Eager to cut China dependence, EU eyes processing 40 per cent of its strategic raw materials by 2030
Originally posted on scmp.com
The European Union wants to process 40 per cent of the strategic raw materials it uses by 2030, as it looks to slash its dependence on China for the minerals that will power industries of the future.
It also aims to ensure it will not rely on third countries for more than 70 per cent of any of 30 critical minerals, according to a leaked proposal to be unveiled next Tuesday and seen by the South China Morning Post.
The moves come amid a surge in anxiety about Europe’s dependence on China and other autocratic states for inputs that are essential to achieving its environmental and technological transition goals.
The lists of minerals include cobalt and lithium used in advanced batteries, scandium and vanadium used in aerospace equipment and weaponry, and gallium and germanium that are used to make semiconductors.
Also on the lists are the light and heavy rare earth elements that are dominated by China, which either mines or processes the vast majority of the global supply.
Of the rare earth minerals used in Europe, 98 per cent come from China, according to Brussels’ own statistics. These are essential to ramping up solar and wind power facilities and charging up electric vehicles and other smart devices that the EU sees as critical to its industrial development.
As well as having abundant domestic supplies for some materials, Beijing has become a dominant exporter of processed minerals, hoovering up mines that churn out critical metals like lithium and cobalt across Africa, Australia and Latin America.
The coronavirus pandemic and Russia’s invasion of Ukraine have stoked suspicion across the West that such dependencies can be weaponised.
In Brussels and beyond, the debate has turned to how Europe can rival China for such concessions.
This has given fresh impetus to free-trade deals with resource-rich countries such as Australia, Chile and Thailand, and to discussions about “strategic partnerships” with countries like South Africa and the Democratic Republic of Congo, home to some of the largest mineral reserves on earth.
“For some raw materials, the [EU] is almost fully dependent on a single foreign supplier,” according to a draft of the Critical Raw Materials Act.
“Such dependencies can create a high risk of supply disruption, as was the case when the Chinese supply of magnesium was cut off in 2021, which at that moment represented around 95 per cent of the union’s supply of magnesium,” it continued, referring to a metal commonly used in the automotive supply chain.
Despite consuming 30 per cent of all metals and minerals mined globally, the EU produces just 3 per cent itself.
By cutting red tape, speeding up licensing and extending funds, it hopes that by 2030 it can mine 10 per cent of its own supplies within its own borders. A further 40 per cent would come from ores and minerals sourced around the world but processed in Europe, while an extra 15 per cent would come from recycled metals.
It will establish a central purchasing agency that would gauge needs among its member states and industries, before buying in bulk and distributing accordingly. The EU also aims to stockpile critical materials in case of future emergencies.
The bloc also hopes to combine resources with allies.
European Commission President Ursula von der Leyen is expected to strike a limited trade deal with US President Joe Biden in Washington on Friday that would give EU firms access to Biden’s flagship green bonanza, the Inflation Reduction Act (IRA).
She is also hoping to advance “a critical raw materials club” that would entail transatlantic cooperation to help shore up supplies.
“We see today that, for example, China produces 98 per cent of Europe’s supplies of rare earths. And Europe needs to de-risk this dependency. This is of course immediately the reason why Europe seeks to work together with trusted partners,” von der Leyen said on a visit to Ottawa this week.
She noted that Canada was the only northern hemisphere country “with all the raw materials needed to produce lithium-ion batteries”.
Noah Barkin, managing editor at think tank Rhodium Group’s China practice, said the EU-US deal would “kill two birds with one stone”.
“It alleviates EU concerns about the IRA by broadening the definition of local content and it sends a broader signal about transatlantic cooperation on green technology supply chains,” Barkin said.
“It is not a miracle solution for addressing deep dependencies on China for critical raw materials. But if this agreement can be extended to other like-minded countries, it maps out a path for collective action in reducing those dependencies over time,” he added.
However, it could be years before the EU’s act becomes law.
After the commission makes its proposal next week, the European Council and Parliament will come up with their own versions, after which they will try to land on a negotiated text that could take years to reach.
It should, in theory, be well received in both chambers. Governments and lawmakers in recent months have been publicly fretting about how to wean Europe off Chinese resources and technology.
Meanwhile, Chinese tech companies have suffered a spate of setbacks over the past fortnight.
Short video app TikTok was banned from use on work devices at the EU institutions in February. On Wednesday, it was labelled a “security threat” in the Czech Republic.
“The amount of data being collected and handled, combined with the legal environment in China and the growing number of users in the Czech Republic, leaves us with no choice but to label TikTok a security threat,” said Lukáš Kintr, director of the country’s cybersecurity office.
In Germany, media reports said the government was on the verge of banning Huawei Technologies and ZTE equipment from certain parts of the country’s 5G network.
The Dutch government announced this week it would block shipments of equipment used for making microchips to China, freezing Beijing out of some of the high-end photolithography machines made by market leader ASML.
The need to rival Beijing for securing resources has also led officials to adopt more muscular language when discussing the EU’s much-maligned infrastructure drive, Global Gateway.
“It’s geopolitics on steroids, with a vengeance,” said a senior EU official briefing journalists following the announcement of 87 initial projects in Brussels this week.
Brussels had been approached by governments in countries for which Chinese companies had built roads and highways that were “swept away by the rain”, the official said, describing a gap in the market that the EU hoped to fill.
“Chinese companies build ‘fast and solid’, but that is not sustainable in the medium and long term and it puts in danger the financial sustainability of countries that now come to us,” the official added.
