EU-Chile modernized free trade agreement

On 4 December 2023, the European Council adopted:

Advanced Framework Agreement (AFA) about: health, the environment, climate change, ocean governance, energy, tax, education and culture, labour, employment and social affairs, science and technology and transport;
interim Trade Agreement (iTA) on raw materials and clean fuel such as lithium, copper and hydrogen, which are crucial for the transition to the green economy.

Both the agreements with Chile constitute an updated version of the EU-Chile Association Agreement currently in place. Nadia Calviño declared: “…The EU-Chile Trade Agreement will reinforce the EU’s open strategic autonomy and economic security, strengthening the resilience of supply chains and diversifying imports of key inputs for the green transition as well as export opportunities for European companies…”.

Next steps are:

Mid-December: signing ceremony of the agreements;
Eu Parliament consent;
EU Council decision of adoption of the agreements;

In particular, the capter 8 “energy and raw material” of the ITA at its article 8.1 underlines that “…the scope is to promote dialogue and cooperation in the energy and raw materials sectors to the mutual benefit of the Parties, to foster sustainable and fair trade and investment ensuring a level playing field in those sectors, and to strengthen the competitiveness of related value chains, including value addition…”.

The achievement of this purpose is based on the following principles:

EU and Chile retain the sovereign right to determine whether areas within its territory, as well as in the exclusive economic zone, are available for exploration, production and transportation of energy goods and raw materials;
EU and Chile reaffirm their right to regulate within their respective territories in order to achieve legitimate policy objectives in the areas of energy and raw materials;
EU and Chile can’t impose a higher price for exports of energy goods or raw materials to the other Party than the price charged for such goods when destined for the domestic market, by means of any measure, including licences or minimum price requirements;
EU and Chile ensure that appropriate grid and market-related operational measures are in place in order to minimise the curtailment of electricity produced from renewable energy sources;
EU and Chile promote the standards on raw materials, renewable energy generation and energy efficiency equipment, including product design and labelling, if appropriate, through existing international cooperation initiatives;
EU and Chile promote: renewable energies, electromobility, energy efficiency, responsible mining practices and sustainability of raw materials value chains, including the contribution of raw materials value chains to the fulfilment of the UN Sustainable;
EU and Chile promote important contribution of renewable fuels, inter alia, renewable hydrogen, including their derivatives, and renewable synthetic fuels, in reducing greenhouse gas emissions to address climate change.
Chile may introduce or maintain measures with the objective of fostering value addition by supplying raw materials to industrial sectors at preferential prices so that they can emerge within Chile.

While, it referes to the following definitions:

“raw materials“: “…substances used in the manufacture of industrial products, including ores, concentrates, slags, ashes and chemicals; unwrought, processed and refined materials; metal waste; scrap and remelting scrap…”;
“renewable energy” means energy produced from solar, wind, hydro, geothermal, biological or ocean sources or other renewable ambient source;
“renewable fuels” means biofuels, bioliquids, biomass fuels and renewable fuels of non-biological origin, including renewable synthetic fuels and renewable hydrogen.

The documents of reference are:

Interinstitutional File 2023/0259 (NLE) issued on 17 November 2023
Interinstitutional File: 2023/0259 (NLE) issued on 17 November 2023
Interinstitutional File: 2023/0259 (NLE) issued on 17 November 2023.

***ciritical raw materials, compliance and batteries***

The ecological transition and its customs impacts are affected by the results of the Study on the Critical Raw Materials for the EU 2023- Final Report.

This report lists the minerals to be considered as “critical”:

Industrial and construction materials: aggregates, baryte, bentonite, borates, diatomite, feldspar, fluorspar, gypsum, kaolin clay, limestone, magnesite, natural graphite, perlite, phosphate rock, phosphorus, potash, silica sand, sulphur, talc;
Iron and ferro-alloy materials: chromium, cobalt, manganese, molybdenum, nickel, niobium, tantalum,titanium, titanium metal, tungsten, vanadium;
Precious metals: gold, silver, and Platinum Group Metals (iridium, palladium, platinum, rhodium, ruthenium);
Rare earths: heavy rare earths – HREE (dysprosium, erbium, europium, gadolinium, holmium, lutetium, terbium, thulium, ytterbium, yttrium); light rare earths – LREE (cerium, lanthanum, neodymium, praseodymium and
samarium); and scandium;
Other non ferrous materials: aluminium/bauxite, antimony, arsenic, beryllium, bismuth, cadmium, copper, gallium, germanium, gold, hafnium, indium, lead, lithium, magnesium, rhenium, selenium, silicon metal, silver, strontium, tellurium, tin, zinc, zirconium;
Bio and other materials: natural cork, natural rubber, natural teak wood, sapele wood, coking coal, hydrogen, helium, roundwood, neon, krypton, xenon.

