EN Official Journal of the European Union C 318/76

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — Tackling the challenges in commodity markets and on raw materials’

COM(2011) 25 final

2011/C 318/12

Rapporteur: Mr ZBORIL

Co-rapporteur: Mr GIBELLIERI

On 2 February 2011 the European Commission decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, on the

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Tackling the challenges in commodity markets and on raw materials

COM(2011) 25 final.

The Consultative Commission on Industrial Change, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 June 2011.

At its 473rd plenary session, held on 13 and 14 July 2011 (meeting of 14 July), the European Economic and Social Committee adopted the following opinion by 142 votes to 4 with 3 abstentions.

1. Conclusions and recommendations

1.1 EESC welcomes the Commission document COM(2011) 25 final ‘Tackling the Challenges in Commodity Markets and on Raw Materials’ and The European raw materials' initiative (RMI) as an important step to tackle this vital issue.

1.2 Although there is no reason to believe that there exists any danger in the long term of global depletion of stocks of any vital critical raw material, a real threat of shortages in short term exists. Such shortage can be triggered by political or economic factors, if some raw materials, necessary for EU high tech production are only produced in few countries. The resources which could be used to alter the present supply are in sufficient volumes and could be extracted in several countries, e.g. Australia, Denmark (Greenland), USA; but nowadays, it is much cheaper to rely on the current supply chain. Some of the countries have already shown they would use such influence to impose their economic or political interests.

1.3 EESC thus urges the EC to monitor the situation in international trade of critical raw materials (as listed in COM(2011) 25 final and with regular updating of this list). EESC recommends preparing several plausible scenarios, with the worst case one, to describe the threats and potential solutions. In addition, we endorse the need of continuing in negotiation at the international level (WTO) to promote free trade also in commodity markets. Cooperation with other countries in the similar situation (US, Japan, South Korea) should be enhanced.

1.4 The EESC urges a more active foreign policy regarding security of raw materials for EU Industry. For this purpose key guidelines of raw material diplomacy should be defined and agreed between member states. Bilateral trade agreements and diplomacy are of utmost importance to secure the critical raw materials for EU based industry. These represent an immediate and tough challenge for the newly established EU diplomatic service. There needs to be not only a direct focus to secure the vital raw materials but also to create a positive environment for EU interests in target countries. The fact that EU is among the world's most popular and important markets have to be exploited.

1.5 The raw material policy must form an integral component of the EU industrial policy:

— To promote the resource efficiency of both primary energy sources and raw materials towards de-coupling growth from consumption of resources.

— To have a consistent policy of urban mining that aims to recover and to make available such a resource of valuable raw materials and to promote the new skills and jobs related.

— To strengthen the research and development about the possibilities of substitution of the critical raw materials.

— To maintain and increase employment in the European extractive sector ensuring continuous education and training of the workforce, accompanying the transition to more sustainable extractive activities by the social dialogue at all the levels.

1.6 EESC thinks that the creation of a strategic stockpile of critical raw materials is among the potential solutions and recommends that an impact assessment be carried out to establish the feasibility of such possibility in the light of the worst case scenario. Such measure could have also negative side effects (e.g. not sufficient flexibility, impact to the price of the commodity, etc.), and must be carefully studied and consultations held and decisions taken with EU industry representatives.

1.7 EESC recommends launching initiatives to support research, data collection and monitoring focused on the current or potential raw material resources in the Member States but also in third countries. The data obtained from such a research or data collection, which were obtained with public money support, have to be accessible for all EU market players and EU and national authorities.

1.8 The Committee considers research and innovation to be a crucial factor of the Raw material policy. Successful advancement needs involvement of the main manufacturing sectors (ETPs – partnership initiative on raw materials in the framework of the EC Communication ‘Innovation Union’). Raw Material policy must be reflected as a priority of the forthcoming 8th Framework Programme for research and innovation in the EU.

1.9 EESC recommends supporting current or new raw material extraction in the Member States, which conforms to the EU environmental, social and health and safety legislation. The domestic supply should be among the pillars of all raw material policies.

1.10 EESC supports recycling of raw materials and underlines the necessity to secure the highest level of recycling rate, where it is economical and technically feasible. EESC recommends supporting extraction from old mining waste, which contents a significant volume of a rich spectrum of different metals.

1.11 The Committee supports the European Commission's measures to regulate the financial commodity markets aimed at improving transparency, enhancing the quality of information and improving oversight mechanisms.

