The proposed India-Chile Comprehensive Economic Partnership Agreement (CEPA) holds strategic significance for both nations, aiming to boost bilateral trade, investment flows, and cooperation in key sectors like mining, IT, and pharmaceuticals. As India strengthens ties with Latin America, Chile’s resource-rich economy offers a complementary partnership, making CEPA a timely step toward deeper economic integration.
As India aspires to diversify its economic partnerships and secure critical raw materials for its fast-growing industries, Chile’s strategic geolocation and abundant deposits of critical minerals, especially lithium, position it an important trade ally for India’s resource security and value chain integration.
India and Chile have initiated the process of deepening their trade ties by signing the Terms of Reference (ToR) for the Comprehensive Economic Partnership Agreement (CEPA) on May 8, 2025. H.E. Mr. Juan Angulo, Ambassador of Chile, and Shri Vimal Anand, Joint Secretary, Government of India, and Chief Negotiator for the India-Chile CEPA, signed the ToR in India. This partnership reflects strategic convergence in a changing multipolar trade landscape, with these two leading democracies serving as bridges between Asia and Latin America.
As far as industry viewpoint is concerned, Indian trade bodies like Federation of Indian Export Organisations (FIEO) and Confederation of Indian Industry (CII) have consistently emphasized the need for India to tap new markets in Latin America while protecting domestic interests. Recent FIEO position papers highlight Chile’s potential as a source of critical minerals and a promising market for India’s automotive and pharmaceutical exports.
Evolution of India-Chile bilateral economic engagement
India and Chile established a Framework Agreement on Economic Cooperation in January 2005, which was later complemented by a Preferential Trade Agreement (PTA) in March 2006. These developments laid the foundation for a strong and steadily growing economic and trade relationship between the two nations. In September 2016, India and Chile signed a broader version of their PTA, which officially came into force on May 16, 2017. Subsequently, from 2019 to 2021, the two countries conducted three rounds of negotiations to explore additional areas for expansion. Both nations are now prepared to further deepen their relationship by entering into the CEPA, aiming to unlock their full potential by covering diverse areas, including MSMEs, digital services, critical minerals, investment, and cooperation.
Current landscape of India-Chile bilateral trade
India and Chile witnessed bilateral trade of approximately US$ 2,697.4 million In 2023-24. During this period, India’s exports to Chile amounted to US$ 1,182.94 million, representing about 0.27% of India’s total exports to the world. Chile ranked 55th among destinations for Indian exports. India’s imports from Chile totalled US$ 1,514.10 million, accounting for a 0.22% share, with Chile secured 49th rank in India’s total imports. The trade balance, defined as the difference between exports and imports, resulted in India experiencing a trade deficit of approximately US$ 331.16 million with Chile in 2023-24. India’s share in Chile’s total exports was 1.59%, and in terms of Chile’s total imports, India’s share was 1.57% in 2023-24. The share of India’s total trade with Chile is only 0.24% in India’s total trade with the world in the corresponding period. From 2018-19 to 2023-24, India has witnessed a continuously rising trade deficit with Chile, except in 2020-21, when India experienced a trade surplus of US$ 134.4 million. However, India must consider this rising trade deficit and proceed cautiously in the upcoming negotiation rounds with Chile.
India’s exports to Chile include vehicles, pharmaceutical products, machinery and mechanical appliances, organic chemicals, electrical machinery and equipment, textile articles, articles of leather, apparel and clothing (both knitted and non-knitted), as well as plastics and related products. Conversely, India’s imports from Chile comprise metals such as lithium, copper, iron and steel, aluminium and related articles, molybdenum ores and concentrates, iodine, nuts (edible; walnuts, fresh or dried), seeds, and coke and semi-coke.
Economic impact and trade potential analysis
To capture the trade potential, we have used the concept of Revealed Comparative Advantage (RCA), which indicates whether a country is expanding the range of products in which it has trade potential. In order to capture the trade potential, the value of RCA should be greater than one. India had an RCA with Chile in six products in 2022: hides and skins have 7.2 RCA, textiles and clothing (2.87), transportation (2.72), chemicals (1.88), footwear (1.14), and metals (1.12). On the other hand, Chile had an RCA with India in minerals (49.86) which is very high in terms of RCA, wood (6.93), and vegetables (2.15) in 2022-23.
This clear complementarity highlights areas where the two countries can maximize mutual benefits through balanced tariff commitments and effective safeguards to address potential adverse impacts on sensitive domestic sectors. Beyond commodity trade, the two countries can benefit from Chile’s leadership in renewable energy and synergies in India’s digital ecosystem. Joint ventures in lithium processing can help realise India’s EV (electric vehicle) ambitions, while also adding greater value to Chile’s exports.
To analyse the impact of tariff liberalization, a tariff simulation was conducted using the Partial Equilibrium Method (TINA tariff simulation) to evaluate trade creation and trade diversion effects. In the first scenario, India imposes zero tariffs on Chilean exports, Chile experiences a positive net trade creation effect (Trade creation minus trade diversion) of approximately US$ 256.64 million. In the second scenario, where Chile imposes zero tariffs on Indian exports, India experiences a net trade creation effect of approximately US$ 280.19 million, which is higher than Chile’s net trade creation effect. The results suggest that zero tariff rates would enhance the imports and welfare of both nations by creating positive net trade creation effect.
Navigating challenges and maximizing opportunities
India has signed various trade agreements in the past with different countries, but its experience in terms of trade balance has not always been satisfactory. For instance, India’s trade deficit has increased with ASEAN, Japan, and Korea, especially after signing Free Trade Agreements (FTAs). Therefore, India should adopt safeguard measures and phased tariff reductions so that the CEPA with Chile does not create an unsustainable trade deficit. At the same time, the CEPA has sufficient scope to ensure that past imbalances are not repeated. By incorporating safeguard provisions, phased duty reductions and clear monitoring mechanisms, India can not only secure mineral resources but also ensure market access for its MSMEs and digital services. As global supply chains are changing and demand for critical raw materials like lithium is increasing, the India-Chile CEPA can become a balanced and forward-looking economic partnership model -provided both sides prioritise fair market access, investment promotion and inclusive growth. If structured correctly, the agreement will strengthen India’s strategic economic influence in Latin America and encourage sustainable and mutually beneficial trade relations for decades to come.
This article is jointly written by Dr. Rajeev Verma, Assistant Professor of Economics at Sri Aurobindo College (Evening), University of Delhi, and Dr. Baikunth Roy, Assistant Professor of Economics at Patliputra University. The views expressed in this article are personal.
