Opinion of the European Economic and Social Committee on ‘Securing essential imports for the EU — through current EU trade and related policies’
Date: 2013-10-16
Institutions: European Economic and Social Committee
Subjects: available energy resources, climate change, commodity agreement, common commercial policy, food safety, import (EU), import policy, international cooperation, natural resources, raw material, sustainable development








C_2014067EN.01004701.xml










6.3.2014   


EN


Official Journal of the European Union


C 67/47





Opinion of the European Economic and Social Committee on ‘Securing essential imports for the EU — through current EU trade and related policies’
2014/C 67/08
Rapporteur: Mr PEEL

At its plenary session held on 16 and 17 January 2013 the European Economic and Social Committee, acting under Rule 29(2) of its Rules of Procedure, decided to draw up an own-initiative opinion on

Securing essential imports for the EU — through current EU trade and related policies.

The Section for External Relations, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 25 September 2013.
At its 493rd plenary session, held on 16 and 17 October 2013 (meeting of 16 October 2013), the European Economic and Social Committee adopted the following opinion by 105 votes to 1 with 1 abstention.
1.   Conclusions and recommendations







1.1


EU competitiveness, if not the maintenance of our overall standard of living and quality of life, depends on a secure, regular supply of key, essential imports. "Few economies are self-reliant when it comes to raw material supplies due to the large scope of inputs required by most countries" states DG Trade's second Activity Report (1), pointing out that "interdependence is real and unavoidable for all economies". Accessing these materials at affordable prices is essential for the sustainable functioning of the EU economy and of modern society as a whole.










1.1.1


These key world natural resources, namely agricultural land/food, water, energy and certain metals and key minerals, are in finite and potentially increasingly short supply, yet the demand for these has never been greater nor growing faster than at present. An inadequate response to climate change could exacerbate matters further. The EU benefits from a relatively beneficial, temperate climate for food, water and agriculture, yet is not self-sufficient in either energy or in many key strategic metals and minerals.










1.2


Therefore it is essential that the EU places greatest emphasis on gaining maximum resource rationalisation and efficiency, innovation and substitution, especially through sustainable use, re-use and recycling of energy and key strategic metals, minerals and other natural resources. The Committee particularly welcomes the emphasis placed on this by the European Innovation Partnership (EIP) and by the recent Commission review of its Raw Materials Initiative (RMI) (2). Civil society must also be fully and actively engaged, not least as stakeholders and consumers have a central and responsible role to play in ensuring maximum rates of reuse and recycling, and the minimisation of waste.










1.3


However the purpose of this Opinion is to look at the securing of essential imports through trade and related policies.










1.4


The EU approach to sustainable trade is more advanced than any of its main competitors, but sustainability has to be fundamental to any EU strategy for sourcing essential imports. This strategy must also tie fully in with the EU Development programme, with particular reference to ACP, least developed countries, the development of GSP and GSP+, and the outstanding Economic Partnership Agreement (EPA) negotiations, as the Commission fully recognises.










1.5


As the Committee has regularly stated, it is essential to ensure coherence between the preservation of natural resources, the fight against poverty, sustainable production and consumption. Full participatory processes involving civil society must also be established, as that and social dialogue are key factors in ensuring good governance and in combatting corruption.










1.6


The Committee welcomes the identification of "managing natural resource assets sustainably" as one of the 12 "Illustrative Goals" by the UN High Level Panel of Eminent Persons report, dated 30 May 2013. The Commission in turn has issued its important Communication "A Decent Life For All" (3), covering this UN initiative to link progress on the Millennium Development Goals with the outcome of "Rio+20", with the aim of setting new Sustainable Development Goals (SDGs) from 2015. As this Communication reminds us, "two of the most pressing challenges facing the world are eradicating poverty and ensuring that prosperity and well-being are sustainable". These goals will however be far harder to achieve if the world is faced with critical shortages of key strategic resources.










1.6.1


The Communication also underlines "that two thirds of the services provided by nature – including fertile land, clean water and air – are in decline and climate change and biodiversity loss are close to the limits beyond which there are irreversible effects on human society and the natural environment". The Committee in turn describes this Communication as "an important milestone", emphasising that "given the finite physical limits of … many natural resources … the SDGs need to include goals for using these resources more efficiently and sharing them more fairly".