2. The Commission document, introduction

2.1 The Commission published the document COM(2011) 25 final Tackling the Challenges in Commodity Markets and on Raw Materials on 2 February 2011. The document is enlarged against the initial intentions to cover the challenges of raw materials. The commodity markets both the physical ones where materials are traded and the financial markets derived from them are also covered now.

2.2 A commodity is any product with a low value added and thus very sensitive to price competition. Raw materials, agricultural products and basic goods are commodities. Commodity markets have seen increased volatility and unprecedented movements in prices in recent years.

2.3 While the debate on the relative importance of the multiple factors influencing commodities prices is still open, it is clear that price movements across different commodity markets have become more closely related, and that commodities markets have become more closely linked to financial markets.

2.4 The years 2002 to 2008 were marked by a major surge in demand for raw materials, driven by strong global economic growth, particularly in emerging countries such as China, India and Brazil, but also in other smaller emerging countries in Asia, America and, particularly, in Africa. This increase in demand will be reinforced by the further rapid industrialisation and urbanisation in such countries.

2.5 Beyond commodity price volatility, in recent years, some countries have introduced restrictions on the export of certain vital raw materials such as rare earths (for instance praseodymium and neodymium and some other elements and minerals that are considered important because of their increased use in new technologies). These restrictions, as well as other bottlenecks in the sustainable supply of raw materials, pose a real challenge for European industry and consumers and need to be tackled.

2.6 The Communication describes developments in global commodity markets explaining changes on physical markets (energy, agriculture and security of food supply, and raw materials) and growing interdependence of commodities and related financial markets. EU policy responses are highlighted in the same logical structure.

2.7 At EU level, there has been an initiative to increase oversight, integrity and transparency of trading in energy markets. There have also been a number of initiatives to improve the functioning of the food chain and transparency on agricultural commodity markets. As part of the ongoing reforms of the regulatory framework for financial markets, the Commission has also identified measures to increase the integrity and transparency of commodity derivatives markets.

2.8 The European raw materials' initiative (RMI) is a crucial part of the document. It is based on three pillars:

— ensuring a level playing field in access to resources in third countries;

— fostering sustainable supply of raw materials from European sources;

— boosting resource efficiency and promoting recycling.

It examines results to date on identifying critical raw materials, and in the areas of trade, development, research, and resource efficiency and recycling.

2.9 While significant progress has been made in implementing the RMI, further improvements are necessary. An integrated approach based on the three pillars is essential, as each contributes to the objective of ensuring a fair and sustainable supply of raw materials to the EU.

3. General comments

3.1 The EESC acknowledges the Commission initiative to address the raw materials issue and the communication summarising the results of extensive analytical work on this topic. We also appreciate reflections of the stakeholder's consultations and contributions of other EU bodies involved.

3.2 Europe has to take its place in a new world where emerging economies will consume a greater proportion of raw materials available on earth, in the same way as developed countries. We know that's impossible and Europe has to lower its raw material intensity. The first manifestation of that reality is that the industrial raw materials' prices are determined by the Chinese market which is the major consumer in the world and often at the same time the first producer. The consequence of that domination is the creation of new raw material markets (spot and futures) in China in the coming years. These markets are more and more the sector's reference.

3.3 The raw material policy must form an integral component of the EU industrial policy:

— To promote the resource efficiency of both primary energy sources and raw materials towards de-coupling growth from consumption of resources.

— To have a consistent policy of urban mining that aims to recover and to make available such a resource of valuable raw materials and to promote the new skills and jobs related.

— To strengthen the research and development about the possibilities of substitution of the critical raw materials (Japan has already launched this type of programme).

— To maintain and increase employment in the European extractive sector ensuring continuous education and training of the workforce, accompanying the transition to more sustainable extractive activities by the social dialogue at all the levels.

— The raw materials' procurement policy in developing countries, especially in African countries has to be coupled with investment in social matters and infrastructures in these countries (as China does in Africa in the recent years).

3.4 On the other hand, inclusion of the commodity markets and even financial markets somewhat, distracts focusing the Communication. The Committee understands the necessity of having a broader picture of the issue. The question is, if the framework was set in a proportionate manner.

3.5 It is obvious, that commodity markets, both physical ones and commodity derivative markets show numerous similarities, but they are very much differentiated, also due to their inherent specifities. A block (EU) purchase power should be a very strong argument while specific trade policy and procurement negotiations are performed on a bi-lateral level, mostly.

