THE COMMUNITY'S SUPPLIES OF RAW MATERIALS (Communication from the Commission to the Council)
Date: 1975-02-05
Institutions: European Commission
Subjects: EU situation, energy diversification, exploitation of the sea-bed, international cooperation, mineral resources, mining industry, raw material, security of supply, shortage

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COM (75) 50

Vol. 1975/0020

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Freigabe

der

COMMISSION OF THE EU&GK3AN COMMUNITIES

COM ( 75 ) 50

Brussels # 5 february 1975

THE COMMUNITY 'S SUE PLIES OF RAW MATERIALS

( Communication from the Commission to the Council)

COM (. 75 ) 50

I.

TNTROIXTGTTON

The forging of closer links betvreen "the countries producing oil and some

other raw materials ,

the nationalization of extractive industries ,

the

sharp price rises occurring over the last three years , and the final

declaration of the tenth Special Session of the United Fat ions General

Assembly amply justify a serious examination of possible future problems

in the supply of raw materials for Europe .

In the short term ,

the raw materials supper situation seems far less

serious than , although not unconnected with , other current economic

problems – inflation ,

the threat of recession , adverse balances of

payments ,

the use presently being made of petrodollars , and the danger

of a return to protectionism and the consequent disruption of world trade .

Moreover ,

the risk of an absolute worldwide shortage of most essential

materials is , in the view of experts , extremely slight . Nevertheless ,

Europe is facing a real and serious problem .

Historically , Europe became the world 's first industrial power because,

she was the first to extract coal , and iron , copper and zinc ores , etc .,

from her soil . And , when she had erdiausted or had almost exhausted her

then known mineral resources she had to import the raw materials needed

to supply her industries . Compared with all the other regions of the

world ,

the density of Europe 's population and industry , and . the length

of time during which her own natural resources have been exploited , have-

turned her into a region specializing in the processing of ravr materials

from other continents which ehe then resells to them as finished products .

Only one other power is faced with the same problem , and even more acutely

namely Japan , which has for long been aware of the risks inherent in such
a situation and has developed a systematic policy ori' raw material supplies

The other non-European industrialized nations (USA, Canada . Australia ,
South Africa, USSR ) are markedly less densely populated than Europe or
Japan . They also possess considerably greater mineral resources which ,

moreover ,

"because they have been more recently developed , have not yet

been exhausted . Consequently , some countries have been devoting more

and more attention to the problems raised by the exhaustion of natural

resources and by export restrictions .

In recent decades ,

the risks involved in Europe 's higher level of

dependences on imports than other continents * have continued to multiply .

Increasingly , less developed countries are nationalizing foreign

companies and , in particular , mining companies which can slow down

prospecting and the working cf new deposits . Producing countries are

attempting ,

through concerted action , to obtain steep price rises for

their raw materials . Moreover ,

they wish to pursue their own economic

and social development through processing their own raw materials

themselves .

Instead of being surprised by the UN declaration , we must ,

therefore ,

attempt to build a future assuring each nation a fair share of tho world 's

economic and social development .

In short ,

the problem facing Europe

appears to be :

- a constantly developing range of manufacturing activities must ba

maintained as the cornerstone of Europe 's economic and social

structure ;

– although it must not be disregarded ,

the potential offered by

Europe 's mineral resources , by material recycling and economies

in use cannot guarantee maintenance of the economic development

to which our countries aspire :

,

– it is therefore essential that Europe maintains access to sources

of supply frail developing countries on conditions offering mutual

long–term satisfaction .

- 3 -

One must also ask whether the mining industry and distribution companies >

can alone bear the risks to which they ere exposed and fulfil the economic

and social obligations to the raw material producing countries as well as

to Europe implicit in their role .

This document deals neither with foodstuffs , except for protein plants ,

nor with energy sources , which are in any case covered by the agricultural

policy and by the joint proposals concerning energy policy .

When the time comes it would be desirable for the analysis also to cover

basic foodstuffs . The Commission intends to put forward proposals cn

this subject ,

11 ,

THE MAIN PR0Z3L5-Z AFT) POSSIBLE SOLUTIONS

For the purpose of analysis raw material supply problems may be classified

under the following headings :

– insufficient knowledge of the present and future outlook for each

raw material ,

– the prospect of relative or absolute shortages in the medium and

long-term .*

– insufficient diversificatiori of sources of supplyj

– the trend towards processing raw materials in their country of

origin ;

– the risk of temporary bottlenecks crid price fluctuations ,,

A ,

Insuffi cient knowledge ,

A long-term Community strategy for the supply of raw materials cannot be

based solely on the data which the Cconiissioii is able to assemble on its

own account „

Different raw materials need specific strategies , Analyses , for a fairly

large number of products , of supply and demand ,

the extent and location of

known reserves , prospective growth in requirements broken down by consumer

sector , problems with regard to pollution and the environment and

potential for recycling and substitution are therefore needed to allow

present aad future problems to be pinpointed .

Only the close and systematic collaboration of experts in the relevant
technological , economic )
subjects ( geological ,

from the member countries

will make possible the assembly of all the facts needed for the evolution

of a European raw material policy .

B . Prospe cts of relative or absolute rhort ages in the msdiun gnd long-term

Few raw materials give rise to fears of permanent scarcity , although some
leathers and skin , pulping wood ); and it may
do ( e.g. , protein products ,
largely for ecological
prove necessary to avoid x-zasting certain others ,

reasons ;

jihus , for most metals , recycling uses much less energy than ore

. refining.

