On November 13, 2023, the Council of the European Union and the European Parliament reached an agreement on the Critical Raw Materials Act (hereinafter referred to as the “Act”), signifying a pivotal moment in the EU’s legislative journey towards erecting a foundational structure for green and digital industries. Yet, the EU’s quest for raw material autonomy and its ramifications concerning China warrant heightened scrutiny.
Establishing the foundational edifice for the advancement of nascent industries
For an extended duration, the EU’s indigenous resources and energy reservoirs have failed to suffice for industrial exigencies, with substantial reliance on foreign imports becoming customary. The EU has harbored longstanding apprehensions regarding the potential vulnerabilities associated with this trajectory. In 2008, the European Commission articulated the EU’s profound reliance on imports of “strategically vital raw materials.” Since 2011, the EU commenced the periodic publication of a compendium enumerating critical raw materials, revising it every triennium. Concurrently, in tandem with the rapid evolution of the global digital and green sectors, the demand for raw materials within the industry has burgeoned precipitously. Consequently, the EU’s roster of critical raw materials has expanded in both length and significance, mirroring an augmented emphasis on issues pertaining to resource provisioning. Simultaneously, against the backdrop of digital and green technologies assuming an increasingly instrumental role in the metamorphosis of burgeoning industries, the military technological paradigm shift, and even the fluxes in the power dynamics among major geopolitical entities, ensuring the stable provisioning of pivotal raw materials has assumed heightened geopolitical salience. Consequently, the EU has articulated a strategic imperative to fortify its stance on critical raw materials, with such discourse gradually permeating mainstream policy narratives.
The Act constitutes a pivotal component of the EU’s “Green Deal Industrial Plan,” envisaging fortifying the security of key raw material provisioning through multifaceted domestic and international endeavors, encompassing the development of extraction and processing capabilities, the establishment of a raw material supply evaluation and analysis apparatus, and the facilitation of international collaborations within the raw material supply chain. The Act is underpinned by four overarching policy pillars. Primarily, it delineates the objective of bolstering domestic mineral provisioning capabilities. By 2030, the mining, processing, and recycling of 16 strategic raw materials within the alliance are envisaged to meet 10%, 40%, and 15% of the total demand, respectively. Furthermore, quantifiable targets for raw material recycling are slated to be stipulated annually, commencing from 2027. Secondly, it advocates for the reinforcement of the dynamic assessment of raw material provisioning scenarios. The Act enumerates 34 key raw materials and 16 strategic raw materials identified by the EU, with commodities such as aluminum and synthetic graphite classified as strategic raw materials. The European Commission is tasked with compiling an evaluation report on the demand for strategic raw materials over the ensuing 30 years, within 18 months subsequent to the Act’s formal enactment. Thirdly, it endeavors to forestall the over-concentration of provisioning sources. The EU explicitly proffers that no third country shall be permitted to supply strategic raw materials exceeding 65% of the alliance’s requisites. Fourthly, it seeks to incentivize the cultivation of resource management capabilities. The Act abbreviates the approval timeline for mining, recycling, processing, and analogous projects, mandating that the approval duration for mining projects not exceed 27 months, while for recycling and processing projects, it shall not surpass 15 months. Moreover, it mandates that large enterprises conduct periodic risk assessments pertaining to their strategic raw material supply chains.
Judging from the rudimentary tenets of the Act, the EU endeavors to secure the stability and resilience of the critical mineral supply chain, ensuring that impediments arising from raw material scarcities do not impede its green and digital metamorphosis, and even its military security aspirations. Concurrently, it aspires to augment the EU’s competitive edge and productivity across pertinent resource and energy sectors, ultimately buttressing its “strategic autonomy” across industrial, economic, and geopolitical realms. Moreover, the Act has elicited affirmative responses from several prominent corporate entities. Entities such as Germany’s Siemens Gamesa, Sweden’s Boliden, and Rio Tinto from the United Kingdom posit that this framework assumes a pivotal role in nurturing the resilience of the EU’s indigenous raw material repertoire.
Numerous challenges beset the realization of this vision
The Act encapsulates the EU’s strategic schemata predicated upon the emergent economic and technological paradigms, alongside its indigenous mineral requisites, emblematic of its proactive engagement within international arenas and competitions within allied domains. However, juxtaposed against the EU’s intrinsic resource endowments, extant industrial development status, and the extrinsic resource geopolitical milieu, manifold challenges impede the materialization of this vision.
