* BHP recommends industry evolve and collaborate
* Challenges include lower quality ore, labor relations (Recasts, adds comments, data, graphic)
By Barbara Lewis and Mitra Taj
SANTIAGO, April 4 (Reuters) - Chile's copper industry needs to adopt new technologies and improve labor and community relations to keep its global standing, a senior BHP Billiton BHP.AX BLT.L executive said on Tuesday.
"If we don't take a proactive approach, the copper industry in Chile will reduce its global position in the next 25 years in line with the diminishing quality of our assets," warned Danny Malchuk, president of operations at BHP's Minerals Americas, in a speech to the CRU World Copper Conference in Santiago.
Chile, which accounts for 30 percent of the world's copper supply, is grappling with falling productivity because much of its best quality ore has already been mined.
The topic is sufficiently a concern that President Michelle Bachelet ordered a national productivity commission to find ways to bolster the mining industry among other sectors.
One option to shore up output could be to offer tax incentives or modify regulations to encourage miners to free up exploration contracts they do not use, Deputy Mining Minister Erich Schnake told the conference.
Too often, he said, big mining companies hold onto and renew mining rights while they wait for market conditions to improve, blocking access to smaller companies from making findings.
But executives have also pointed to a lack of clarity over recent government reforms, which include changes to tax and labor relations, as possible hurdles for increased investment in Chile.
In a report issued in February, the Vancouver-based Fraser Institute's global ranking of regions' attractiveness for mining investment saw Chile tumble from fourth place in 2013 to position 39 in 2016, below its fast-rising neighbor Peru.
"We don't agree with this view that the investing environment (in Chile) has deteriorated remarkably, and that's why we are so eager to keep investing in our current mines," Kazutaka Shiba, chief executive of Mitsui & Co Mineral Resources Latin America 5706.T , told Reuters.
"But I think this (ranking) shows some concern that clarity and transparency is not there," he added.
Malchuk highlighted that the sector's "massive challenges" include relations with unions, which have been emboldened by a new pro-labor law that hit the statute books this week. is still smarting from a bruising battle with its union at Escondida, the world's biggest copper mine in which it has a majority stake. A 43-day strike, which ended in late March, cost it dearly. Tinto RIO.AX RIO.L , which also has a stake in Escondida, lamented the labor situation in Chile.
"It's perturbing to me to see that most of the renegotiation of labor agreements is done through strikes, and it doesn't have to be that way," said Arnaud Soirat, chief executive of Rio's Copper & Diamonds unit.
Malchuk said Chile's mining companies should also look to collaborate on technology and adopt more public-private partnerships to work on issues such as training and often thorny relations with local communities.
Copper accounts for more than half of Chile's exports. Its importance to the country was underscored on Monday when the central bank said the Escondida strike would knock an entire percentage point off gross domestic product growth in the first quarter. Graphic on Chilean copper
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