Mhere there is scarcity the solutions ,

though easy to conceive , may be

difficult to put into practice . Apart from regenerable materials , such

as wood , which offer other possibilities ,

they comprise :

– optimum recycling of waste ;

– substitution by other materials and by new manufacturing processes ;

- extension of product life and improved operating economy.

This requires research , standardisation end the dissemination of good

■ practice .

1 . Devel omcnt of recycling and of the exploitation of by-products .

Recycling raises problems both for the organization of waste recovery , and

its profitability . Solutions to these may "best be sought in the framework

of environment policy . The improvement of technical and economic aspects

of the recovery and use of waste and by-p -roducts ought to be the object

of research and development projects launched by the CREST raw materials

sub–committee .

2 . Development of substitution -

■

.

Research should also.be done with a view to replacing products for which

there is a risk of relative or absolute shortage , by others not subject

to the same supply difficulties .

'•3 . Operating economy and extension of product life .

Improvements in product quality pave the way for large-scale economies .

However , competitive pressures often lead the manufacturers of consumer-

durables to reduce tho durability of their products or disregard

■ operating economy if lack of consumer awareness permits . There needs ,

therefore , to be study of the operation of such products ,

leading to the

development of technical standards , and to consumers being better informed

about what they are buying * . Such a programme , which could include ,

inter alia ,

information campaigns and the introduction of a " European

quality mark", should form part of the policy on consumer .protection .

C.

Insufficient diversification of sources of supply .

For most raw materials the Community 's degree of dependence on imports
frora non-member countries varies between "JOffo and . 100$. These figures

clearly tend to increase in parallel iri.th the growth of industrial

activity in Europe .

6 -

Owing to the geographical location of known reserves ,

the Community

depends , or will soon depend , for a number of raw materials on a very ■

small number of supplier countries . This raises two questions :

– in acme cases these may be political problems ;
- in others the dominant position occupied by one or more producing

countries on the trorld or Community market

leaves the Community

open to the unilateral imposition of unacceptable conditions

regarding quantity or price .

Opportunities for spreading these risks should therefore be explored .

The possibility of self-sufficiency . ■ -■

Europe cannot engage in autarchical policies .
to a final break between the industrialized countries and the rest ,

Such a response would lead

with disastrous political , human and economic consequence^. especially

for Europe .

In sny event , it would be foolish to hope that by better

exploiting her own minerals , and improving her recycling end product

utilization techniques , Europe could achieve a level of s el ' -sufficiency

great enough to shelter her from interruptions of external supply .

This does not , however , mean that the limited resources which the
Community does have should not be exploited rationally . First, of all ,

it is. possible that the production of regenerable animal or vegetable

materials such as pulping wood could be developed in the Community ,

In

this instance the machinery of the . common agricultural market and more

particularly the EAGGP enable such action to be carried through .

Secondly , an overall re-examination and updating of the map of the
Community 's mineral reserves could produce useful results .

A lasting rise

in raw material prices and improvements in extraction techniques might

make the working of low–grade ores economic .
new prospecting techniques such as remote sensing , and the presence in

The potential opened up by

- 7 -

the Community of territory not yet fully explored as in Greenland or ,

to a lesser extent , Ireland , suggest that such a re–examination-would" "be ...

worthwhile . Moreover , relatively recent, discoveries of deposits of

hydrocarbons , coal , uranium ,

lead , zinc , copper and fluorine show that

substantial mineral resources may still be found beneath European. soil .

2 . Exploitation of tlie sea bed .

Whether the exploitation of the sea bed will count as own resources , or

- be considered an external source , will depend on the exact geographical

location of submarine deposits and developments of the law of the sea .

'Ihichever the case , results already obtained in the IJorth Sea are

sufficient to justify the continuation , if not stepping up , of research

in connection with the exploration and exploitation of the sea bed .

Moreover work done for the United Nations indicates that for some metals

production from metalliferous nodules to be found on the sea bed could by
I985 cover a relatively larger proportion of the import requirements of
industrialized countries , for example 13$ of manganese or 26?o of nickel .

3 «

'Diversification of external sources of supply .

Although efforts on these lines have not up to . now been very successful ,

■

it is nevertheless true that , for a number of products ,

the supplier

companies or countries are so few in number and their interests coincide

so closely that they could agree amongst themselves on monoplistic
In addition , the political instability of certain supplier
action .
countries threatens the regularity of supplies .

For both Community countries and mining companies the problem is , as it

were , one of insurance and calls for an effort to spread the risks .

The limits of this effort will of course depend on the comparative costs

of exploring and exploiting such alternative sources , as may be found .

- 8 -

( a) Company oligopolies

The potential risks inherent in oligopolies or dominent positions . occupied

by mining companies should be dealt with in three ways ,

in addition to the

implementation of the rules governing competition set out in the Treaties ;

First there is the adoption of a series of measures aimed at reducing the

possibility of abuse open to multinational corporations

by means of

effective collaboration among the public authorities . This course

includes , inter alia , active participation by the Comratur.ty and the Member

States in the activities , of the 0±CCD and the United Nations in the same

field .

Secondly there is the possibility of a close co-ordination of competition

policies between the respohsible authorities in the United States , Japan

and the Community .

Such co-ordination could help to avoid the

distortion of competition which would result from unlawful agreements and

abuses of dominant positions by industry .

Thirdly there is the way proposed a long time ago by the Commission in

its memorandum on industrial policy .

