Not everybody can have all of the raw material supply chain

The FTA negotiations experienced a setback earlier this week when Australian trade minister Don Farrell deemed the agricultural market access offered by EU negotiators to be insufficient – and subsequently headed back to Canberra.

While the main point of conflict concerns agricultural market access, the disagreement around double pricing is highly significant for the EU’s critical raw materials policy.

The EU would like to have access to Australian raw materials under the same conditions as Australian consumers and therefore wants Australia to commit to a policy that would prohibit so-called double pricing that disadvantages EU companies compared to Australian ones.

One of these policies is the regional government of Western Australia’s policy of reserving 15% of liquified natural gas (LNG) production from each LNG export project for the domestic market, which reduces prices for domestic gas consumers.

From a European perspective, insisting on this issue makes sense. Even more so, given the fact that the European Commission proposed the EU build up the processing capacity of at least 40% of its need for processed strategic materials by 2030 in its Critical Raw Materials Act (CRMA).

The current number is far from this target, as the chart of the week below shows, and EU member states want an even higher target of 50% in their negotiating position for the CRMA.

If the EU is to build up this processing capacity and if this nascent European industry is to be competitive, it needs to be supplied with reasonably priced raw materials.

However, the EU Commission wants the CRMA to be more than just a policy to guarantee the supply of critical raw materials. The EU wants to be an alternative to other actors, who just extract valuable resources and leave the countries of origin with the problems that a dependence on mining entails.

The EU wants to help third countries develop their industries along the value chain, so that they can have more value-adding activities than just raw material extraction.

Already, it’s a bit difficult to see how the EU wants to combine a massive ramp-up of domestic processing capabilities with an additional escalation of processing capabilities in other countries. However, given that the idea of the CRMA is to be much less reliant on China, maybe it is possible to