Boric Is Trapped on Trade

Throngs of high schoolers marched into downtown Santiago, Chile, on Oct. 18, inured to the stench of burning barricades, urine, and marijuana in the restive heart of the capital city, which would soon be overtaken by vandalism and looting. The black-clad teens were marking the anniversary of violent 2019 anti-government protests known as the estallido social (“social explosion”). At this year’s commemoration, the first since former student activist Gabriel Boric became Chile’s president in March, a new slogan was seen on demonstrators’ banners, graffiti, and hashtags: “No to TPP.”

TPP is shorthand for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which represents 11 countries—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam—500 million people, and around 13.5 percent of the global economy. Negotiated in 2017 under Chile’s socialist former President Michelle Bachelet, a Boric ally, the CPTPP was signed in Santiago in March 2018, just before Bachelet passed the presidential sash to her center-right successor, Sebastián Piñera. The only CPTPP signatory countries yet to ratify the deal domestically are Chile and Brunei.

The CPTPP was designed to break the traditional free trade mold by embracing contemporary provisions like environmental protection and labor rights—themes that align with Boric’s progressive agenda and self-described “ecological government.” For instance, the CPTPP commits its members not to weaken environmental protection to further trade. It was thought to be a shoo-in for Chile, which has long been known as a free trade champion.

The Chamber of Deputies, Chile’s lower house of Congress, approved the CPTPP in April 2019—without the support of leftist lawmakers, including then-deputy Boric. It was stalled in the Senate until Oct. 11 of this year, when a group of right, center-right, and center-left senators finally voted to pass the treaty. The deal is now in the reluctant hands of Boric to sign.

In late October, the 36-year-old president told business leaders he would respect Congress by signing the CPTPP “soon,” denying any “bad faith” in his delay. Boric said the treaty had improved since the United States withdrew from it in 2017, but that it still has “some elements that are not good for us,” without specifying what these are. He also pledged to sign the long-delayed modernization of an existing trade agreement between Chile and the European Union after reviewing “certain aspects” of it.

Boric’s foot-dragging on the trade deals is a reflection of the political tightrope he is walking between the two coalitions that brought him to power: the far left and the center left. Boric himself belongs to a far-left coalition that includes the Communist Party, which argues that Chile’s neoliberal economic policies of the past 30 years left many Chileans behind; the center left, which ruled Chile for much of this period, defends its legacy for ushering in economic prosperity. Neither perspective is invalid: The country has a robust economic track record but also profound wealth inequality. Boric is stuck in the middle—wedded to his far-left roots but under growing pressure to govern in line with the center left to attract the private investment his government needs to expand social spending.

“If climate change is Goliath, there is no better place in the world to find a David than Chile,” former Chilean Mining Minister Juan Carlos Jobet said in a recent TEDx talk in Santiago.

But slaying Goliath will require a staggering amount of money. Chile’s copper commission (known as Cochilco) forecasts that 51 planned public and private sector mining projects through 2030 will demand $69 billion in investment. National development agency CORFO estimates that export demand for green hydrogen from 2030 to 2035 will require $85 billion in investments for solar energy and electrolysis.

Attracting large-scale capital to Chile hinges on restoring the stable investment conditions—and open trade policies—that defined the country for decades. These deteriorated sharply during and after the estallido. Then came the COVID-19 pandemic and chaotic constitutional convention that ended in a humiliating defeat for Boric’s government in a Sept. 4 referendum. Amid this uncertainty, the Boric administration’s apparent trade skepticism only “confirms in the minds of investors that since the estallido, something in Chile has changed,” Jobet said.

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Boric had an opportunity to help rebuild investor confidence by quickly signing the CPTPP after the Senate passed it in October. By then, the president had reshuffled his cabinet to incorporate moderate pro-free trade figures after his constitutional referendum failed. But he still had to contend with anti-free trade leanings in his administration, including allies of an organization called “Chile Better Without FTAs,” or foreign trade agreements. That group’s former spokesperson, Carlos Figueroa, is now Boric’s international advisor.

Asserting that CPTPP was not part of his economic program, Boric pushed off signing it. He cited concern over the treaty’s investor-state dispute settlement provision (ISDS), in which disagreements between foreign investors and states are subject to international arbitration, mainly through the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). Chile would participate in international discussions on alternatives to the ISDS clause by negotiating reciprocal side letters with the 10 other CPTPP members to request that Chile be excluded from the arbitration provision. Chilean Foreign Minister Antonia Urrejola described the ICSID as discretionary and lacking in transparency.