It consists of supporting the

formation and development of European-based companies capable of taking

on their overseas rivals and thus re-establishing that balance of

competition which is so often lacking ,

(b ) Recourse to other developed countries .

.

..

•

Ail obvious initial action to reduce risks would be to look for supplies

from the greatest possible number of developed countries . This is the

path which mining companies prefer to tread .

x see Commission communi Cation to the Council of 8 ITovember 1973

entitled "Multinational companies and Community regulations " ( Doc .
COM ( 73 ) 1930 ).

However , these5 countries are the ones most able , to turn raw materials

into finished products "themselves . They would therefore frequently - find

it unattractive to exhaust their own natural resources to sell to

ITur ope- products with a 1 ow added' value ; it must be noted that ,

in this

case ,

there is a divergence of interest "between the European consuming

nations and the mining companies , even where they are European–based , .

since the local processing of the raw materials which they extract does

not conflict with their own interests ,

Moreover such steps ,

like those in connection with self-sufficiency ,

should only be taken when they will not maintain or even widen the gulf

separating the industrial .from the under-developed nations ,

( c ) Prospecting and mining in the loss de\reloped countries .

The narrow geographic limits of the known reserves of many minerals cannot

be regarded as definitive'. Their concentration in North .America, along

the Andes' ;Cordillera , in South Africa , Rhodesia, Zambia and Zaire , ih the

USSR , China, Korea and Australia- probably merely traces the explorations

of the past .

It is hard to believe that similar exploration in

neighbouring or . even totally different areas .would not lead ta .im-portant

discoveries which could diversify sources of supply and thus spread

the . political and oligopolistic risks which . face us ,; But. exploration ■
and .exploitation are linked activities , . It would 'be absurd to expect

private companies to spend money1 on prospecting without a firm expectation

of- ^a- role in the exploitation of their discoveries or a share of the

"

products extracted ,

-.

■

•

•

>

Mining companies with the skills and finah.cial res.ources needed to

discover and exploit reserves ihat could give us adequate supplies exist

in -

-the Community , . However ,

there are many countries in which theywould

be chary of operating' because of the risk of being nationalized .

Such

countries often do not yet - possess the know-how or financial resources
they would need to prospect and work their own 'territory effectively .

- 10-

In consequence the technical and financial potential of the largo mining
companies often remains dormant for lack of adequate guarantees .

Action to guarantee and provide a return on nrivate investment in less

developed countries could release a flow of private funds and have

surprisingly fruitful results for the Under-developed countries as well

as for Europe .

>

( d ) Joint ventures .

There are two sorts of risk to "be spread - those relating to the nwnber
of our sources of supply ( just discussed ) and those relating to investments

in them .

;

,

t,

_

■;

Any system set up on a Community level ought ,

therefore , to provide

incentives for mining companies in different member countries to pool

their efforts – possibly in collaboration with others from -non-member

states - and spread their risks through joint ventures .

, D. The processing of raw material s in their country. of origin .

The trend towards processing in the country of origin is emerging for a

whole series of raw materials ,

in particular wood , wood pulp , textile fibres ,

copper and zinc .

It is therefore becoming essential to seek ways of

-

reconciling the interests of the producing with those of the consuming

countries .

1 , Pror>erty and nrofit sharing .

A primary aim must be to enable local interests , public or private , to
obtain an increasing share in the cqpitai , profits end -management of' niininj

operations carried out on their territory . " The conditions and pace of thics

gradual partial transfer of property and responsibility could be decided

and arranged on mutually satis factors'- terras between the authorities and

companies of the producing countries and those in the Community ,

In this

way ,

the risk of nationalization , which is curbing companies * activities

and thus both reducing the income of less developed countries and Europe 's

supplies of raw materials would gradually diminish .

If account is taken of the way in which the riskiness and profitability

of mining and of manufacturing differ , it would also seem logical

gradually to extend participation by public or private interests' of raw

material producing countries into the downstream manufacturing activities

performed in Europe .

Such a process should also be covered by framework

agreements between the authorities in the producing countries and in Europe

In this way , solidarity between the less developed countries and Europe ,

which to date has been only too lacking , should take shape , and numerous

sources of tension would be eliminated .

However ,

there must be no illusions about the difficulties to be overcome

to make the use of joint ventures sufficiently widespread to be effective .

First , the means available to the Communities' public authorities for

inducing private companies to a.ccept the idea of sharing the ownership of

their installations with third country raw material suppliers are extremely

limited .

Secondly ,

the most simple and straightforward way of implementing such a

joint venture would be to exchange shares for raw materials . But the

majority of the less developed countries urgently need the funds they

receive in payment for their raw materials , and can hardly afford the

luxury of foregoing these in order to obtain shares in European companies

operating on their own territory or in Europe .

There are possible ways of operating mines which offer opportunities for

profit sufficient to avoid both of these problems .

In other cases it will

perhaps be necessary for the political authorities to take specific action

- 12 -

in order to give the less developed countries the opportunity to buy
shares in the local , or even the European operations of Community companies,
on an instalment basis , and to provide such companies with guarantees

sufficient to stimulate investment by them in these countries .

A Community organization specializing in overseas investment

insurance

and finance could perhaps be made responsible for pursuing these objectives ,

2 . Distribution of work throughout th e world ,

Despite its advantages a system of cross shareholdings cannot resolve

all the problems facing Europe and the third world . Those less developed

countries which possess both raw materials and underemployed populations

justifiably wish to upgrade both on the spot .

