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Chile trade deal set to open renewables market for EU

BHP, Rio Tinto, South32, Lithium Power International, as well as Chile’s SQM and America’s Albemarle are among the companies that stand to benefit from a new deal between the EU and Chile that will free up trade in key renewable materials such as copper and lithium in the huge United States market.

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The European Union (EU) and Chile revealed the new deal last Friday that will give the bloc greater, easier access to lithium, copper and other raw materials that are will be the keys to the successful transition to renewable energy sources.

Last week, the EU was whining and moaning about the claimed inequities in America’s Inflation Reduction Act – legislation passed mid-year which boosts US money and subsidies to renewables, especially for electric vehicles.

But last Friday the EU’s moans and groans were not heard as it announced a new trade deal with Chile which will effectively meet the claims concerns the Europeans had with the new US subsidies system for renewables and EV’s.

A key part of the act is the subsidies that will be available to buyers whose EVs, and their batteries in particular, are made with materials either produced in the US or produced in a country with a free trade agreement with the US. The subsidies total $US7,500 for each vehicle.

At the moment, those countries are Canada and Mexico, Australia and Chile.

Ten days ago, efforts to resolve the growing dispute between Europe and the US over the electric vehicle subsidies in the Inflation Reduction Act suffered a blow when a top EU official pulled out of talks scheduled for last week.

Thierry Breton, the official responsible for the EU’s vast internal market, did not participate in a meeting of the EU-US Trade and Tech Council because not enough time has been scheduled to discuss EU concerns.

And yet a week later, the EU had done a deal with Chile, the world’s top copper producer and the second largest lithium miner (after Australia).

Chile will drop tariffs on all imports from the EU except sugar, and make it easier for European companies to invest in the country, a statement from the European Commission said.

The agreement means EU companies will be less hindered by Chile’s dual pricing system for domestic use or exports and potential export monopolies, while still allowing the South American country to promote domestic processing.

Chile will, in return, secure more favourable access for its exports, particularly food and professional services – and lithium and copper.

Currently, more than 60% of EU imports of the lithium used in batteries that power electric vehicles are from Chile.

The deal gives the EU a head start in accessing the US EV and renewables markets for its key car makers like VW and its brands like Porsche, Audi and Skoda as well as BMW, Renault and Mercedes.

These companies have car plants in the US, some are investing in batteries in the US or in Europe, or are looking for partners.

These plants will now be able to be located in the EU (as VW seems to be planning) and maintain access to the US market by using copper and lithium (and its battery grade derivatives) from Chile (or Australia).

Renewables from China are excluded under the act, as are they if they come from Brazil, Africa, Argentina, Peru or any other country without an FTA with the US.

In striking a deal with Chile, the EU has moved ahead of South Korea and Japan which have also been complaining about the new US subsidies and other supports for renewables and EVs.

This has seen Hyundai, LG, Toyota, Panasonic and Honda announce new battery projects or expand existing projects in the US battery sector in particular. The value of these plants – all announced or expanded this year is well above $US20 billion.

The EU considers the Chile as a vital strategic partner as it seeks to diversify renewable resource imports away from China and pivot away from Russian gas and oil.

The EU could have had a free trade deal with Australia but for sticking points about food products like certain wine types and cheeses which the EU wants to make exclusive and force Australia to rename them.

The agreement will see two partners would treat EU and Chilean investors the same as domestic investors in each other’s markets, including in energy and raw materials.

“Closer economic ties with Chile will allow the EU to diversify and strengthen its economic resilience, while increasing opportunities for EU exports and investments,” the commission said in the statement

“Better access and sustainable investment in critical raw materials such as lithium will contribute to advancing our shared ambition for a green transition,” it noted.

The new agreement extends an existing trade deal struck in 2003 which already covered easier rules on 96% of all product lines.

The pact, which includes sections on human rights, environmental protection and gender equality, is expected to come into force in 2024, following the approval from the European Parliament and EU governments.

BHP and Rio Tinto control the world’s biggest copper mine at Escondida in Chile, while BHP controls two other copper mines in Chile. Rio has the stake in Escondida and it and BHP have investments (with Rio having control) in Kennecott Copper and its mines in the US southwest.

South32 has a 45% stake in the Sierra Gorda copper mine in Chile. Lithium Power has an interest in a lithium mine in northern Chile.

SQM dominates the Chilean lithium industry (it produces the metal from brine) and it also has an interest in Australia in a mine and processing plant with Wesfarmers.

Albemarle has brine operations and processing plants in the US and in Chile and spodumene mines and a new hydroxide plant in Australia and is in joint venture here with Mineral Resources and IGO.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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