Trade experts were puzzled because the ICSID is already enshrined in Chile’s existing bilateral trade deals with most CPTPP members. Moreover, the CPTPP arbitration terms give the state better protection from frivolous private sector lawsuits than in the past, Andrés Rebolledo, former Chilean trade negotiator and dean of the SEK University business school in Chile, told Foreign Policy. The country also has little reason to spurn the ICSID because it has won four of its five cases there, Rebolledo said. “Chile is better off negotiating from inside the CPTPP than outside of it.”

“ICSID has proved to be an effective dispute resolution mechanism” despite some legitimate criticism, said Gerardo Ovalle, partner at the Chilean law firm Yrarrázaval, Ruiz-Tagle, Ovalle, Salas & Vial. “It’s not clear what alternative Chile is proposing. There is no magic bullet here.” Local courts are considered potentially biased, and a permanent bilateral court—as introduced in a EU-Canada trade deal—is promising but untested.

Such sentiments embody the state-centered development ideology espoused by Boric and José Miguel Ahumada, a University of Cambridge-educated academic who serves as Chile’s undersecretary for international economic relations, the post that oversees free trade agreements. This worldview is derived from mid-20th-century dependency theories, which hold that rich countries thwart the development of so-called peripheral ones like Chile.

Addressing reporters on Oct. 12, the day after the Senate approved the CPTPP, government spokesperson and Communist Party member Camila Vallejo defended the delay in the deal’s final ratification, declaring that Chile “has the right to have its own strategy of productive and industrial development.” Vallejo reiterated the Boric government’s plans to establish a national development bank and national lithium company under a “new development model.” In the days thereafter, Ahumada told interviewers that Chile would join forces with neighboring Bolivia and Argentina to industrialize what’s known as the lithium triangle. He contended that the CPTPP would have a “marginal” benefit for Chile and might not be signed before 2023.

Lawyer Paz Zárate, a former advisor to center-left presidential candidates in Chile, compares the Boric administration’s reluctance to sign the CPTPP to Brexit because both romanticize a protectionist past. Chile already has a national development bank—CORFO—and the state’s role in the lithium industry could be fulfilled by state-owned copper producer Codelco. In any event, the CPTPP and EU-Chile trade deals would not stymie a broader push to industrialize, she said.

The government is “confusing an anti-capitalist struggle with trade policies that Chile has benefitted from.”

“Chile’s trade agreements as well as the World Trade Organization (WTO) would not impede the government from promoting an industrial policy and setting up new state-owned companies,” said Alejandro Jara, who served in Ahumada’s role from 1999 to 2000 under then-center-left President Eduardo Frei Ruiz-Tagle and was later deputy director-general of the WTO. The two trade deals, and especially the WTO, prohibit export-conditional subsidies and certain domestic input mandates, such as local content requirements, but other instruments and subsidies are allowed. “Whether they would succeed is another matter,” he told Foreign Policy.

Trade technicalities aside, the CPTPP debate illuminates Boric’s belief that “the state should spearhead economic development, not just promote it,” said Patricio Navia, a professor of Latin American and Caribbean studies at New York University. “Boric is a bit more state-oriented than many people make him out to be. He’s young, but he has old ideas.”

Such ideas risk squandering big opportunities for Chile to export lithium and green hydrogen to the European Union and the United States, said Miguel Fredes, who represents the German Federal Association for eMobility, a private sector interest group that promotes EV transit, in Chile. The government is “confusing an anti-capitalist struggle with trade policies that Chile has benefitted from.”

Daniel Jimenez, a partner at Chilean consultancy iLiMarkets, worries that the government’s ideological dithering could end up stranding much of Chile’s lithium. “The train has already left the station,” he said, adding that in as little as 10 years, most demand will be met through recycling lithium closer to demand centers rather than through primary production.

Team Boric is hardly alone in challenging the globalization paradigm. But the U.S.-China trade war as well as disruptions wrought by the pandemic and Russia’s war in Ukraine have already forced the world to move past it. More relevant for Chile is how these events have accelerated great-power competition over critical resources—particularly those instrumental to the energy transition. In this context, former Chilean foreign minister and free trade advocate Heraldo Muñoz said small- and medium-sized countries like Chile cannot afford to approach trade alone.

While Chile and Brunei sit on the CPTPP sidelines, other countries—like China and Britain—are seeking to join. Ahumada and Figueroa, Boric’s trade-skeptical advisors, remain in their posts. But as a recession looms in Chile and Boric’s approval ratings languish, pragmatism is gaining sway in the cabinet. Urrejola now says Chile will sign the CPTPP by the year’s end—regardless of the side letters’ outcomes.

Back in Santiago, shop owners were still sweeping up days after the unrest of the October protests. In one dark incident, anarchists claimed responsibility for planting a bomb in the city’s financial district, targeting the “consolidation of the neoliberal and extractivist system” and the CPTPP for which Boric was “complicit.” The bomb never went off, but the ideas that inspired it are still ticking.