360° UPSC Mains Analysis

Santiago, Chile

Chile features diverse climates ranging from the hyper-arid Atacama Desert in the north to a Mediterranean climate in the center and alpine/tundra in the south; it is highly seismically active, lying on the Pacific Ring of Fire. India is dominated by a tropical monsoon climate and is prone to earthquakes in its northern Himalayan region.

Chile is a long, narrow coastal strip wedged between the Andes Mountains to the east and the Pacific Ocean to the west, bordering Peru, Bolivia, and Argentina. India is a peninsular country in South Asia, strategically positioned along major Indian Ocean sea lanes.

Chile is the world's leading producer of copper and holds massive reserves of lithium (part of the 'Lithium Triangle'), making it strategically vital for India's green energy transition and electric vehicle manufacturing. India seeks to export pharmaceuticals, machinery, and engineering goods in exchange.

Under the Seventh Schedule of the Constitution, 'entering into treaties and agreements with foreign countries' and 'implementing of treaties' fall under Entry 14 of the Union List (List I), while 'trade and commerce with foreign countries' falls under Entry 41. Consequently, the negotiation, signing, and implementation of the India-Chile CEPA are entirely within the exclusive legislative and executive jurisdiction of the Union Government, reflecting India's federal structure where foreign affairs are centralized.

The CEPA aims to address the current trade imbalance where India's imports from Chile (USD 5 billion in 2025-26) vastly exceed its exports (USD 1.2 billion). By lowering tariffs and expanding market access, the agreement will boost Indian exports of pharmaceuticals, automobiles, and engineering goods while securing critical mineral imports. This will diversify India's trading partners in the Latin American and Caribbean (LAC) region, where Chile is currently India's fifth-largest trading partner.

The conclusion of the India-Chile CEPA is expected to expand bilateral trade beyond the current USD 6.2 billion (comprising USD 1.2 billion in exports and USD 5 billion in imports in 2025-26). While the high import volume of USD 5 billion (a 93% YoY increase) may temporarily widen the trade deficit, securing long-term access to critical minerals like lithium and copper will support India's domestic manufacturing, stabilizing the current account in the long run. Additionally, increased trade flows will positively influence GDP growth and diversify India's foreign trade partners in the Latin American region.

The primary sector will benefit from secured supply chains of critical minerals (lithium and copper) essential for India's electric vehicle (EV) and renewable energy industries. The secondary and tertiary sectors, particularly pharmaceuticals, healthcare, machinery, engineering, and digital services, will gain enhanced market access in Chile, boosting domestic manufacturing and service exports.

The trade deal is expected to generate employment in high-growth sectors such as pharmaceuticals, engineering, and renewable energy manufacturing. Improved supply chain resilience for critical minerals will stabilize input costs for domestic industries, potentially lowering consumer prices for electronics and electric vehicles. Furthermore, streamlined business visa processes, such as Chile's Multiple Entry Permit for Indian businesspersons, will facilitate smoother professional mobility.

Diplomatic relations between India and Chile were formally established in 1949, shortly after India gained independence. In 1956, Chile became the first South American nation to sign a provisional trade agreement with India, laying the groundwork for bilateral commercial ties. This early engagement was driven by a shared post-colonial identity and a mutual desire to foster South-South cooperation among developing nations.

Post-independence, India's trade policy was characterized by import substitution and protectionism, which limited deep economic engagements with distant regions like Latin America. Following the 1991 economic reforms, India transitioned to an outward-looking trade policy, actively pursuing bilateral trade agreements to diversify its export markets. This shift culminated in the signing of the India-Chile Preferential Trade Agreement (PTA) in 2006, its subsequent expansion in 2016 to cover 2,829 tariff lines, and the notification of the Double Taxation Avoidance Agreement (DTAA) in 2023 under Section 90(1) of the Income Tax Act, 1961, paving the way for the current Comprehensive Economic Partnership Agreement (CEPA) negotiations.

The transition from a limited-scope Preferential Trade Agreement (PTA) to a Comprehensive Economic Partnership Agreement (CEPA) with Chile parallels India's trade trajectory with ASEAN and Mercosur. India initially signed limited trade pacts with these regions before seeking deeper, comprehensive economic partnerships to secure critical resources (like lithium and copper from Chile) and expand service exports.

While there is no direct link to the Indian freedom struggle, the post-independence solidarity between India and Chile was rooted in the anti-colonial and anti-imperialist principles of the Non-Aligned Movement (NAM) and the shared aspirations of the Global South to establish a more equitable international economic order.

The trade deal's focus on critical minerals like lithium and copper from Chile could intensify mining in fragile ecosystems like the hyper-arid Atacama Desert. This water-intensive extraction depletes local aquifers, leading to the subsidence of salt flats (salars) and the disappearance of critical wetland lagoons.

The underlying science involves the extraction of lithium from subterranean brine through solar evaporation in open pools, which requires evaporating approximately 500,000 liters of water per ton of lithium. This is contrasted with newer Direct Lithium Extraction (DLE) technologies that aim to reinject brine back into aquifers to minimize water loss.

Securing lithium and copper is vital for India's green energy transition, supporting its Nationally Determined Contributions (NDCs) under the Paris Agreement, such as achieving 500 GW of non-fossil fuel capacity by 2030. This aligns with India's domestic policy shift under the Mines and Minerals (Development and Regulation) Amendment Act, 2023, which de-listed lithium from atomic minerals to encourage private exploration and secure supply chains.

The partnership directly links to SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action) by securing materials for clean energy technologies. However, it poses challenges to SDG 6 (Clean Water and Sanitation) and SDG 15 (Life on Land) due to the high water footprint and ecological degradation associated with mineral extraction in Chile.

The agreement directly impacts the livelihoods of workers in the pharmaceutical, agricultural, and engineering sectors by expanding market access and altering domestic competition. Increased availability of affordable Indian generic medicines will enhance healthcare access and dignity for patients, while securing critical minerals like lithium supports clean energy transition, indirectly improving public health through reduced pollution.

Article 21 of the Constitution (Right to Life) is invoked as affordable healthcare through pharmaceutical trade and a clean environment via green energy minerals directly sustain human life. Additionally, Article 39(b) of the Directive Principles of State Policy (DPSP) mandates that the ownership and control of material resources be distributed to best subserve the common good, guiding equitable trade negotiations.

A key ethical conflict lies in balancing national economic growth and industrial efficiency (through cheaper mineral and agricultural imports) against protecting the livelihoods and equity of domestic small-scale farmers. Additionally, policymakers face the dilemma of promoting rapid green energy transition using imported lithium versus addressing the environmental and human rights concerns of indigenous communities in mining regions.

The trade deal's focus on critical minerals like lithium impacts tribal populations in mining regions, while cooperation in agriculture directly affects the livelihoods of small and marginal farmers. Enhanced pharmaceutical trade can improve access to affordable, life-saving healthcare for economically weaker sections (EWS) and the elderly in both nations. However, domestic farmers may face competition if agricultural import tariffs are lowered.