Global resources, European confusion - time to re-think raw materials

For tomorrow, 26 January, the European Commission had announced to present a revised EU raw materials strategy. Based on the 2008 raw materials initiative, the new document was intended to provide an integrated European strategy around three key aspects: securing access to raw materials through undistorted international markets, promoting the supply of raw materials from European sources, and enhancing resource efficiency and recycling in order to be less relient on raw materials in general.

At virtually the eleventh hour, the presentation of the new strategy has been cancelled. There seem to persist grave differences between EU member states about which raw materials to address. Initially drafted to address such raw materials as metals, minerals, wood, and rubber, the scope of the strategy has now been extended to cover also commodities like farm goods. In addition, France had lobbied strongly for an inclusion of the role of financial speculation on commodity prices, a point that French President Nicolas Sarkozy plans to address in his country’s chairmanship of the G20.

The postponing of the presentation represents yet another embarassment in a month-long tug-of-war between different member states and various Commission directorates-general alike. Yet, it may come just at the right moment to take a step back and rethink the EU’s approach to securing the supply of raw materials.

Over the past few months, the tone of the international resource debate has become quite belligerent. China’s export restrictions of its rare earth deposits are only the most prominent example. The European Union together with the Unites States and Mexiko has already launched a case at the World Trade Organisation (WTO) against China. Now, the U.S. is threatening to go down the same route on rare earths. At the same time there is no progress on the Doha round of trade negotiations, as the G20 members had promised not so long ago. The danger, clearly, is that the world enters a spiral of protectionism way beyond raw materials.

The EU should thus assume leadership in framing the question of access to raw materials as a global rather than a national or regional one. Rarely is international interdependence so visible as it is with raw materials. Not a single country is self-sufficient: China may have a (temporary) monopoly on the production of rare earths. Yet it relies heavily on imports of iron ore, suffering as much as the European industry under the oligopoly of the three global miners Vale, Rio Tinto and BHP Billiton. Indeed, a better understanding of such mutual dependencies would help to prevent solo attempts, be it of member states or the EU as a whole, that damage all market actors in the medium to long-term.

The first step for the EU would be to devise resource partnerships that seriously take into account the interests of the exporting nations. While this instrument in principle features in the draft strategy, there is too little detail about how the EU would envisage such kind of cooperation with advanced countries that do not need infrastructure support in exchange for raw materials. Especially with countries like China, the transfer of technology may be the key to a more cooperative relationship, for which again both sides have to assure a reliable framework of intellectual property rights. In particular, cooperation projects in support of green technology might help to improve the social and environmental conditions of mining in China.

The second and more important long-term step, however, is to lay the foundations, through such a cooperative approach, of an international resource governance. Rather than trying to ‘win’ in individual WTO cases, the EU and the U.S. together, in the framework of the G20, should work towards a more equitable system of trade in raw materials. After all, there is no geological shortage of such resources. Instead, the barriers are of political (like export restrictions) or economic nature. (such as delayed investments). Overcoming these is what good policy is about. The EU – involuntarily – just bought itself some time to change course.