegetable sectors. Relative increases are strongest for the cereals, 
oilseeds and vegetable oils and dairy sectors, but here baseline trade is negligible. 

64 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 3: EU exports to Chile and the effects of the two scenarios (long term) 

Conservative 
Sector 
1% 
Rice 
15% 
cereals 
3% 
veg_fruit 
17% 
oil_seeds 
14% 
sugar 
fiber_crop 
1% 
ruminant_meat  1% 
2% 
other_meat 
44% 
dairy 
16% 
wood_paper 
48% 
fishing 
23% 
coal 
315% 
oil 
3% 
gas 
10% 
minerals 
4% 
other_food 
0% 
bev_tob 
16% 
textile 
8% 
chemicals 
7% 
oil_pcts 
10% 
metal_pcts 
10% 
no_metal_pct 
12% 
motor_equip 
17% 
machinery 
23% 
ele_other 
0% 
electricity 
5% 
utility 
transport 
2% 
communication  3% 
3% 
financial 
4% 
other_serv 
10% 
TOTAL 

Ambitious 
2% 
17% 
3% 
18% 
14% 
1% 
2% 
3% 
45% 
35% 
125% 
52% 
1717% 
7% 
10% 
5% 
1% 
34% 
16% 
13% 
19% 
20% 
25% 
36% 
51% 
0% 
13% 
7% 
9% 
9% 
10% 
21% 

65 

 
 
 
 
 
 
Table 4: Chilean exports to the EU and the effects of the two scenarios (long term) 

Sector 
rice 
cereals 
veg_fruit 
oil_seeds 
sugar 
fiber_crop 
ruminant_meat 
other_meat 
dairy 
wood_paper 
fishing 
coal 
oil 
gas 
minerals 
other_food 
bev_tob 
textile 
chemicals 
oil_pcts 
metal_pcts 
no_metal_pct 
motor_equip 
machinery 
ele_other 
electricity 
utility 
transport 
communication 
financial 
other_serv 
TOTAL 

Conservative 
7% 
48% 
5% 
71% 
-1% 
-2% 
-2% 
-3% 
74% 
-1% 
0% 
- 
- 
0% 
5% 
7% 
7% 
-1% 
-1% 
1% 
-1% 
-1% 
0% 
-1% 
-1% 
0% 
-1% 
0% 
-1% 
-1% 
-1% 
1% 

Ambitious 
7% 
48% 
5% 
71% 
20% 
-2% 
-2% 
-3% 
73% 
0% 
0% 
- 
- 
1% 
5% 
7% 
7% 
-1% 
-1% 
1% 
-1% 
-1% 
0% 
-1% 
-1% 
0% 
3% 
4% 
3% 
3% 
3% 
2% 

Table  5  shows  percentage  changes  in  sectoral  output  in  the  two  countries  under  both 
scenarios. For the EU, only one sector exhibits changes in excess of 0.05%. This sector, the 
coal  sector,  is  however  insignificant  in  the  EU  in  terms  of  its  share  in  the  total  economy. 
Absolute changes are strongest in the services sector, although relative changes there are tiny. 
For Chile, relative effects on output are somewhat more pronounced. They are strongest for 
the  fruit  and  vegetable,  oilseeds  and  vegetable  oils  and  dairy  sectors,  whereas  in  absolute 

66 

 
 
 
 
 
 
terms,  the  expansion  of  services  sectors  is  much  stronger,  too.  On  the  negative  side,  the 
machinery sector faces the strongest relative contraction of output, whereas metal sector is the 
one that contracts most in absolute terms. 

To interpret these output results, it is important to consider that the model cannot expand the 
factors of production (as it might be the case in real life). Instead, the CGE modelling pulls 
them across to the most efficient sector. In other words, growth in one sector always occurs at 
the expense of others. This partly explains the decline in output in some sectors, as a result of 
production increases in other sectors. 

67 

 
 
 
 
 
 
 
Table 5: Relative changes of sectoral output in the EU and Chile (long term) 

Conservative 

Ambitious 

Sector  
Rice 
Cereals 
veg_fruit 
oil_seeds 
Sugar 
fiber_crop 
ruminant_meat 
other_meat 
Dairy 
wood_paper 
Fishing 
Coal 
Oil 
Gas 
Minerals 
other_food 
bev_tob 
Textile 
chemicals 
oil_pcts 
metal_pcts 
no_metal_pct 
motor_equip 
machinery 
ele_other 
electricity 
Utility 
transport 
communication 
Financial 
other_serv 

EU 
-0.01% 
0.00% 
-0.04% 
-0.01% 
0.00% 
-0.01% 
0.01% 
0.01% 
-0.01% 
0.01% 
0.00% 
0.10% 
-0.01% 
0.00% 
-0.01% 
0.00% 
-0.01% 
-0.02% 
0.00% 
0.00% 
0.01% 
0.01% 
0.02% 
0.02% 
-0.01% 
0.01% 
0.01% 
0.01% 
0.01% 
0.00% 
0.01% 

