The European Union is getting raw materials policy right (ish) 2 June 2011
The EU has a unique strategy for tackling access to increasingly rare raw materials in the global economy argues Tyson Barker
Handle with care: europium, the most expensive rare earth element. Photo: Wikimedia Commons
Demand and supply in the energy sector have long been a hallmark of relations between states. But ominous signs have recently pointed to an expansion of state control over other sectors of vital global interest. A scramble for raw materials reflects the emergence of natural resources as instruments of industrial policy. Rare earth elements, crucial to the high-tech sectors of many Western countries, are the latest precious materials to be wielded as political weapons. Japan fell victim to the power of raw materials as a political weapon after a maritime spat with the China in September 2010 led Beijing to impose a de facto Chinese embargo on rare earth minerals exports to Japan. This action had a knock-on effect in Europe and the US after China extended those restrictions globally. Given Beijing’s near monopoly on current rare-earth
production, that move now threatens many critical growth industries. The “rare” scare has launched a debate about raw materials that are key to production and maintaining access to them. Japan has responded by pursuing a multi-vectored strategy to guarantee that it is not starved of the raw materials that are the building blocks of its industrial base. But for all Japan’s concern, it is the Europeans, led by the Germans, who have begun to cobble together the most comprehensive long-term strategy for securing rare earths and raw materials. Perhaps the success of the European strategy on rare earths has to do with its compelling narrative—a thrilling mix of the rise of China, green technology, smart phones, the near monopoly and exploding global demand. But whether or not the rare earth scarcity phenomenon is a fad, it is instigating a wider discussion about the future of raw materials more generally. Europe has had the foresight to lead this discussion. Raw-materials policy shows what the European Commission does best: an ability to forge consensus across sectors and member-states on an issue that reflects its technocratic zest for long-term strategies. In February this year, the European Commission updated its comprehensive 2008 Raw Materials Strategy that identified 14 critical raw materials and laid out priorities for using trade tools to diversify supply, increase exploration within Europe and increase recycling. Most interestingly, the strategy includes external-relations tools such as the power of Free Trade Agreement negotiations, strategic partnerships and even development policy to promote open trade in raw materials with partner countries such as Congo, Mongolia and Angola. Some experts in Brussels have criticized the Commission’s wide scope. They believe the strategy does not establish clear priorities among those raw materials indentified as critical. They also criticize a last-minute decision, at the behest of Paris, to add commodities—including agriculture products. With an eye to the presidential elections in 2012, the Sarkozy government wanted to galvanize debate in the G20 about the instability of agricultural commodity prices, thrash the financial industry for market uncertainly and drum up easy political capital by pandering to rural constituents. While it is true that this last-minute manoeuvre was unseemly, it also has its advantages. By tying together its raw-materials and agricultural-commodities strategies, the Commission, perhaps unwittingly, identified the need for similar approaches to tackling the issues of access to supply, speculation and diversification. Going forward, the Commission must be vigilant that the emerging resource strategies in member states like Germany, the Netherlands and Finland are consistent with the principles of open market competition and with the EU’s strategy as a whole. It must also back up the broad policy concepts outlined in the Raw Materials Strategy with concrete targets and a budget for implementation. Across the Atlantic, the United States is playing catch-up as Washington deliberates securing its raw-materials supply chain. The Department of Energy under the leadership of Assistant Secretary David Sandalow released its first overarching report on American vulnerability to supplies. But the Department’s approach is narrowly focused and excludes other relevant agencies such as the Departments of Commerce, Defense and State. The Department of Defense,
meanwhile, has dropped the ball by not calling greater attention to the national security dimension. The Pentagon decided against doing that despite noting that much sophisticated military hardware - from missile-guidance systems to night-vision goggles - relies on rare-earth components. While there are some measures under consideration in Congress, there has not yet been a significant push for a sustained strategy that would encompass raw materials. The United States has yet to start thinking about using its significant economic and political weight to guarantee open markets for raw materials. On this issue, Washington could look to Brussels for ideas.