1.7


The Committee welcomes the progress made by the Commission’s RMI. Nevertheless effective management of key world resources has to be primarily tackled at a global level. As the Commission has recognised, "to ensure a sustainable supply of raw materials the development of an EU or even international coordinated response is required … to promote a better international framework and closer cooperation" (4). The problems are currently more geopolitical than geological, yet the Committee is disappointed that the EU response gives the impression of being more a patchwork of specific initiatives rather than an overall global strategy. Nevertheless, the Committee welcomes the close co-operation the EU has established with the US and Japan, the key strategic partnership referred to in the 2011 Commission Communication Tackling the Challenges in Commodity Markets and on Raw Materials
 (5), and with the countries mentioned in the RMI review. This rightly stresses the importance of co-operation with the African Union Commission and with Africa in general.










1.7.1


The Committee encourages the active pursuit of an EU "Raw Materials Diplomacy". Above all it considers that a stronger, more coordinated effort needs to be made globally, primarily through the G20 (which includes many of the key "demandeurs" for strategic imports), where the issue has been discussed less productively so far, but also through the OECD and the UN and its agencies. A "race to the bottom" will help no one.










1.7.2


The main drawback to any integrated global approach is the lack of effective enforcement mechanisms. The Committee therefore recommends that, as part of the overdue review of the WTO, which has a base in international law, a specific competence be added to cover energy and raw materials and their sustainable use. Greater emphasis should also be placed on the annual UNCTAD Global Commodities Forum. A key question here is the vulnerability of developing countries. For commodity dependent countries, commodities sectors are often the most important source of earnings and employment. However, their inability to translate commodities-led growth into more durable, broad-based economic growth and better benefits for the poor calls into question their development model. Fundamental consideration, fully involving civil society, urgently needs to be given as to what changes are needed to their policies, institutions and infrastructure to link commodities revenues with the achievement of development outcomes, including MDGs and future SDGs.










1.8


The role of the private sector is also critically important: most mineral and energy extraction is now a market transaction. As extraction and processing are hugely capital intensive, this relies heavily on large multinational concerns. Therefore it is essential that the core ILO Conventions, the OECD "Guidelines for Multinational Enterprises" and the specific OECD Guidance for Responsible Supply Chains (6) are fully implemented and observed, including the active cooperation of the social partners. As the Commission states in "Global Europe" it is essential to ensure that the benefits of trade liberalisation "are passed on to citizens. As we pursue social justice and cohesion at home we should also seek to promote our values, including social and environmental standards and cultural diversity around the world" (7).










1.9


EU energy and raw material imports amount to one third of all EU imports (EUR 528 bn in 2010) (8). The EU currently tackles barriers to such imports, such as export bans, new restrictions, extra export duties or dual pricing, through its trade negotiations (FTAs, EPAs, PCAs and WTO accession negotiations), with ultimate resort to a Disputes Mechanism.










1.9.1


However, the Committee expresses deep concern that these are tactical trade policy instruments and do not amount to an overall strategy, nor would they be effective in a crisis. Dispute mechanisms take time to operate and, as seen over rare earths, are subject to prolongation. We call for a clear EU emergency or crisis response procedure in the event that an important import suddenly becomes unavailable, for whatever reason.










1.10


Turning specifically to energy matters, Russia, Norway and Algeria between them account for 85 % of EU natural gas imports and almost 50 % of crude oil. Until recently major energy producers have been slow to join the WTO, which as a rules based organisation emphasises greater stability and predictability. The Committee therefore urges the EU to seize the opportunity offered by Russia's 2012 WTO accession to inject urgent new dynamism into the negotiations for a new EU-Russia trade and investment agreement and develop a deeper, more workmanlike relationship.










1.10.1


Equally the Committee calls on the Commission to do its utmost to encourage both the finalisation of Kazakh WTO entry as well as the recent momentum gained by both Algeria and Azerbaijan in their WTO entry negotiations. New momentum also needs to be given to EU accession negotiations with Turkey, a critical energy hub and transit country.










1.11


The Committee also urges the Commission to do its utmost to help secure the proposed "early harvest" WTO agreement, at its forthcoming Ministerial meeting, on Trade Facilitation and other issues related to agriculture that cannot be readily covered in bilateral agreements. With the impasse in the Doha negotiations, even these efforts are making very slow progress. Failure to achieve even this limited objective could reflect very seriously on the WTO's overall negotiating role: final failure at multilateral level could potentially have dire consequences for overall global food security.










1.12


The Committee strongly supports the Commission's initiative for the responsible sourcing of "conflict minerals" (those coming from conflict-affected and other high risk areas), and other options "to assist resource-rich developing countries (and to focus on) the transparency of the supply chain of minerals". We remain concerned however that, with traceability often impossible to determine fully, either trade will be "diverted" to neighbouring countries or that companies might withdraw rather than face unwanted accusations. A voluntary approach based on the OECD guidelines for multinational corporations should also be considered, whilst initiatives, such as EITI (9), which deals with the transparency of payments, should be encouraged and fully supported. Here again it is essential to ensure that a full participatory process involving civil society is set up.




