Critical insecurities? The European Union’s trade and investment strategy for a stable supply of minerals for the green 2023

Clashing over critical minerals

The greenish transition is creating an exponential need for critical raw materials (“
CRMs
”), such as lithium, nickel and cobalt, as these are necessary for environmentally-friendly technologies, from wind turbines to electrical vehicles. The European Wedlock (“
EU
”) is in drastic need of such minerals due to express reserves at home and long-lasting reluctance to mine what trivial amounts it has been endowed with because of the environmental risks that it entails.

The extraction and processing of CRMs are currently concentrated in a few States. In particular, China dominates many of CRM supply chains and is seeking to secure farther supplies abroad. At the same fourth dimension, the U.s. (“
US
”) is adopting incentives to encourage the extraction and processing of these minerals in its territory or in those of its preferential trading partners. Many resource-rich developing countries, such as Zimbabwe and Indonesia, accept also been hoping to ride on the light-green transition wagon to kicking first their economic development procedure by adopting measures to discourage the export of minerals extracted therein and promote their domestic processing instead.

Faced with growing global competition over CRMs and a fear of over-reliance on China, the EU has started building a multifaceted merchandise and investment framework to secure access to these minerals for its industries in order to reap the benefits of the dark-green transition.

Trading tactics

To start with, the Eu has targeted measures taken past resource-rich countries that seek to encourage domestic processing of CRMs and depress exports by relying on existing, and creating new, international trade rules.

A major venue for the European union’due south actions has been the World Trade Organisation (“
WTO
”) via its dispute settlement and negotiation functions. Article Xi:1 of the GATT prohibits WTO Members from imposing consign bans and restrictions. The European union has used this provision to successfully challenge Cathay’s export restrictions on sure rare earth minerals in 2014 and Indonesia’southward export ban on nickel ore in 2022. The former dispute pushed Cathay to remove the export restrictions on these minerals in 2015. In the latter dispute, Indonesia appealed the panel’south decision “into the void” as the Appellate Body has lost its quorum to hear appeals since December 2019. Consequently, the dispute remains pending so that Indonesia does not demand to implement the panel’due south decision yet. To address the issue of the Appellate Body’due south unavailability, the EU led the establishment of the Multi-Party Interim Mediation System (“
MPIA
”), which is a temporary appellate machinery. However, some major players have non joined the MPIA. They continue to (ab)use their right of appeal to block panels’ decisions, thereby undermining the Eu’s objective of restoring an effective dispute settlement system that would aid foreclose WTO-inconsistent restrictions on the export of CRMs.

However, the existing WTO rules leave abundant policy infinite for WTO Members to restrict the exportation of CRMs through diverse means.  A major example is through export taxes which are largely unregulated under the WTO and widely used by governments. The Eu has attempted to shut this loophole in several ways.

As one of the principal drivers in the process of accepting new WTO Members, the EU has requested acceding Members to agree to limit their use of export taxes. It has also pushed for commitments forbidding State-owned enterprises (“
SOEs
”) from discriminating between domestic and foreign buyers when selling goods and requiring them to act in accordance with commercial considerations, thereby preventing SOEs in the CRM sectors from favouring domestic customers over foreign ones (for example, for Kazakhstan, at paragraphs 540 and 142). China’s WTO accession commitments also include obligations to remove consign restrictions and all export taxes every bit well as rules on SOEs regarding non-discrimination and commercial considerations.

More chiefly, the EU has fabricated admission to raw materials one of its priorities by developing new rules on raw materials in its well-nigh contempo free trade agreements (“
FTAs
”). While the European union has long included provisions prohibiting the use of export taxes altogether (for case, Article 2.6 of the Eu-Canada FTA), information technology now adds an entire chapter on “energy and raw materials” in these agreements. For example, the European union-Chile Advanced Framework Agreement and the modernised Eu-Mexico Merchandise Agreement (which have not yet entered into force) include provisions prohibiting the utilize of consign monopolies and dual-pricing schemes (that is the selling at a higher price of raw materials for export than for domestic sales) in improver to export taxes. These capacity also fix mechanisms for cooperation on standardization, value chain integration and enquiry and development in CRM industries and are further complemented by rules on SOEs like to those developed for newly acceded WTO Members, mentioned above. Provisions prohibiting performance requirements such as those restricting export sales, which force companies operating in the mineral sector to sell domestically, take also been included in the EU’southward recent FTAs. The European union now aims to conclude farther trade agreements with similar provisions focusing on access to CRMs with Republic of indonesia and Commonwealth of australia.

Finally, on the unilateral front, the EU has amended its trade defense force do over the terminal few years to impose college duties on imports of downstream products from countries having in place policies that encourage the domestic processing of upstream raw materials. The Eu has, for case, recently targeted imports of stainless-steel from Indonesia that are manufactured using nickel ore subject to consign restrictions. By doing so, the EU intends to protect its industries from foreign competitors having preferential access to raw materials and to encourage the targeted countries to export these raw materials to the EU. Given that the General Courtroom of the EU recently canonical these practices despite repeated WTO rulings opposing this approach, the EU is likely to keep this trade defense force exercise going forward.