Primarily, internal resistance towards the EU’s self-sufficiency in resources persists. On one front, the resource endowment of the European landmass egregiously falls short of meeting its industrial imperatives, while on the other, nations such as Portugal (lithium ore), Finland (nickel ore), Belgium (arsenic), and France (hafnium) harbor latent resources. Nonetheless, within the EU, particularly among environmental conservation agencies and non-governmental entities, lingering apprehensions persist regarding the purported trade-offs vis-à-vis environmental, labor, and other normative benchmarks entailed by industrial proliferation. Instances in Germany, France, Portugal, and other locales wherein projects encountered local protests, advocating for the cessation of correlated developmental endeavors, underscore such discordance.
Secondly, the EU confronts constraints in fostering international collaborations. Presently, nations predominantly prioritize the strategic significance of pivotal minerals, albeit voicing concurrence with international mineral cooperatives. Nonetheless, primacy is accorded to maximizing national interests, underpinning a surge in resource nationalism and protectionism. The U.S.’s “Inflation Reduction Act” conspicuously delineates that solely mineral products originating domestically or from nations with which it has ratified trade compacts are eligible for subsidy dispensation. Despite the EU forging cooperative accords with the United States, pertinent commodities continue to encounter discriminatory subsidy practices. While Latin American and African nations abound in resources, they eschew assuming the role of mere raw material purveyors for developed nations, insisting that collaborative ventures with advanced economies stimulate their indigenous industrial advancement, thereby impeding the cooperation process between the EU and related entities.
Thirdly, considerable ambiguity shrouds the EU’s financial backing. The EU necessitates substantial investments across various key raw material domains, and European conglomerates are mandated to allocate substantial funds towards infrastructure, technological research and development, and mineral exploration endeavors in third-party territories across commensurate domains. Such imperatives necessitate robust public financial assistance from the EU and member states. However, escalating economic pressures concomitant with an uptick in fiscal deficits engender trepidations. Simultaneously, the EU is compelled to perpetuate expenditures to navigate challenges pertaining to aid allocations towards Ukraine, Palestine, Israel, refugees, energy subsidies, etc. Investments earmarked for future endeavors such as green and digital transformations risk dilution. Ergo, augmenting support for key raw material ventures may not be forthcoming.
China and Europe: Partners in consolidating supply chains stability
Undoubtedly, the EU’s promulgation of the Act has imparted a nuanced impact on China-EU collaboration within the raw material supply domain. Objectively, China emerges as a pivotal supplier of certain critical raw materials to the EU.
China currently furnishes the EU with 85% of light rare earth elements encompassing cerium, lanthanum, neodymium, praseodymium, and samarium, alongside 71% of gallium and 67% of scandium. The preponderance of certain heavy rare earth elements is even more pronounced, thereby prompting the EU to flag an “excessive reliance” on China for critical mineral provisioning. The Act, to a certain extent, regards the China-EU raw material trade nexus as a salient concern. Concurrently, it stipulates thresholds concerning the proportion of raw material provisioning from third countries to the EU, besides advocating for international raw material supply collaborations, thereby ostensibly diluting extant cooperative dynamics between China and Europe.
In reality, the global trade dynamic vis-à-vis critical raw materials is substantially influenced by factors such as supply-demand dynamics, comparative advantages, and industrial division of labor. The proximate raw material trade nexus between China and the EU epitomizes an economic calculus predicated upon cost-benefit imperatives espoused by EU enterprises. China harbors no designs on consolidating its stature as the preeminent supplier of raw materials to the EU or other nations. Certain measures promulgated by the Act to “attenuate absolute dependence” may inadvertently precipitate political encroachments within the global supply chain framework, predicated upon market-driven economies, thereby engendering escalated costs and supply chain instability. From a Chinese vantage, China evinces a willingness to engage in policy deliberations with the EU concerning the stability of the critical raw material supply chain. At the 24th China-EU Leaders’ Meeting convened in December 2023, China mooted the prospect of instituting a China-EU early warning mechanism vis-à-vis critical raw materials, thereby fostering a stable and mutually trusting partnership within the supply chain domain. Solely through the concerted endeavors of China and the EU, predicated upon a constructive resolve to espouse peace, spur development, and espouse an inclusive and open posture, can the global energy resource governance apparatus be imbued with enhanced stability and predictability.