The great global tussle for minerals to feed the green transition is well under way. Rare earths, lithium, cobalt, nickel: the big economies are competing fiercely for the raw materials critical to their industrial transformation.
Given that many are mined in developing countries — cobalt in the Democratic Republic of Congo, nickel in Indonesia — it’s not fanciful to hear echoes of the race for raw materials (spices, cotton, rubber, ivory) that drove European imperialism in previous centuries. Uncomfortably, the EU has already been called neocolonialist by countries such as Malaysia and Brazil for using trade policy to impose its views on how they manage their forests.
Perhaps wisely, some in the EU are trying to tread delicately to secure minerals. Its recently announced Critical Raw Materials Act talks of alliances and collaborations with producers. And a recent trade deal with Chile shows Brussels shifting tactics a little to portray itself as a development partner rather than a neocolonial extractor.
In sourcing raw materials, European manufacturers say they encounter two types of competitor with unfair advantages. One is the producer country’s mineral processors and manufacturers, to whom the government or a state-owned mining company diverts output at lower prices than it sells to the world market. The other is China, which dishes out subsidised infrastructure and other freebies in return for privileged access to raw materials.
Europe doesn’t have China’s ability to throw subsidy cash around — certainly not at an EU-wide level. These days Brussels is armed mainly with trade law, which is slower and less effective than the European gunboats colonial powers deployed in earlier centuries.
That law struggles to ensure open trade in raw materials. There are few World Trade Organization constraints on export taxes or price controls. Despairing of its attempts to add such laws to the general WTO rule book, the EU has tried to write them into whatever deals it can. As a condition of mineral-rich Kazakhstan joining the WTO in 2015, for example, Brussels insisted on rules preventing Kazakh state-owned enterprises using differential pricing to supply domestic industries cheaply.
The EU has added similar provisions into its preferential trade agreements. The latest is Chile, whose 2002 bilateral deal with the EU was updated last December. The world’s second-biggest producer of lithium, used in car batteries and other green tech, Chile supplies more than 80 per cent of the EU’s total demand for the metal.
Chile has a relatively liberal economy, but state control over mineral resources is politically highly sensitive. The socialist president Salvador Allende nationalised foreign copper-mining companies in 1971, antagonising the US, which supported the military coup that overthrew him two years later. Chile has also long wanted a value-added downstream domestic industry, processing and using lithium.
Gabriel Boric, the leftist president who took power in Chile in March last year, is alert to accusations from his supporters of giving in to neocolonialism — he has proposed a state-owned company to direct lithium production. But his administration surely has to be aware of balancing national autonomy with the need for investment and expertise from foreign companies.
In next-door Bolivia, which has the world’s largest lithium deposits, state-led production has woefully underperformed. Chile itself has failed to invest enough to capitalise properly on the global boom in lithium demand and prices, and has lost market share to Australia and China over the past decade.
In talks updating the bilateral agreement, European Commission negotiators initially made no concession to local sensitivities and went in with the standard hardline approach. They demanded no price differentiation between exports and domestic sales, and equal treatment for all export customers. They assumed that the attraction of more access to the EU market overall would persuade Chile to agree. But when Chile pushed back, arguing for reserving some cheap lithium for domestic use, it had backing from some EU member states and members of the European parliament. Ministers and MEPs argued that Europe needed to offer minerals exporters a less coercive and more sympathetic proposition to compete with China.
Ultimately, Chile and its allies inside the EU were moderately successful. The revised deal allows some lithium to be sold more cheaply to domestic industry, based on the lowest recent level reached by export prices. It’s not a huge loophole, but it’s certainly a softening of the commission’s ideology. When Olaf Scholz, the German chancellor, visited Chile in January, he projected a narrative based on partnership. Scholz offered German investment in Chilean lithium production and development rather than speaking just as an export customer.
This slightly more nuanced approach is not guaranteed to build a Chilean value chain, nor to get Europe the minerals it needs. It’s only a small concession, and Chile still has problems with investment and industrial capacity. But it certainly shows the EU beginning to learn a subtler and more sensible approach to sourcing its critical minerals than risking accusations of colonial arrogance by demanding raw materials without enough in return.