Fear of this trend leads industrialists in developed countries to demand

protectionist measures . But such an approach to the problem leads nowhere .

The industrialized raw material producing countries already have this

capacity and the less developed producing countries are bound to acquire

it some day . Europe must be continuously aware of this trend , otherwise

she will find hevself with an industrial structure starved of raw

materials »

This solution necessarily involves a rational distribution of industrial

activity throughout the world , particularly in favour of the less developed

countries , i.e. , Europe must be willing gradually to give up the exercise

of industrial activities which can often be performed better elsewhere .

Such a renunciation would be tempered to the extent that it was

accompanied by European investment in the third world . Reason should

therefore lead Europe to accept the processing of raw materials in their

country of origin where such an operation is economically justified .

- 13 -

Europe has already taken some important steps m this direction ,

particularly within the system of generalized preference^ but accompanying
measures would have to be considered ,

- With the co-operation of industry'

and the representatives of European workers , and in consultation with the

authorities in the various supplier countries ,

the public authorities

in the Community countries should organize :

- the gradual run-down of aid to those European production activities

which can be carried cut more economically in the countries

supplying the raw materials ;

– the provision , as soon as possible , of a legal tax and financial

framework that will encourage Community industrialists to participate

actively in the development of such activities in the less developed

countries ;

- in suitable cases , the provision by the public authorities of the

necessary financial resources and technical assistance ;

– aid schemes to reduce the harmful social and regional consequences

that may result from these changes .

E.

The risk of temporary bottlenecks and pri c e fluctuations .

Temporary bottlenecks in supply and the rocketing prices accompanying

thou may result from unforeseen increases in demand , insufficient

investment the actions of oligopolies of companies or producing countries

or froa speculative operations .

The second and third alternatives are dealt with mainly under C and D

In order to cushion such risks a number of protective measures

above .
can be implemented "*":–

1 ,

The conclusion of long-term contracts „

Recent events affecting a number of raw materials or sources of energy,

1 Export restrictions are not discussed here because thejr can be of little
use for the Community , which is a net importer of nost raw materials and
would expose itself to more effective retaliation if it adopted such
measures . They should therefore only be used with care and deliberation .

- 14 -

and the differences that the existence of long-term contacts has made ,

where consuming companies have entered into them , to the impact of

those events , has demonstrated the stabilizing effect of such

contracts . In effect ,

the violent fluctuations in quoted prices

have mainly affected dealings on the free market , which often account

for only a fairly small proportion of our supplies .

Although long-term contracts can bo broken unilaterally , Community

companies should be encouraged to conclude such agreements ; and , if they

are not large enough to do so alone ,

they must be encouraged to form

consortia or purchasing co-operatives that would be capable of doing

so .

2 .

The building up of emergency stocks .

It may prove desirable for the Community to build up emergency stocks

in those few cases where the Community is dependent upon a very limited
number of suppliers ( countries or companies ) and where :

– those countries may , for reasons of domestic or foreign policy ,

cut off supplies if only for limited periods ( tungsten for example );

– those countries might wish to exploit their oligopoly position in

order to impose unacceptable conditions of sale ;

– a sharp upturn in demand , clearly outpacing any possible expansion

■ of - existing capacity , becomes a probability ( as in the case of
platinum ) .

The measures to be implemented in such cases depend on the raw material

involved .

'

•

For bulky materials ,
the only practicable solution would seem to be to
require companies using them to build up emergency stocks expressed in

terms of number of days' consumption either themselves or , particularly
for small and medium-sized undertakings , by forming consortia or
purchasing co-operatives to do so .

In the case of materials having a high unit value , this function could
be delegated to an agency, acting at a Community level and having a
public or mixed status .
However , before such decisions are taken it
will be necessary to balance carefully the costs against the risks to

be covered ,

3 ,

International listening poets , .

.

For seme products the activities of private or public international
study groups improve knowledge of world needs and thus encourage
necessary expansion of production .
It would be useful to know to what
extent the operation of existing groups ( e.g. , those for rubber , lead
or zinc ) could or should be improved and with what other materials this
type of solution should be sought .
information about companies producing and distributing raw materials
and their importance as Community suppliers .
helpful , at an early stage , to seek a dialogue with the larger undertakings
on which the Community depends for supplies .
aimed at obtaining a clearer picture of the state of our supplies ,.

Such groups should furnish better

This dialogue should be

In any event it would be

4 .

Different types of international agreements .

Follovdng the rise in the price of sccie commodities , the hazards of a
situation in which export restrictions are not subject to international
surveillance have been increasingly acknowledged .
effort by the international community to bring about seme co-operative
system that will prevent sudden disruption of trade and enable any
necessary changes to be carried through gradually .

This calls for an

This subject should be taken up in multilateral trade negotiations . Greater
clarity and international discipline through the observance of existing
rules and adoption of any necessary new ones would appear to be essential .

The Community should point out emphatically that Article XI of the GATT

prohibits quantitative export restrictions , except in certain clearly

defined situations , and should try to establish a new notification and

consultation procedure . At the very least , countries imposing quantitative

export restrictions should be asked to justify than , as were those

imposing quantitative import restrictions ,

in the context of the GATT

joint working party on quantitative restrictions .

The question of

quantitative export restrictions cannot of course be divorced from that

of export taxes which ,

in some circumstances , can be used to achieve the

same effect .

