Chile is poised to become a primary destination for critical mineral investment and an even greater ally for the United States in the region.
For the last seventeen years, U.S. companies that invested internationally in critical minerals, particularly lithium, had one clear choice: Australia, where U.S. mining investment often averages $35 billion annually.
Those days are over. With the approval of the U.S.-Chile Bilateral Tax Treaty (BTT), Chile is poised to become a primary destination for critical mineral investment and an even greater ally for the United States in the region. Latin America’s economy will never look the same.
On June 22, after years of delay, the U.S. Senate finally approved the BTT, thus addressing double taxation issues that currently hinder U.S. companies operating in Chile with up to 44 percent in income taxes. Beyond reducing tax barriers related to cross-border investment such as withholding tax rates on dividends, interest, and royalties, the treaty creates a framework to resolve international tax disputes, strengthen information-sharing mechanisms, and promote cooperation among the fiscal authorities of both countries. Unsurprisingly, the mining and energy sector is expected to benefit the most from this new treaty.
Latin America’s mineral extraction industry dates back hundreds of years. During the nineteenth century, when the world’s developing economies were industrializing, Latin America still relied principally on the export of raw commodities with critical minerals among them. But, compared to mining superpowers like Australia, Chile’s industrial development and technological advancements stagnated over much of the twentieth century.
Advances, hence, relied heavily on foreign expertise. The scene changed in the 1970s and 1980s when an increase in foreign investment, privatization, technical expertise, and stable legal mining operation frameworks transformed Chile into a country able to actively compete in the global minerals market.
Today, Chile’s reliance on critical mineral mining is no secret. Chile’s industry currently constitutes approximately 11 percent of GDP and represents more than half of the country’s total exports. Chile is also responsible for over 21 percent of the global supply of lithium and 28 percent of the global supply of copper.
What sets Chile apart from the rest of the mineral-rich region? It does, after all, compose only one-third of the renowned “lithium triangle” shared with Bolivia and Argentina. The answer is infrastructure, commercial viability, and institutional frameworks. A far greater percentage of Chile’s total critical mineral reserves are exploitable compared to Argentina and Bolivia. Additionally, the stability and predictability of Chile’s carefully curated institutional framework has enhanced the rule of law and attracted substantial investment in infrastructure and technology, ultimately fostering the favorable business environment that exists today.
Operations, foster innovation, and create a robust supply chain that caters to the growing global demand for clean energy solutions, including electric vehicles and energy storage systems. By capitalizing on its natural resources, leveraging U.S. expertise, and making the most of its strong institutions, Chile can solidify its position as a pioneer in the green energy sector. Against a backdrop of political instability in neighboring South American governments, Chile could emerge as a beacon of stability and a catalyst for positive change across the continent, making significant contributions to the broader green energy transition.
This could—and likely should—change perceptions of Chile in Washington. As the 2024 U.S. elections draw nearer, it will be important to U.S. political leaders to strengthen ties with Chile. Indeed, many energy companies that stand to benefit from the BTT are important political players in the United States. Partnership on critical minerals has the potential to enhance Chile’s bargaining power in future bilateral negotiations with the United States and solidify its position as a global leader in critical minerals and green investments within the region.
As Chile charts its path forward following the final adoption of the BTT and the potential surge in U.S. investments, key questions arise regarding the future of Chile’s mining development and its collaboration with the United States. How will Chile navigate the growing global demand for critical minerals while maintaining a balance between economic prosperity and environmental sustainability? Will the influx of resources and expertise from U.S. investments pave the way for technological advancements and innovation within Chile’s mining sector? As Chile solidifies its position as a pioneer in the green energy sector, these questions will shape the nation’s trajectory and influence the broader global market for critical minerals.
Ignacia Ulloa Peters is an assistant director at the Atlantic Council’s Adrienne Arsht Latin America Center.
Isabel Chiriboga is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.
Source : The National Interest