The EU has adopted its Critical Raw Materials Act (CRMA), aiming to diversify its supplies of these crucial inputs. This is an important step towards reducing dependencies that could threaten the EU’s green and digital transition and make it vulnerable to economic coercion. To succeed, this push for economic security should be linked to a stronger external agenda that aligns supply security with exporting countries’ industrialisation goals.

The return of geopolitical competition the EU has witnessed in the last few years has put raw materials back on the agenda. What started with China’s restrictions on rare earths exports to Japan in the 2010s has become all the more obvious in the aftermath of Russia’s full-scale invasion of Ukraine in 2022: The time when the EU could rely on well-functioning global markets for all of the commodities it needed is over, and overdependence on single suppliers comes with considerable risks in an age where trade increasingly becomes weaponised. Access to raw materials is critical for the EU – to fuel its green and digital ambitions but also to simply keep its economy going.

The CRMA sets clear goals for 2030: For the most strategic raw materials, the EU should extract at least 10% of its annual consumption domestically, process 40% of its annual consumption domestically, meet 15% of its annual need through recycling and import no more than 65% of its annual consumption from any single country.

Various tools have been put in place to help reach those targets, the main ones being easier access to finance for strategic projects inside and outside the EU and easier permitting for mining projects. There is a lot of unused potential inside the EU. However, the success of its raw materials policy hinges on its partnerships with third countries.

The EU cannot do it alone

The reasons for this are geographical and economic. Many of these materials simply do not exist under EU soil in sufficient quantities. Others can be found, but only in deposits that are expensive to exploit or where there are environmental concerns. The long-term decline of mining in Europe has multiple causes, and not all of them can or should be reversed.

In many cases, opening mines in Europe would simply not be efficient. In mining and processing, economies of scale are massive, as are the investments needed to build competitive industries. This does not mean that any attempt at de-risking is futile; it does mean that diversification through trade is preferable to “reshoring” in many cases.

The current trade environment is not particularly welcoming for these efforts, with a multilateral system in crisis and negotiations for bilateral trade agreements becoming more and more difficult. Challenges are not only linked to the weaponisation of trade: Demand for many raw materials is rising rapidly.

In a net-zero scenario, global demand for cobalt will triple by 2050, according to estimates by the International Energy Agency, and demand for nickel will double. In this market situation, producing countries are looking for ways to make the most out of their natural resources for economic development.

To promote domestic processing of their resources, they increasingly rely on export restrictions. For instance, Indonesia has restricted exports of unprocessed nickel, and Chile plans to nationalise its lithium industry. Many other exporters are interested in these examples. Historically, many of these countries have struggled to integrate into global value chains.

The lesson behind this is clear: The conventional “pit to port” model of extraction, which has become associated with uneven development and the “resource curse”is no longer attractive to resource-rich countries.

De-risking for development? Leveraging the synergies

The EU’s de-risking agenda needs to account for these concerns. In a context where global demand for many materials is skyrocketing, exporting countries’ bargaining position is better than ever – and they are being courted by a variety of actors, including the US, China, and Japan. This overlaps with the trend towards an a la carte world, where non-Western countries are increasingly assertive about their interests and selective regarding their partnerships.

Designing EU policies in tune with exporting countries’ interests is crucial, as is coherence with the EU’s development cooperation agenda and global strategy. On the trade side, some changes in thinking may be required, as the EU’s longstanding refusal of instruments like export restrictions and local content requirements clashes with third countries’ new interventionism. The EU’s new “green partnerships”, the first of which has been concluded with Morocco in 2022, are a step in this direction.

The biggest opportunity for the EU, however, is to identify and leverage synergies with these countries’ own plans and interests, especially regarding development through industrialisation. For instance, a recent study by ECDPM explores opportunities for African battery value chains.  If the EU can find reliable suppliers, it needs to produce less domestically – and supporting upstream processing capacities in producing countries could be a crucial piece of the puzzle.

Green industrialisation is not a zero-sum game, at least when it comes to economies that are specialised in vastly different parts of the supply chain. Based on this insight, the EU should explore synergies between its net-zero industry agenda and economic growth elsewhere and adapt its tools accordingly.

The EU’s intergovernmental tools are reasonably strong and diverse – its development cooperation, the Global Gateway Initiative, sustainable investment facilitation agreements and other instruments can serve to address context-specific bottlenecks, including lack of infrastructure, energy security or education and training, with tailored offers.

The EU’s offer is much weaker, on the other hand, when it comes down to concrete industrial projects. As a state-led economy, China can leverage its companies in ways that are not accessible to the EU, for instance, by building processing facilities in a country.

For the EU to become a stronger actor in this context, its private sector needs to show up more. This can be incentivised, for instance, through export credits, easier access to finance and tax rebates. All of these measures, however, can only be successful if more and bigger EU companies come to see the viable business opportunities these sectors present.

About the author

Etienne Höra is a project manager in the ‘Europe’s Future’ programme at Bertelsmann Stiftung. His focus lies on the EU’s trade policy in this geoeconomic age, as well as the consequences of China’s increasing assertiveness for the EU.

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