Several other approaches could be considered , possibly in combination :

– effort to establish a code of conduct for export restrictions ;

– detailed negotiations , product by product , between exporting and

importing countries , and where appropriate sectoral agreements , to

obtain better management of supplies and involving joint responsibility
by supplier and consumer countries"'' ;

– carrying the above approach further , international commodity agree­

ments could be concluded , for some essential raw materials ,

to

stabilize markets in the interests both of producing and consuming

countries .

In the form taken hitherto , commodity agreements have not been primarily
concerned with supply problems – their essential aim has been to stabilize

markets in the interests of producers .

In a new form these agreements - which ,

in the nature of things will

always be few in number - could guard against supply problems by the

1 In other cases , especially where state trading countries are involved or
the number of supplier countries for the product concerned is limited ,
Community could also envisage the conclusion of bilateral agreements on
industrial and technological co-operation incorporating in return certain
arrangements to ensure regular supplies of raw materials .

the

systematic buildirg-up , where appropriate , of stocks of raw materials or

indeed of semi-processed products .

To their traditional function of

regulating markets could be added that of regulating supplies . This would

involve the joint management of stocks , by importers as well as exporters ,
who would then share the costs involved ,

HI .

THE IMP LBIETCTATIOH" OP 'TEE SOLUTIONS

The supply of raw materials for the Community is an aim calling for an

overall strategy to be taken into account in the whole range of Community

policies - that is ,

the external affairs , co-operation , industrial , regional

social , research , environment ar.d consumer protection policies . Thi3 csn

only be brought about by the adoption of c com on guidelines vrhich provide

a spur tc action in addition to serving as an instrument of co-ordination ,

...

It must be admitted that a number of elements needed for the definition

and imp 1 era ent at i on of such a strategy are currently lacking. These are :

– an adequate instrument for the analysis of future prospects and the

definition of the measures called for ;

– a prospecting service befitting Europe ;

– adequate guidance for research activities .;

– means of finance and guarantee capable of stimulating the necessary

investment ;

,

– an overall concept for commodity agreements and a methodical seeking

after multilateral solutions .

1 , Orgnnizaticn of co–opération .

It is therefore essential to organize close co-operation and consultation

between the national authorities responsible for raw material supplies .

- 13 -

The main purposes of this co-operation , for which support should be sought

from the private sector , would be :

– to collect economic information on raw material supplies ( inventory

of common resources , assessment of needs , possibilities of
substitution , recycling and economies in use , ecological constraints );

– to compare available resources and future needs and monitor the

mergence and development of factors likely to influence supplies
to the Community ( risks of breaks in supplies , formation of
producer cartels , etc ,);

– to appraise action taken at national level for ensuring adequate

supplies , so as to highlight any gaps or duplication and identify

the areas in which co-ordination would be desirable ;

– to provide contacts with the large raw material winning and

distributing companies ;

– without prejudice to existing responsibilities ,

to obtain an overall

view of present or future activity by way of external negotiations
in a number of bodies ( OECD , UNCTAD , GATT, etc .) which might affect

raj'/ material supply ;

– to finalize and propose , with details of costs ,

the joint steps

which the Community should undertake in order to overcome any

difficulties pinpointed .

Recommendations of this type could , for instance , relate to the encouragement

of long-term contracts ,

the setting-up of purchasing groups ,

implementation

of stockpiling formulae , support of programmes for prospecting and use ,

substitution , recycling , more economic consumption of materials or the

reconstitution of renewable resources through the granting of aid , tax

concessions and guarantees or financing facilities ,

The sub-committee on R&D into Raw Uaterials , which the CREST Committee

decided , on 30 October 1974 »

"to set up would provide a natural forum for

- 19 -

co-operation in R 4 D, particularly for guiSing geological and mining

research , updating the Community map of metal deposits , providing technical

assistance for prospecting in less developed countries , developing

techniques for remote sensing , for exploring and exploiting the sea bed ,

and new techniques for vanning and processing oros , for recycling and for

economies of use .

Ways of obtaining Community co-operation in other fields have yet to be

found or established .

In order to define these the Commission intends

to call in the near future a meeting of senior national officials responsible

for various aspects of raw material supplies .

2 , Financing and tarante es ,

One of the main problems is to encourage the investments needed for the
prospecting, exploitation and upgrading of mineral resources . This has

been made difficult in several developing countries by the nationalization

of foreign mining companies . As discussed on page 10 above ,

the

development of new forms of property shared between local and foreign

interests can help to avoid the pressures leading to nationalization .

However , such forms of property will demand more initial financing of

investment projects which are already very expensive . Under the

circumstances it is necessary to consider setting up a finance and

guardJitee institution .

Under agreements between European authorities or companies and their

counterparts in less developed countries , such an institution could , with

funds borrowed on the capital market , subscribe some agreed percentage

of new investments in less developed countries in the form of shares in

either the local or parent company which it would then transfer to members
of the local population ( private or public ) either immediately, ar in step
with the distribution of profits which could then be used to repay the

original loan .

- 20 -

In addition , if arrangements acceptable to the host country could "be
reached in order to ensure fair sharing of the responsibility for the
potential risks , Community companies accepting such a plan for the
partial transfer of their assets could, in addition to initial funding,
be protected by a guarantee against political risks .

Special conditions could perhaps be agreed upon to encourage joint ventures
by. Community undertakings .

The Commission will also examine any concrete suggestions concerning
these financing and guarantee problems at a Community level as part of a
coherent financial pro .gramme .