Chile 
-0.15% 
0.00% 
2.71% 
-0.07% 
0.49% 
-1.15% 
-0.40% 
-0.27% 
5.07% 
-0.27% 
0.00% 
-0.85% 
-0.27% 
-0.11% 
0.29% 
0.24% 
0.93% 
-0.25% 
-0.23% 
0.24% 
-0.64% 
0.41% 
-1.07% 
-1.64% 
-0.42% 
0.11% 
0.76% 
0.07% 
0.28% 
0.24% 
0.36% 

EU 
-0.01% 
-0.01% 
-0.04% 
-0.02% 
0.00% 
-0.01% 
0.01% 
0.01% 
0.00% 
0.03% 
-0.01% 
0.22% 
-0.02% 
-0.01% 
0.00% 
0.00% 
0.00% 
-0.02% 
0.00% 
0.01% 
0.01% 
0.01% 
0.05% 
0.04% 
-0.02% 
0.01% 
0.02% 
0.01% 
0.01% 
0.01% 
0.02% 

Chile 
-0.15% 
0.00% 
2.68% 
-0.07% 
0.49% 
-1.35% 
-0.35% 
-0.24% 
5.12% 
-0.47% 
0.00% 
-1.71% 
-0.54% 
-0.07% 
0.30% 
0.25% 
0.99% 
-0.38% 
-0.36% 
0.48% 
-0.79% 
0.73% 
-1.78% 
-2.89% 
-0.56% 
0.18% 
1.32% 
0.10% 
0.40% 
0.27% 
0.51% 

Table 6 shows the effects on consumers and workers. Real consumer prices, embodied by the 
consumer price index (CPI) are basically unaffected for the EU, but increase by about 0.2% in 
both scenarios for Chile.  

Real wages which are corrected for the change in CPE and therefore represent a net effect on 
worker’s purchasing power do not change significantly in the EU, but more so in the Chile. 
Unskilled  workers  tend  to  gain  more  than  skilled  workers,  about  0.6%  in  the  ambitious 
scenario.  

68 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 6: Change in Consumer Price Index (CPI) and real wages in the two scenarios (long term) 

Conservative 
CPI  Unskilled  Skilled 
0.00% 
0.00% 
0.19% 
0.35% 

EU 
0.00% 
Chile  0.20% 

Ambitious 
CPI  Unskilled  Skilled 
0.01% 
0.01% 
0.37% 
0.61% 

0.01% 
0.23% 

Table 7 shows the impact of the two scenarios on CO2 emissions. For the EU these increases 
are negligible. For Chile, they amount, respectively, to 0.2% and 0.4% in the conservative and 
the ambitious scenario. 

Table 7: Percentage change in CO2 emissions (long term) 

Conservative  
0.00% 
0.18% 

EU 
Chile 

Ambitious 
0.01% 
0.37% 

LIMITATIONS OF THE ANALYSIS 

In  terms  of  scenario  assumptions,  the  main  limitation  is  the fact  that  agricultural  NTBs  and 
potential reductions that can be achieved in the negotiations are not simulated. That will have 
the  effect  of  understating  the  gain  for  the  agricultural  sector  and  its  subsectors.  However, 
various academic attempts to quantify agricultural   s  or  their  reduction  under  FTAs  in  the 
recent past have proven unable to deliver robust results, which is the major reason we refrain 
from a quantitative analysis of the latter.  

The  model  used  for  the  simulations  contributing  to  the  IAR,  is  the  dynamic  GTAP  model. 
Although  it  does  simulate  international  capital  flows,  it  is  not  possible  to  implement  and 
simulate  changes  in  bilateral  investment  policies.  Therefore,  the  model  analysis  could  not 
quantify  the  potential  effects  stemming  from  the  investment  chapter  of  the  modernization 
negotiations.  Similarly,  the  effects  of  opening  markets  for  public  procurement  at  various 
levels of administration and the strengthening of intellectual property rights had to be left out 
of the analysis and their potential value is not quantified.  

Finally,  we chose,  as  is common  practice  in  Impact  Assessments,  a  neoclassical  closure  for 
the  model.  Technically this  means  that  factor supply  is  exogenous.  In  more  practical  terms, 
this  means  that  in  particular  it  is  assumed  that  employment  is  fixed  and  therefore,  no 
employment  effects  can  be  simulated.  This  choice  reflects  mainly  the  long-run  perspective 
which  we  adopt  when  evaluating  the  effects  of  our  trade  agreements.  It  also  reflects  the 
widely  recognized  believe  that  trade,  notwithstanding  its  significant  positive  effects  on  the 
economy, is not considered to have an effect on the so-called natural rate of unemployment. 

69 

 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
70 

 
 
 
 
 
 
 
ANNEX 5  

EXTERNAL STUDY DRAFT FINAL REPORT 

See link: http://trade.ec.europa.eu/doclib/html/155561.htm 

71