3.6 A common EU strategy is clearly needed to be reflected in the bi-lateral negotiations, thus, a concept of raw material diplomacy must gain the ground in practical terms. The EESC cautions that besides the ‘hard facts’ also ‘soft’ issues, like creating the positive emotional environment, would play an important role. Europe must define key guidelines of new raw material diplomacy that need to include:

— pursuit of the Tony Blair initiative for transparency in the extractive industries (2003) to promote the voluntary signature of each European country;

— a requirement that each extractive enterprise, which is listed in the European stock exchange has to publish its profit country by country (like Hong Kong did in June 2010);

— adoption of a law to oblige the extractive industry to publish what they pay at each government and state (as United States adopted the Dodd-Frank law in 2010);

— observance of the OECD guidelines for multinational large corporations as a standard Code-of-Conduct; and

— adoption of the ISO 26 000 standard helping to progress to a higher level of social responsibility of the enterprises at the micro-economic level should be requested.

3.7 The focused raw material strategy should aim at a common goal – to have a strong, highly competitive industry, operating in Europe, achieving not only high carbon efficiency, but also making intelligent use of resources, and geared to meet the requirements of EU consumers and citizens.

3.8 Our region is becoming smaller and smaller on a global scale, and therefore, we cannot access as easily as we used to the raw materials we need, since many others have come to need them as well. So, we need to be twice as smart in using the raw materials that we have available, or that we source elsewhere. A raw material policy is indeed about the future of our society, and even national security – as it is in the US.

3.9 The very reason for developing an EU raw material policy shows that we cannot rely on just getting raw materials to grow. We must use raw materials in an intelligent way: that means creating the highest added value for each ton of material we use.

3.10 There are also other aspects of the consistent raw material policy framework that have not been taken into account, though, their impact on raw material availability can be even greater. Such an aspect is, for instance, consistency of this policy with other EU policies, which should also be coherent with each other so as to prevent conflicts with raw materials' availability.

3.11 Raw material policy and its implementation both at EU level and also in the member states need perfect coherence with industrial policy, innovation policy, resource efficiency, environmental policy, agricultural policy and measures, energy and, in particular, renewable energy policy, trade, and competition. This integrated perspective will enable the EU industry to use the raw materials it needs, in an intelligent and sustainable way, contributing to the EU 2020 strategy.

3.12 Building the raw material policy on short term criticality of some raw materials is not enough. Medium and long term effects of some EU policies must be seriously analysed and their impacts on raw materials assessed. Some of the basic raw materials easily available nowadays can become scarce in relatively short period of time. Important raw materials (e.g. iron ores and coking coals) have not been included in the Communication, although their availability in a sufficient quantity and quality should be at risk soon. Furthermore, the volatility and continuous increase of their prices represent an element of uncertainty for the value chains of the main European manufacturing sectors.

3.13 For instance, if the mandatory renewable energy targets were to remain unchanged, the classical and newly developing bio-based industries would be endangered. That opens a much more complex discussion on sustainability, substitution, intelligent use of resources. We need the political courage to debate such issues and to reconcile similarly divergent policies. If need be the EU should have the courage to revise decisions taken so far in the light of holistic impact assessments that carefully assess the ultimate consequences of ambitious environment targets, especially where EU decisions are not accompanied by corresponding measures from other economic blocs.

4. Specific comments

4.1 Physical commodity markets

4.1.1 No doubt competition on the markets with primary energy sources (gas and oil, in particular) would intensify with the growth of world population (9 billion in 2050). There is also more and more the strain on the coal market. Thus, if the EU is set to maintain the social and welfare standards in member states, all indigenous primary energy sources must be mobilised including newly discovered reserves of shale gas. Of course, such resource mobilisation must meet the EU environmental standards.

4.1.2 Electricity is a prerequisite of mankind's decent development. Imbalanced development of its generation capacities and transmission networks can lead to catastrophic consequences, social and economic collapse of societal structures. A Common EU energy policy should resolve all inconsistencies and uncertainties in the investment environment to prevent the potential deficit of power generation capacities after the year 2020.

4.1.3 The EESC understands that the security of food supply on the volatile markets is a serious problem; on the other hand, the EU CAP and other relevant EU and national policies should be geared towards this security as a top priority. EESC pleads for the protection of productive land for agriculture purposes; all relevant policies should take this into account and be shaped and coordinated so as to avoid losses of such land, in particular as a result of competing policies or initiatives or as a consequence of urbanisation. In this context, fair rules of the game should be established also for international trade, reflecting individual natural conditions of specific geographic regions.

