The EU depends on China to satisfy its demand for critical raw materials (CRMs), which are essential to the Green Deal. The EU’s reliance on Beijing is due to the quasi-monopoly China has on the rare earth element (REE) industry and its trade practices. However, the COVID-19 pandemic and the disruption of global supply chains have made Europe realized that it must minimize its dependance on China. With that purpose in mind, this post makes three recommendations to the EU. First, partner with the Biden Administration to secure a future supply chain. Second, use current trade agreements to create strategic partners abroad. Third, lobby the US and Japan to use the World Trade Organization (WTO) against China. The EU must adopt these recommendations urgently to become climate-neutral by 2050.
This post is divided into three sections. Section 1 gives a brief overview of CRMs and explains why China controls global supply. Section 2 examines the EU’s awakening to the necessity of raw materials. Section 3 outlines the three recommendations previously mentioned.
China’s Control of REEs
In 2011, the EU started publishing a list of CRMs, including REEs and other chemical components. The latest list, updated in 2020, consists of 30 materials essential to the EU economy and vulnerable to supply disruptions. The EU’s supply of CRMs is fragile and depends heavily on China, which provides 98% of REEs, according to a 2019 report of the European Commission. For geopolitical reasons, the EU has become increasingly worried about Beijing’s quasi-monopoly on the REE industry.
China’s reserves of REEs are estimated to be 36 million tons, or roughly 30% of the world’s total reserves, according to data from the U.S. government. Furthermore, since the 1990s, China has used its trade practices to keep prices low, which has made it difficult for other countries to compete. Aside from having a quasi-monopoly, China has proven that it is willing to use its geopolitical leverage to achieve strategic objectives. That goal was spelled out in 1992, when then-leader Deng Xiaoping said, “The Middle East has oil; China has rare earths.”
EU’s Awakening to the Necessity of Raw Materials
In 2008, the EU decided that it was time to reduce its reliance on China and announced a plan to increase domestic production for the first time. This change in strategy came at a time when Beijing decided to implement strict export quotas with the purported goal of reducing illegal mining. China’s policy caused prices to soar by hundreds of percent. Consequently, in 2012, the EU, the United States, and Japan brought a case against China before the WTO. They argued that restrictions gave Chinese companies a competitive edge in products like hybrid cars, wind turbines, and energy-efficient lighting. The WTO ended up deciding against China.
Nevertheless, throughout this period—and until recently—Europe tried to keep a balanced relationship with Beijing for economic reasons. However, when COVID-19 hit Europe and disrupted global supply chains, the EU realized it could not continue to rely on China. In the words of Thierry Breton, EU industry commissioner: “The era of a conciliatory or naive Europe that relies on others to look after its interests is over.” Those words meant that the EU had finally understood that it needed REEs not only to break China’s grip but also to defend its status as a dominant regional power.
On September 3, 2020, the European Commission launched a new strategy to secure access to REEs’ and diversify its CRMs supply. The Commission aims to partner with other resource-rich nations, such as Canada and Australia, and developing countries in Africa and Latin America, as well as those close to the EU, such as Norway, Ukraine, Serbia, and Albania.
- Partner with the Biden Administration to secure a future supply chain.
In this new era, the Biden Administration could become an essential ally for the EU, although it may take years or even decades for this alliance to be profitable. From the 1960s to the 1980s, the United States was the leader in producing and trading REEs, but environmental damage prompted the closure of many mines. During the 2020 presidential campaign, according to Reuters, now-President Biden privately told miners that he would boost the production of REEs as part of his plan for a green energy revolution. The U.S. has the material potential, and now also the political will, to become a partner for the EU.
- Use Trade Agreements to Create Strategic Partners Abroad
Apart from the partnership with the United States, the EU should also be looking at possible partnerships with Australia and Chile, both important countries from a raw material perspective. In this case, it must be noted that the EU is currently actively negotiating Free Trade Agreements with both countries. Therefore, the EU has the opportunity of using those agreements to ensure the supply of REEs while promoting higher environmental and labor standards in mining. That way, the EU would secure its CRMs supply without making environmental or social trade-offs somewhere down the line.
- Lobby the United States and Japan to Use the WTO Against China
Lastly, it could be argued that the EU needs the United States and Japan to defend global trade rules. Although China lost the WTO case about REEs, Beijing has continued to impose export restrictions. Consequently, since 2016, the EU has launched several WTO disputes against Chinese limits on materials such as cobalt, magnesia, talcum, chromium, and graphite. Now, the EU needs to convince Japan and the United States to join those WTO cases on the side of the EU. Together, they would be able to make a more assertive stance at the WTO, and lower barriers to the commerce of REEs.
In sum, the CRMs are a perfect example of the nexus between energy security and the environment. The EU needs to act urgently. Without REEs, Europe will not be able to be climate-neutral by 2050. Moreover, without REEs, it would be impossible for the EU to contain China and defend its status as a regional superpower.
Beatriz Pascual-Macias is a graduate student in the International Security MA program at George Mason University. She is also a reporter based in Washington, D.C., focused on foreign policy, energy, and security. She works at EFE, the leading international news-wire service in Spanish, covering the State Department. Beatriz is a member of Women in International Security (WIIS).
Photo can be found here.