(

- 20a -

IV .

PRODUCT-BY-PROUJCT EXAMETATION

A raw materials supply stretegy can obviously not be mapped out or

implemented without a prior study of the position as regards individual

products ."

For practical reasons the Commission has initially confined itself to
examining twenty or so minerals (aluminium , chromium , oobalt , copper , tin ,
iron , magnesium , manganese , mercury , molybdenum , platinum , lead , titanium ,
tungsten , vanadium , zinc and phosphates ), a few products of vegetable
origin (natural rubber , cotton , vegetable oils , wood pulp ), two products
of animal origin (wool , and skins and leather ) and proteins .

This examination will of course have to be taken further with the assistance

of national experts and extended to at least ten or so other raw materials ,

1 .

Products not giving rise to major problems

This initial examination has revealed that a number of products do not

present any major supply problems .

(a) Minerais
These are cobalt , ma^iesiun , mercury , molybdenum , nickel , lead ,

titanium and vanadium .

Although two-thirds of the world cobalt production is concentrated in

Zaire , the fact that', it is to a large extent extracted from copper and
niokel ores , and the scope for substituting chromium , molybdenum ,

niokel or vanadium make the risk of a shortage very remote .

Deposits of magnesium are widely distributed across the world . Reserves
are practically inexhaustible and Norway alone could provide the
Communities' needs .

Antipollution measures should lead to a very substantial reduction in
mercury consumption , the market for which is facing a crisis of over­

- 21-

production ; mercury is available in very many . countries ,

"but in

particular Spain and the USSR,

the world 's main producers .

Although largely concentrated in the in ori can continent , molybdenum

reserves are adequate * Despite the fact that the main production

centres belong to a few large firms , price manipulation would be

difficult- as about half the production cooes from the processing

of copper ores .

.

At the present time there is surplus production of. nickel ., The known

reserves are about 150 tiraos the present annual world consumption , and

are divided between North and South America, Africa , Asia, Australia

and the USSR , The oligopoly exercised by four large companies has been

dissolved and possibilities exist for substitution by other elements

such as manganese , cobalt , molybdenum , chromium and aluminium .

The problem of lead is somewhat like that of mercury . Pollution

control will prevent anything more than a moderate increase in

consumption in the future , wliilo considerable deposits have just been
discovered in Ireland , and a large part ( 38^) of the Community 's

supply is provided by recycling .

.

Titraiun consumption is closely related to developments in the

aviation and space fields , „ This may perhaps justify participation in

the exploitation of rutile deposits in Africa and Latin America .

Known reserves of vanadium are very high . ' Since this element is also .

a by–product of the reduction of many iron ores , of the phosphate
industry and of oil refining , there appears to be no risk of a
shortage .

(b ) Vegetbble products -,

The case .of natural rubber appears to be marginal . Thanks to synthetic

- 22 -

rubber ,

the Comnunity is self-sufficient to the extent of two-thirds

of its supplies , Eighty five percent of the world production of
natural rubber canes from four countries (Malaysia, Indonesia, Thailand
and Sri Lanka), However , competition from synthetic rubber ,

the

consumption of which is rising twice as rapidly as that of natural

rubber , makes oligopolistic action very improbable .

The supply

situation could possibly be improved by an improvement in the

technical qualities of natural rubber , which should be achieved by the

producing countries , and , if necessary , by the development of

production in Africa ,

2 , Products giving cause for concern .

Attention will therefore be concentrated on the other products under

consideration .

( a) Minerais

The Comnunity is totally dependent on outside sources for its supplies

of other mineral ores , with the exception of tin ,

iron and zinc ,

;

80 to

of which comes from outside .

Aluminium is required in particular by an affluent society and has

taken the place of less noble materials such as steel or wood .

In

the event of shortage , a return to the earlier materials would be

possible ,

- Bauxite is available in many places . Thirty countries ,

few of them possessing refining plant , produce it . Electrolytic

treatment of bauxite uses so much energy that its development in the

Comnunity should be avoided if adequate supplies of the metal can be

secured . Greater participation by Community firms in the .mining

of bauxite and in electrolytic treatment, operations in producer

countries thus appears desirable ,.

- 23 -

Although the known world reserves of chromium cover about 100 tines

the present annual consumption ,
Rhodesia own JCfi and a Japanese consortium has obtained control of a
further 15$ shows the t;npe of risk to which the Community is exposed.

that South Africa and

the fact

Copper reserves do not lead one to foresee difficulties at least for

the next 50 years . Problems result essentially from heavy dependence

upon the CIPEC countries , possible lack of steps to open up new

mining sites , and the need for Community industry to fall in with

the pressure to undertake the initial processing of ore in the

producing countries ,

?or tin the main problems are the improvement of the working of the

International Agreement and buffer stock , and the transfer netal

production to the ore producing oountries .

Iron reserves present no problem , nevertheless , difficulties may

arise from the fact that Community industry plays almost no part in

opening up new :.iining sites and therefore docs not gain sufficient

control over its sources of supply , and that it resists the trend

towards ore reduction in the source country instead of adapting to it .

In the case of mgnganese ,

the fact that half the known reserves are

in the USSR and a third in South Africa, while substitution of other

products for manganese is barely conceivable , provides a natural

'

incentive for prospecting in other countries to diversify sources

of supply .

Platinum raises a similar problem ,

9

"the known reserves are

in South Africa and the USSR , Antipollution standards may lead to

increase in platinum and palladium consumption .