4.1.4 Extensive international cooperation is needed also in assessment and differentiating among global trends and occasional market/crop fluctuations. Dangerous trends should be prevented.

4.1.5 Sound science should be applied to maintain and boost the crop yields, since the arable land area is diminishing and there would be a need to provide food for the estimated 9 billion world population in 2050.

4.2 Commodity and related financial markets

4.2.1 Despite the raft of measures launched by the European Commission over recent years to regulate the financial markets, investment flows in the commodity derivatives market are still veering significantly away from the risk coverage role for which they were designed, and towards operations of a speculative nature which are creating considerable price distortions and seriously harming the weakest market players, in particular consumers and SMEs.

4.2.2 The Committee confirms the Commission observation, that better understanding of interaction between material and financial commodity markets is needed. We also support the recommended drive towards more transparency and even accountability of those market players who would break the rules agreed upon. Access to finance the individual market players, mainly SMEs should be facilitated as the key priority of further development and innovations.

4.3 The European Raw Material Initiative

4.3.1 The Committee appreciates this initiative as an important component of the EU 2020 strategy. It reflects also the resource efficiency concept, though these two policies should be reconciled towards the highest attainable level of compliance and the highest added value for the EU citizens.

4.3.2 The concept of criticality in the Raw material initiative, though, overcasts needs of more general overview and detailed assessment of the spectrum of the relevant policies. Such a holistic approach should result in adequate policy compliance, and it would bring much more synergetic effects.

4.3.3 The list of critical materials is a good guidance, on the other hand, on priorities which should be followed at the EU level as a part of the raw material diplomacy by the newly established EU diplomatic service.

4.3.4 Of course, the list would need to be checked upon the established criteria on a regular basis to find out if the urgency of listing still applies. The need of consistent data and both technical and market knowledge is indisputable for the raw material initiative.

4.3.5 Undoubtedly, such scarcity of raw materials requires also regular checking of resource efficiency. On the other hand, the ever growing prices are the best motivator for the efficiency which is innate to any sustainable business. Performance standards and eco-design can help in the permanent strive for the highest resource efficiency.

4.3.6 The threat of an ever growing scarcity of raw material s and increasing prices should be analysed on the micro economic level to show its impact on competitiveness and, in fact, on maintaining jobs in the endangered sectors.

4.3.7 The EU trade strategy for raw materials must be sensitive and flexible enough. Since the real trade takes place on the bi-lateral, individual member state basis, mostly, it is even more difficult to have a single EU trade policy. Apparently, nothing too much can be expected from the WTO, although the mutually agreed rules should be observed in the process of building credibility.

4.3.8 The raw materials scarcity, on the other hand, boosts research and development and innovation processes both in the direction of ever improving resource efficiency and appropriate substitution of some raw materials. It is necessary to mention, that some of the critical materials are vitally needed for high performance technologies, thus we are in a sort of vicious circle.

4.3.9 The Commission should involve the major European manufacturing sectors, particularly through their European Technology Platforms (ETPs), in a specific partnership initiative on raw materials in the framework of the EC flagship Communication ‘Innovation union’ taking into account the worsening of quality standards in some raw materials in recent years. There is a requirement for ever more skilled jobs, so as to realise the high innovation potential of manufacturing processes.

4.3.10 The Committee appreciates the Commission initiative of developing guidelines how to match competing mineral extractive activities with the Natura 2000 environment protection legislation. This is essential for fair, healthy and sustainable neighbourhoods and for the securing of the domestic raw material supply, which has to be among the pillars of all raw material policies.

4.3.11 The EESC also draws attention to its opinion on access to secondary raw materials (1) and endorses its conclusions and recommendations. We should mention here the recommendation of flexibility of instruments needed to keep these Secondary Raw Materials (SRMs) in the EU as much as possible.

4.3.12 The Committee also misses information on the impact of the raw material policy on employment, in particular, the rate of threatened jobs if the policy targets are not met.

4.4 There should also be serious discussion about worst case scenarios – e.g. the temporary scarcity of some vital critical raw material in short term. The policy to mitigate the impact to the European industry could include as well a decision to operate some strategic reserve of the selected materials. Such policies were discussed in non European countries (USA, Korea and Japan), although they could have some negative impacts to the commodity markets they could help to bridge the certain time when the specific raw materials are not available on the market in a sufficient volume.

Brussels, 14 July 2011. The President of the European Economic and Social Committee Staffan NILSSON

(1) EESC opinion on Access to secondary raw materials (scrap iron, recycled paper, etc.), OJ C 107 of 6.4.2011, p. 1.