Opening doors

In addition to international trade rules, the EU has been developing an investment framework to back up its companies investing in the extraction of CRMs abroad. Since multilateral disciplines, including WTO rules, on investment restrictions and protection are remarkably express, the EU has negotiated new investment rules bilaterally.

Information technology has tailored investment access obligations in its contempo FTAs in the form of positive commitment schedules and specific provisions in the “free energy and raw materials” capacity mentioned in a higher place. For instance, while Vietnam reserved its rights to apply restrictions on foreign investment in the mining industry, Chile and Mexico accept committed to grant non-discriminatory access to foreign investors in the exploration and production of minerals. The EU has also included post-investment protection chapters in its recent FTAs to constrain expropriation and ensure fair and equitable handling, every bit well every bit total protection and security for its investors.

Furthermore, to promote and diversify investment away by its companies in the extractive mineral sector, the EU has signed an investment facilitation agreement with Angola and memoranda of understanding (“
MOU
”) with Ukraine, Kazakhstan and Namibia. The old includes rights and obligations concerning the transparency and predictability of the existing investment framework in Angola. Information technology likewise streamlines investment procedures, including the impartial and objective administration of such procedures, and creates mechanisms for the parties to further cooperate on investment facilitation. These MOU create partnerships to promote cooperation and investment in mineral extraction and related infrastructure in the partner countries. They also encourage discussions to remove barriers to investment in the partner countries and facilitate these countries’ integration in the value chains of EU companies and the harmonization of regulatory frameworks. Similar MOU with other countries are also in the pipeline.

Cooperating with allies

Another approach taken by the EU to secure access to CRMs has been strengthening cooperation with allies. The Eu and Canada recently initiated, nether the augury of the European union-Canada FTA, a partnership to develop new projects and align fiscal back up for mineral extractions. The Eu has besides been discussing the issues of access to CRMs and the integration of their value chains in its Trade and Engineering Council with the US and volition exercise so in the future in a similar machinery recently established with Republic of india. The Eu is at present considering taking such cooperation mechanisms further as it has touted the thought of a critical raw materials club with agreeing trading partners, later on having already joined the Minerals Security Partnership gear up up by the U.s. concluding twelvemonth together with several other developed countries to bolster critical mineral supply chains for the advancement of make clean energy and other technologies.

Dreaming of cocky-reliance

Domestically, the European union has been actively working towards self-reliance for CRMs. This has involved the ongoing work on a Critical Raw Materials Human action which aims to stimulate finance for projects in the critical mineral sector (including besides those located abroad) and to cutting ruby-red tape for facilitating the evolution of such projects in the European union. This is to exist potentially complemented by a loosening of Country assistance rules vis-à-vis extractive and processing ventures as part of the EU’s proposed Green Deal Industrial Plan which would enable Eu Member States to finance projects with fewer hurdles.

Moreover, the EU is planning to further reduce its reliance on foreign minerals past encouraging recycling of minerals already present in its territory. While information technology is expected that the Critical Raw Materials Human action volition include recycling requirements, the recently agreed upon Batteries Regulation already include recycled content requirements that mandate an increasing amount of recycled minerals in new batteries over time.

Challenges ahead

The EU’s multifaceted approach to pursue more secure access to CRMs is a testament to its grave concerns about the growing domestic demand for such minerals, its heavy reliance on strange supplies and its vulnerabilities in global supply chains. Even so, the extent to which the European union’s approach may achieve a stable and sufficient supply remains to be seen. While the diversification of supply bases is essential, a handful of economies dominating the production of CRMs volition continue to cause fluctuations in the volume and value of these CRMs in the global market. This raises the question of whether it would exist politically desirable and diplomatically viable for the European union to pursue cooperation with China. Here, the ill-fated EU-People’s republic of china Comprehensive Agreement on Investment has a chapter on Investment and Sustainable Development which may be expanded to cover trade and investment in CRMs. Moreover, given Russia’south predominance regarding some types of CRMs, the Russian federation-Ukraine state of war, the sanctions imposed by a range of economies and Russia’s potential retaliation take disrupted the supply of CRMs from Russia to the EU. In addition, fifty-fifty with allies and FTA partners, commitments to cooperate exercise not make the EU immune to their ongoing competition for access to CRMs in foreign markets and potential tensions associated with dark-green, security and other policies. Finally, the EU’s attempt to heighten domestic supplies of CRMs may lead to increased mining activities at home which will have ramifications for its environmental agenda. The hereafter of the EU’s CRM security will thus swivel on how information technology overcomes these challenges ahead.