In this particular

case , attention should be given to the idea of building up suitable

stocks .

For tungsten , 80% of the known reserves are in Communist countries ,
60$ in China.
the Community should engage in prospecting in the hope of diversifying

To avoid remaining almost entirely dependent on China,

its sources of supply and also give consideration to the possible use

of relatively low–grade ores . What is more ,

the production of the

main substitute product , molybdenum ,

to some extent linked to copper

production , poses pollution problems .

The chances of temporary

interruptions of tungsten deliveries cannot be discounted * Stock

piling could therefore be justified in this case .

Zinc ore producing countries are showing a marked tendency to develop

the production of metal . Known reserves are situated mainly in

industrialized countries or in stable or accessible regions .
order to retain its'role as the main world processor .,

the Community

In

should promote geological prospecting in Ireland and Greenland .

Phosphates represent to seme extent a typical case of a product for

which a supply policy is required .

On the one hand , phosphate is

difficult to replace ; on the other , the Community 's soil contains

practically no phosphates .

The Community obtains three-quarters of

its supplies from North Africa and the United States . Less developed

countries which produce phosphates are increasingly tending, to process

the phosphates themselves into phosphoric acid and fertilizers .

Supply , already tight in 1972 , was not able to meet the 1973 demand ,

and this imbalance was further aggravated by the withdrawal of the
American tonnage from the market
contracts signed with the USSR ). Morocco has quadrupled its prices

(more land under cultivation , supply

in 4 years and its example has been followed in varying degrees by

other producers .

This product thus raises not only problems of diversification of

supply sources , but also of participation in mining ventures in non-

member countries , of long-term contracts , and of concentration "between

producer and consumer countries .

(b ) Vegetable products

Questions raised bj'- vegetable products differ from those mentioned

previously in that plants grow again .

Cotton ,

like other natural fibres is subject to considerable cyclical

fluctuations - its price doubled in 1973 only to fall back in the

following year .

Some stability might be sought through the

negotiation of mediun-terra agreements .

Supplying the Community with vegetable oils hardly raises any problems

Nevertheless , it is expedient to guard against a narrowing of the

market by maintaining a certain level of self-sufficiency , by

encouraging a diversification of supply , more especially through
agricultural and tropical research , by developing cultivation in the

developing countries and by participation in world agreements .

The production of paper at an acceptable cost is threatened by a
relative shortage of pulping wood in the 1980s .

The Community depends

for its supplies of pulp . or paper mainly on the countries of North

America and Scandinavia , which wish to process their semi-manufactured

products themselves .

This calls for a policy of reafforestation in the Community , developin

forestry ventures and initial processing in developing countries , and

an improvement in recycling .

( c ) Animal products
In the case of products of animal origin , considerable fluctuations

in the price of wool could probably be buffered by seme international

regulating organization . " On the other hand ,

the relative but growing

mm 26 –

shortage of leather and skins prompts a move to keep a watch on

exports and to encourage recovery and the development of the

unexploited resources of the third world .

( d ) Protein products

Lastly ,

the supply of the Community with proteins , of "both vegetable

and animal origin , raises great difficulties which will increase in

the future . The supply policy should aim at developing the production

'of proteins in the Community ( dehydrated fodders , soya "beans ,

synthetic proteins ), seeking a long-term agreement with the United
States , whose soya "bean supply covers 40% of the Community 's

protein consumption , and promoting protein production in the

associated countries .

3 .

' Examples of the applicability of different tyres of agreement "by -

■

product »

'

'

1

'

1

Among the materials examined three metals , chromium , copper , and tungsten ,

pose problems which seem to justify closer examination of the relations

between the Community and the supplying countries .

Chronium

The developed countries .

The only developed countries producing

appreciable amounts of chromium are the Republic of South Africa and the
USSR. These are the Community 's biggest suppliers .
wishes to increase the dependability of its supplies it must turn to the

If the Canmunity

developing countries .

The less developed countries . Just one or two bilateral agreements with

less developed supplier countries would be quite inadequate in vieiHof the

low percentage of world supplies provided by each of them .

A whole series

of such agreements could be concluded , but the Community 's supply-
system would then be very complicated , and would still be dominated by

- 27 .-

South Africa.

It is probable that the best path would be to conclude

a multilateral agreement on good conduct , or a world agreement containing

at least the most useful features of existing commodity agreements . As

an additional benefit to the less developed producer countries our imports

of thsir chromium could always bo brought within the scope of one of the

beneficial agreements already in force such as the GATT or the SGP ,

t he developed countries . Although major producers and holders of reserves ,

their own consumption will not permit than appreciably to increase their

exports to the ESC ,

In addition they are perfectly well aware of the

situation as regards world reserves , A "developed country" approach

alone would not provide a solution even if it were politically acceptable .

The less developed countries . This really means the four CIPEC countries ,

since the others do not possess the same potential . Against this back­

ground ;

An attempt will have to be made to conclude a world agreement .

Although the CIPEC countries and the other less developed copper

producing countries occupy different points on the political

spectrum ,

they all need developoent aid, This common factor should

make

an agreement incorporating our co-operation in their

development in parallel with certain guarantees with regard to

supplies very acceptable to them , . This aid could cover the

setting-up or expansion of copper-processing facilities in the

country or countries in question . The manner and rate of such

development should be co-ordinated with a slowing down of the

expansion of capacity in Europe ,

Tungsten •
In view of the strategic importance ( in the military sense . of the phrase )
of .tungsten , it would be rather risky to attempt to develop our trade

i

- 28 -

with the three Communist countries ( China, USSR , North Korea), which are
both the largest producers and holders of the largest reserves .
Considering, furthermore , the diversity of the other producing countries ,
it would seem desirable to apply the same agreements and to pursue the same
policy on tungsten as on chromium , i.e. , a world agreement and/or the
offer cf specific aid in the development of the resources of those

countries concerned which have need for it .

