EuroWire April 2011 by Bertelsmann Foundation

Inspiring People. Shaping the Future.

WASHINGTON, DC 1101 New York Avenue, NW Suite 901 Washington, DC 20005 USA Contact: Tyson Barker Contact: Tyson E-mail: tyson.barker@bertelsmanntyson.barker@bertelsmann- foundation.org Tel: (+1) 202.384.1993 Tel: www.bertelsmann-foundation.org

BRUSSELS Résidence Palace Rue de la Loi 155 1040 Brussels, Belgium Contact: Thomas Fischer Contact: Thomas E-mail: E-mail: thomas.fischer@bertelsmannthomas.fischer@bertelsmannstiftung.de Tel: (+32 2) 280.2830 Tel: www.bertelsmann-stiftung.de/brussels www.bertelsmann-stiftung.de/brussels

EuroWire is a joint publication of the Bertelsmann Foundation offices in Washington, DC and Brussels. It connects Capitol Hill to European Union policy and politics and contributes to a common trans-Atlantic political culture. EuroWire is an occasional publication that highlights issues, legislation and policymakers relevant to the Congressional legislative cycle. This publication looks at the European Union from the point of view of Capitol Hill staffers and offers timely operational analysis.

The EU’s Developing Raw-Materials Diplomacy KEY POINTS • Since 2008, the European Union has been working to craft a more robust raw-materials-supply strategy, which was updated in February 2011. • The strategy comprises three pillars: 1) use of trade tools to diversify supply; 2) increased domestic exploration; and 3) recycling. • Concern regarding secure raw-materials supplies is of particular interest to industrial powerhouse Germany and has been heightened by tightening rare-earths supply from China.

As events in Japan and the Middle East widen the debate about the future of nuclear and fossil-fuel energy, the European Union (EU) is pushing forward with a strident campaign to raise the issue of raw-materials supplies. Over the past three years, Brussels has been sounding the alarm about market distortions in much-needed raw materials that are critical to Europe’s innovation economy and manufacturing base. In February 2011, the EU updated its comprehensive strategy for securing commodities and raw materials. The strategy builds on an earlier plan – the Raw Materials Initiative – from 2008 that focuses on a three-pronged approach for

securing supplies and price stability for raw materials. The prongs are: 1) greater diversification of supply and usage of trade tools to maintain open global markets; 2) redoubled exploration of domestic rawmaterials supplies within Europe; and 3) renewed focus on recycling and efficient allocation. Following a long-term study in 2010, the European Commission, the EU’s executive branch, also named 14 minerals as “critical” to the health of Europe’s manufacturing base. The Commission identified these minerals as being at “high risk for supply shortage in the next 10 years”. The EU simultaneously identified three metrics by

14 EU-rated “Critical Raw Materials” Antimony Beryllium Cobalt Fluorspar Gallium Germanium Graphite Indium Magnesium Niobium Platinum group metals Rare Earths Tantalum Tungsten

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which to categorize a mineral as critical: 1) high import dependency; 2) low substitutability; and 3) low recycling rate. These criteria are similar to those found in the Critical Mineral and Material Act of 2011 proposed in February by Inspiring Senator Mark Udall (Democrat-Colorado). People. Shaping the Future. There are also corollaries to the Commission’s raw-materials diplomacy. These include: • Environmental Impact: Regulations meant to mitigate the environmental impact of the EU’s extractive industries are being streamlined into the EU’s wider strategy to promote growth and competitiveness. However, many industry leaders, experts and conservative members of the European Parliament have criticized the EU’s REACH (Registration, Evaluation, Authorization and Restriction of Chemical Substances) legislation. They say the regulation risks cutting Europe out of mineral exploration and trade. • Next-Generation Talent: The Commission has launched education programs to train geologists and can work on mining BRUSSELS WASHINGTON, DC engineers who exploration and excavation. Résidence Palace 1101 New York Avenue, NW Rue de la Loi 155

Suite 901

1040 Brussels, Washington, 20005 USA • Development Complementarity: The Commission has stated that its development policy shouldDCbolster the security of supply by Belgium establishing Contact: Thomas Fischer Contact: Tyson Barker good-governance practices that include mining-taxation policy, technical assistance and rule of law.

E-mail: tyson.barker@bertelsmann- E-mail: thomas.fischer@bertelsmannfoundation.org stiftung.de • Waste from Electrical and Electronic Equipment (WEEE): The Commission is attempting collect 85 percent Tel: of captured materials Tel: (+1)to 202.384.1993 (+32 raw 2) 280.2830 during recycling processes. The Commission is committed to building on the recycling component amid pressure from the European www.bertelsmann-foundation.org www.bertelsmann-stiftung.de/brussels

Parliament and activists.

• Stockpiling: The Commission is considering an EU-wide stockpiling program for raw materials. However, no decisions have yet been made on this issue.

On the International Front The EU now includes explicit guarantees for market access to raw materials in its trade agreements, including its bilateral Free Trade Agreement (FTA) with South Korea. Brussels has also made access a pre-condition for Russia’s membership in the World Trade Organization (WTO). More broadly, the EU is aggressively pushing the issue of rawmaterial access in its strategic partnerships with other countries by interweaving the conditions into governmental and business agreements.