The “…proposal for a regulation of the European PArliament and of the Council establishing a framework for ensuring a secure and sustainable supply of critical raw materials and amending Regulations (EU) 168/2013, (EU) 2018/858, 2018/1724 and (EU) 2019/1020…” [COM(2023) 160 final] lists the next guidelines:

Ensure a comprehensive approach with coordinated EU policies to provide regulatory certainty for investments;
Coordination with EU social policies: support EU-wide capacity in terms of skills for extractive industries;
Include other materials crucial for green tech/cleantech sectors and ensure consistency with other policies;
Address unfair trade practices and restrictions;
Prioritise critical and strategic raw materials in recycling and waste legislation and support the secondary raw materials markets;
Economic and environmental studies on the pollutant impact of critical raw material extraction: coordination with State aid provisions

regulation of the European Parliament and of the Council concerning batteries and waste batteries, amending Directive 2008/98/EC and Regulation (EU) 2019/1020 and repealing Directive 2006/66/EC will apply to:

all categories of batteries placed on the market or put into service within the Union, regardless of whether they were produced in the Union or imported;
regardless of whether a battery is incorporated into appliances, light means of transport or other vehicles or otherwise added to products or whether a battery is placed on the market or put into service within the Union on its own;
regardless of whether a battery is specifically designed for a product or is of general use and regardless of whether it is incorporated into a product or is supplied together with or separately from a product in which it is to be used.

Its purpose is to prevent and reduce adverse impacts of batteries on the environment and ensure a safe and sustainable battery value chain for all batteries, taking into account, for instance, the carbon footprint of battery manufacturing, ethical sourcing of raw materials and security of supply, and facilitating re-use, repurposing and recycling.

Moreover, it states that: “…Some of the raw materials used in battery manufacturing, such as cobalt, lithium and natural graphite, are considered to be critical raw materials for the Union, as indicated by the Commission in its communication of 3 September 2020 on ‘Critical Raw Materials Resilience: Charting a Path towards greater Security and Sustainability’, and their sustainable sourcing is required for the Union battery ecosystem to perform adequately…”.

The AEO approach based on high knowledge of free trade agreements, rules of origine, preferential origin, monitoring of the internal processes and ongoing risks analysis, is the main way to manage the coming obligations of this new legal framework.

The regulation of batteries imposes due diligence obligations on economic operators placing batteries on the market or putting them into service.

It covers:

all categories of batteries (portable batteries, starting, lighting and ignition batteries, SLI batteries, light means of transport batteries, LMT batteries, electric vehicle batteries and industrial batteries, regardless of their shape, volume, weight, design, material composition, chemistry, use or purpose.
The batteries that are incorporated into or added to products or that are specifically designed to be incorporated into or added to products.

The key principles are: sustainability, safety, labelling, marking and information to allow the placing on the market or putting into service of batteries within the Union, extended producer responsibility, the collection and treatment of waste batteries and for reporting.

The AEO approach based on high knowledge of free trade agreements, rules of origine, preferential origin, monitoring of the internal processes and ongoing risks analysis, is the main way to manage the coming obligations of this new legal framework.

*** FTA, preferential origin and raw materials ***

The preferential origin is an important “status” (quality) of the goods which are imported or exported from/to the European Union.

For this reason, it is important to share and explain some points of the European Union Guidance on the preferential origin issued in 2022.

Firstly, it is stated that to obtain preferential originating status, two main criteria are defined in free trade agreements:

Wholly obtained products – where only one country is involved in the manufacture of both materials and products; for example copper, lithium, electricity are preferential origin goods
Sufficiently worked or processed products obtained in a country incorporating materials which have not been wholly obtained there, provided that the materials used in the manufacture of these products have undergone sufficient working or processing. The sufficient “working or processing” that is needed to obtain preferential origin to the final product is determined by the list rules.

The part of the free trade agreement where are listed the rules of origin is called “protocol of origin” ; in this protocol are listed the HS chapter and codes associated to the rule of origin and it is possible to see “…In some cases, a chapter, heading or sub-heading entry is preceded by “ex”. This means that the specified origin rule applies only to that part of the chapter, heading or sub-heading for which the description of the product is provided…”. In other words, “ex” means rule valid only for a HS code.

The rules of origin can be classified in one of the following category:

– Wholly obtained requirement;

– Change in tariff classification (for the non-originating components);

– Value or weight limitation. For what concerning the value rule, the non-originating materials (NOM) means that the value of all or specific non-originating materials may not exceed a given percentage of the exworks price of the final product;

– Specific working or processing;

– combination of some rules abouve listed.

The rules of origin do not cover the “insufficient operations” which are those that when carried out either individually or in combination are regarded as being of such minor importance that they never confer originating status when only non-originating materials are used in the production.