4 .

Example of the application of a supply policy to wood pulp and pat>cr .

One material , wood pulp , has already been the subject of a communication ■
from the Commission to the Council^".
document , it is possible to outline by way of example a policy for a
material that lends itself to almost all types of action .

By expanding on the ideas in this

Scandinavia, a traditional supplier

In addition the major producing countries in Scandinavia and North

The Community meets almost 60}o of its needs by importing paper and
In 1972 these
paperboard , wood pulp , pulping wood and waste paper .
imports were worth 2500 million u.a.
of pulp and paper to the Community, is already importing wood from the
USSR .
America rre pursuing the aim of processing their resources themselves
and are - tending to restrict their sales of raw materials ( wood and pulp )
in favour of finished products .
industry which, with more than 1000 undertakings employing about 230.000
people , occupies second place in the world league behind the United States ,
is put in jeopardy .

Thus , the Community ^ paper-making

In view of the threat of world shortages in the 'eighties some possible
solutions open to the Community are as follows :

.

– sn increase in the amount of pulping wood obtained from forests

within the Comiiiunity through the more efficient use of existing and
the planting of new forests ;

1 Doc . SEC ( 74) 1215 final of 28 March 1974.

\

- 29 -

- better recovery of sawmill wastes

- more recycling of waste paper ;

- the elimination of wasteful consumption of paper and board ;

- improved 6o-operation with traditional suppliers ;

•- long-term agreements with state-trading nations ;

- technical assistance to developing countries .

In addition , any non-discrimination guarantees obtainable in GATT in

connection with wood pulp would be particularly beneficial ,

.

As regards forestry , pulping wood and sawmill waste currently cover 20^

of the Community 's requirement for raw materials for pulp . The nore

efficient use of existing forests and better recovery of sawmill waste
should enable available pulping tfood to be increased by 20-30$ over the

next 5-10 years .

In the longer term , it would be possible to double that increase by the

afforestation of marginal or of derelict agricultural land .

The proposal for a directive on forestry measures forwarded to the

Council by the Commission on 26 February 1974

concerned mainly the

afforestation of derelict agricultural land . Although useful , this is

no more than the beginning of a solution . Therefore the Council should

instruct the Community 's forestry authorities to prepare ,

in conjunction

with the Commission , a programme of reafforestation end forestry
management and define aid schemes for its implementation , with details' of

their approximate cost ,

A number of research projects could help to bring about an appreciable

improvement in supplies , and in particular the development of new

processes for the treatment of waste , recovered fibres and animal plants ,

the production of pulp from wood drawn from coppice , small wood from
high forest (mostly thinnings ), straw and lower grades of waste paper ,
and finally the improvements of yields by new methods of mashing .

1 Doc , CCM ( 74 ) 1070 final

There ought to be an immediate Council agreement to the principal of such

a programme of research the details of which should "be worked out "by the

Commission in collaboration with the " CREST" Committee *

In the matter of recycling waste and economy in the use of raw materials

the Community should draw inspiration from the measures adopted in the

United States , where the Federal Government has already instructed its

administration to use , for internal purposes , paper made at least to the
extent of 50$ from waste . This has encouraged the creation of a new

commercial market for recycled paper , which has extended to all consumers

of writing paper .

Finally , with regard to external supplies ,

the Council and Member States

should agree to s

' - Encourage cross investment ,

including joint ventures , with

industrialized nations , such as Canada ;

- Seek to conclude with state-trading nations long-term agreements

for the supply of given quantities of wood pulp and paper products

at firm prices in return for the construction of industrial

facilities , and in particular pulping plants ;

v

- Encourage the forestry industry ,

the production of pulp , and of

paper in "bulk in the developing countries through technical

assistance and incentives to private investment . These measures

should include support for research aimed at enabling specific
raw materials from these countries ( e,g „ bagasse ) to be exploited

economically .

.

5 . Conclusion .

The problem of Europe 's raw material supplies is a vast but

long–term

one whioh does not

lend itself to spectacular , instant solutions .

Consequently the cruestion is whether the Community will be able to take

advantage of the absence of immediate pressure to set up ,

in an atmosphere

of calm ,

those information , co-ordination and planning systems needed to

map out a 1 ong–t orm policy which are currently lacking .

1- 31 -

We must not allow the complexity and gravity of the problems of the

moment to cause us to lose sight of the other problems ive shall have to

face in the future . Rather should we let them meke us a*are of how

adequate preparation can at least facilitate the solution of such

problems if not make it possible to forestall them .

In short , it must be recognized that the scale of this problem is too

great for individual Member States ; and its importance demands the

establishment of that point of cohesion , currently lacking, for all the

different projects and initiatives underway here and there throughout

the Community in this enormous field .

The Commission therefore judges it essential to provide a structure that

will make possible the co-ordination of the activities now being

undertaken at different levels , and if necessary the launching of cannon

initiatives in this field ; and now asks the •member governments to . provide
it with all the help 'and support it will need in drafting the specific

proposals which it will lay before the Council .