The EU is also looking more broadly at new sources of raw materials by contracting with countries such as Russia (magnesium), Brazil (niobium), India (graphite) and the Democratic Republic of the Congo (DRC). African mineral deposits are seen as key to the EU’s evolving raw-materials strategy with former colonial powers taking the lead in places such as Niger (France), the DRC (Belgium) and Angola (Portugal). Lastly, the 2011 French presidency of the G20 has attempted to draw more attention to the issue of price volatility in commodities markets and the ambiguous role that derivatives play in pricing and tight supplies. This focus, which includes agricultural commodities, has been called into question by major manufacturing countries, especially Germany, which see it as muddling the EU’s push for a strict and more full-throated raw-materials-based strategy.

Chinese Rare-Earths Policy: The Canary in the Mine? In a speech in 1992, Deng Xiaoping said: “The Middle East has oil; China has rare earth minerals.” China, which produces 97 percent of the world’s currently available supply of rare earths, reduced its export volume of them by more than 70 percent in the second half of 2010. The country has also begun to consolidate its control over the sector. It has reduced the number of domestic rare-earths companies from 400 to 100 and is nationalizing those remaining. Rare-earth technology is a critical component

in electric vehicles, optical fibers, certain circuit boards found in smart phones, and superconductors as well as in military hardware such as radar systems, satellites and night-vision goggles.

140 120 100 80 60 40

CHINA

20 0 1950

UNITED STATES OTHERS 1960

1970

1980

1990

2000

Source: “Global Rare Earth Metal Oxide Production - 1950-2006 (‘000s Tonnes)”, Russian Journal of Non-Ferrous Metals, Volume 49, Number 1 (2008), pp. 14-22.

2006

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Despite the name, rare earths, or at least light rare earths, are not rare. Large untapped supplies – particularly of light

Global Rare Earth Metal Oxide Production

rare earths – have been identified in Greenland, Mongolia, South Africa, and the US. However, heavy rare earths, those whose sources are mostly located in China, are also the most critical for next-generation technologies. They are the byproducts of complex mining processes that can often cause severe environmental damage during excavation. Observers have pointed out that supplychain discrepancies due to sudden resource vulnerabilities are sometimes masked by the production process. Often the end user, such as an automaker or a wind-turbine producer, is unaware of market volatility that could stifle the manufacturing process further upstream at the parts-manufacturing stage. European Commission, European Parliament, and EU member states have The

acknowledged that the viability of long-

term post-fossil-fuel energy sources and open, transparent and liquid markets cutting-edge innovation is at the mercy of in People. raw materials. Beijing the justified its Inspiring Shaping Future. the rare-earth supply chain. At the World reduction of rare-earths exports by citing Economic Forum Annual Meeting in the environmental impact of the mining Davos in January 2011, German Chancellor process that produces these minerals. Angela Merkel warned that not dealing with rare-earth market access and reliability Reinhard Bütikofer, a prominent German could endanger growth, particularly in member of the European Parliament the manufacturing sector. The Germans (Green) and the author of legislation on rare have brought the specter of raw-materials earths and raw materials, has warned that nationalism to the forefront of EU policy. disruptions in supplies of rare earths will BRUSSELS WASHINGTON, DC Palaceto become 1101 New Yorksnuff Avenue,out NW Europe’sRésidence That same month, the German government ambitions de laeconomy. Loi 155 Suite 901 and the German version of the Chamber the world’s leadingRue green But he Brussels, Belgium DChas 20005 USAcritical of 1040 of Commerce, the BundesverbandWashington, der been the EU administration’s Contact: Thomas Fischer Contact: Tyson Barker deutschen Industrie (BDI), were reportedly timidity in emphasizing policy tools other E-mail: tyson.barker@bertelsmann- E-mail: thomas.fischer@bertelsmannseeking exclusivity rights for raw-materials foundation.org than trade for securing sufficient stiftung.desupplies. and rare-earths concessions in Kazakhstan. He would like to see more focus recycling Tel: (+1) 202.384.1993 Tel: (+32 2)on 280.2830 Germany is the top European importer of and substitution. The current EU recycling www.bertelsmann-foundation.org www.bertelsmann-stiftung.de/brussels rare earths. rate for rare earths is less than one percent. Regarding trade, the EU has worked with the US, Mexico and other countries in the WTO to pressure China to maintain

Europe’s Next Steps and a Role for Congress The EU is anxious to work with the US, Japan and other major manufacturing hubs to guarantee access to raw materials. Brussels has signaled its willingness to seek WTO dispute settlements and is looking for more forthright dialogue in the OECD, the G20 and other multilateral forums on the security of raw-material supplies. US support, and in particular Congressional

attention to coordination with Europe on

raw materials and rare earths, will be key in 2011. The US Department of Energy released in December 2010 its Critical Minerals Strategy, which takes into account the EU and Japanese strategies.

move away from nuclear technology as a source of non-greenhouse-gas-emitting energy. Policymakers and markets have already indicated that this could increase demand for alternative energy-sourcing technologies. Such technologies use rare earths as central components.

In light of the Japanese nuclear disaster, many European countries will look to

Major Players in EU’s Raw Material Strategy

Angela Merkel (Germany) Chancellor

Antonio Tajani (Italy) Commissioner for Industry

Karel de Gucht (Belgium) Commissioner for Trade

Reinhard Bütikofer (Germany), Member of the European Parliament, lead on raw-materials policy in the European Parliament

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