In general, but not in mandatory way, the free trade agreements have the following list of insufficient operations:

preserving operations to ensure that the products remain in good condition during transport and storage; b. breaking-up and assembly of packages;
washing, cleaning; removal of dust, oxide, oil, paint or other coverings; d. ironing or pressing of textiles; e. simple painting and polishing operations;
husking, partial or total bleaching, polishing, and glazing of cereals and rice;
operations to colour or flavour sugar or form sugar lumps; partial or total milling of crystal sugar;
peeling, stoning and shelling, of fruits, nuts and vegetables;
sharpening, simple grinding or simple cutting; j. sifting, screening, sorting, classifying, grading, matching; (including the making-up of sets of articles);
simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations;
affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging; m. simple mixing of products, whether or not of different kinds;
mixing of sugar with any material; o. simple addition of water or dilution or dehydration or denaturation of products;
simple assembly of parts of articles to constitute a complete article or disassembly of products into parts; q. slaughter of animals

The preferential origin covers another important aspect which is the documents and status to be provided to claiming for the origin.

In particular, the Approved Exporter is a status, granted by an authorization, allowing self-certification of preferential origin of goods by economic operators exporting under certain EU preferential arrangements.

Ideally, the approved exporter is the economic operator which has met certain conditions required by the customs authorities and who is allowed to make out invoice or origin declarations instead of applying for origin movement certificate (e.g EUR.1).

The apporved exporter authorization:

is a one-off formality, where the exporter provides the customs authorities with the necessary information. Once the authorisation is granted, it is valid for all exports of the covered originating goods during the period of the authorisation;
can be withdraw.

The Registered Exporter System (the REX system) is another system of self-certification of preferential origin of goods that are laid down by the free trade agreements (especially the latest one) and requires the registration in a database by the competent authority. Once registered, the economic operator becomes a “Registered Exporter”.

The REX system is a single system (enrolement in the European register) for self-certify the preferential origin.

It is applied in different unilateral (generalised preferences system), bilateral or multilateral preferential trade arrangements between the EU has with third countries.

For what it concers the free trade agreements we can recall that REX is required in the following trade flows: Canada (CETA), UK (TCA-trade cooperative agreement), Japan , Vietnam (EVFTA), Ivory Coast, Ghana, Mauritius, Seychelles, Comoros Zimbabwe, Madagascar, Nouvelle Caledonie, Nouvelle Polinesie, Saint Pierre et Miquelon

Antoher important point of the preferential origini s represented by the principle of territoriality for the working or processing on a good must be carried out without interruption in the territory of the European Union or in the territory of the country or countries covered by the preferential arrangement.

Originating goods leaving the territory of the European Union or the territory of the country or countries covered by the preferential arrangement lose their originating status.

However, as stated in the Guidance on the Rules of Origin 2022, there may be exceptions to this principle: “…

a) Originating goods might be exported to a country that is outside the territory covered by a preferential arrangement and then returned to the exporting country.
b) For various reasons, such as modern manufacturing processes or for economic purposes, it can be advantageous to undertake operations in third countries and therefore exceptions may be allowed to the principle of territoriality. Some preferential arrangements allow such external working or processing, provided it conforms to certain specified conditions. Failure to comply with the specific conditions will result in the final product being treated as non-originating…”.

In general, it is important to underline that the preferential origin is a duty of the economic operator who should rely its declarations, statement or applications for a origin certificate either on its own data or on the manufacturer/supplier declaration. Indeed, in the Preferential origin guidance it is stated that: “….1. Introduction Preferential origin documents can be issued or made out for goods on the basis of information and documents proving their originating status. One such document is a supplier’s declaration where suppliers provide buyers with information necessary to determine the originating status of goods for the purposes of preferential trade between the EU and certain countries. 2. General Overview A supplier’s declaration is a declaration by which a supplier provides information to his customer concerning the originating status of goods with regard to the specific preferential rules of origin. Notwithstanding the invoicing, the supplier is the person who has control and the knowledge of the originating status over the delivered goods. By making out a supplier’s declaration, the supplier declares the originating status of the goods he provides to his customer who needs this information to certify the preferential origin of the goods he exports. The exported goods are either the finished product from the supplier or a product incorporating the delivered material. Where the supplier’s declaration has been provided and is required by the exporter, it shall be kept for use in the following cases: 1. Applications for the issue of movement certificates EUR.1 or EUR-MED. 2. The making out of an invoice or origin declaration, an invoice or origin declaration EUR-MED or a statement on origin. The supplier’s declaration can also support the making out of a subsequent supplier’s declaration when the goods are sold, delivered or transferred between suppliers. Suppliers’ declarations are mainly used for deliveries of goods within the European Union. However, suppliers’ declarations in trade with some partner countries of the European Union are also possible. A supplier’s declaration may never be used as a document on origin for claiming preferential treatment at importation….”

Finally, the preferential origini is: a) one of the pillar of the customs obligation; b) an AEO prerequirements; c) a topic whose management/compliance with will be heavily impacted by artificial intelligence; d) an customs element which will role a fundamental role on the development of the circular economy