2.   Key essential imports - background

2.1   Many factors are combining to create an exponential demand for natural resources. These include a projected world population of 9bn, rapid industrialisation and urbanisation with more than half of the world's population for the first time now living in towns and cities, and by 2030 up to 2 billion more "middle class" people demanding (and able to pay for) a far greater diversity and choice in the things they wish to consume. No country can have a priority claim on these resources: there is already an exponential rise in mobile phone use around the world.
2.1.1   The problem is often exacerbated by the fact that many key minerals are to be found in conflict zones, whilst key energy sources are often located in countries where there are other political problems. It is therefore essential that global preventative action is taken, before demand so outstrips supply for key raw materials, against either an exponential increase in prices, which alone could have a devastating effect on the ready availability of these materials (not to mention the effect on poverty), or recourse to war and conflict.
2.2   Energy







2.2.1


Energy is a fundamental, strategic factor in any consideration of essential imports for the EU as a basic component in maintaining both our standard of living and our quality of life. Yet the international energy market is highly competitive and volatile. Whereas imports comprise 55 % of the EU energy mix (10), the EU as a whole imports 60 % of its gas and over 80 % of its oil (11), with fast growing competing demand from elsewhere, notably emerging economies.










2.2.2


Global energy demand could increase by 40 % within 20 years whilst an inadequate response to climate change may complicate matters further. A secure and reliable supply of energy is crucial, yet many Member States are only able to rely on a limited number of energy suppliers and are therefore vulnerable to bottlenecks and price volatility, especially for gas and oil. Diversification of energy supply is of particular urgency for the three Baltic States.










2.2.3


Energy is an area of shared competency between the EU and Member States, complicated by issues of commercial confidentiality and national sovereignty. The Commission response has been twofold. First an information exchange mechanism is being set up to cover intergovernmental energy agreements between Member States and third countries. This the Committee has welcomed as "an appropriate step towards effectively implementing a common EU external energy policy" in line with the EU Energy 2020 Strategy, pointing out that "it is essential that Europe should act with a united voice in securing an adequate, stable and secure supply of energy in the foreseeable future".










2.2.3.1


Hitherto no one in the EU could have an overall picture opposite any specific trading partner, but those trading partners certainly do so. There are some 30 intergovernmental agreements between Member States and third countries on oil, some 60 on gas but fewer on electricity.










2.2.4


The second arm of the Commission's strategy is its Energy Roadmap 2050, which the Committee has also welcomed. This emphasises the urgent need to develop energy strategies beyond 2020 and looks at a number of scenarios including very firm energy efficiency measures, carbon pricing, the development of renewable energy, carbon capture and nuclear.










2.2.5


In terms of securing essential imports, the Committee has called for a comprehensive EU external energy strategy (12) and for a common EU foreign policy on energy to be rapidly and progressively stepped up (13). These concerns remain. However, from a specific trade policy viewpoint, the key is both in identifying potential supply and infrastructure bottlenecks and in widening WTO membership amongst our key energy suppliers, not least to encourage greater stability and predictability.




2.3   Food, land and water







2.3.1


The second key area of natural resources involved in maintaining a decent standard and quality of life covers agricultural land, food and water, likewise under threat from an inadequate response to climate change.










2.3.2


The EU enjoys a temperate climate despite its high population density and only one eighth of its land area being suitable for arable production. Increased aridity is a threat faced by southernmost Member States but any import of water would inevitably come from within the EU.










2.3.3


The Committee has already looked at food security (14), notably the wider, global problem and as one of the key drivers for CAP reform.










2.3.4


The EU imports more food from least developed countries than the US, Canada, Japan and Australia combined. Although Copa-Cogeca point to negative trade in agriculture, the Commission shows an overall EU surplus in 2012 of EUR 12,6bn by including food processing. The key EU agricultural import is soya for animal feed, without which meat and dairy production would be at serious risk (GM thresholds are relevant here). Other products only produced in sufficient amounts elsewhere include certain oilseeds, fruit, coffee, cocoa and tea.










2.3.5


With no real threat of restricted imports to the EU, the key trade issues here are differing social and environmental standards, including traceability, SPS (health) and animal welfare, and Intellectual Property concerns. For many developing countries, agricultural products are a key – if not main – export for which the EU is seen as a prime market, where many believe access is unduly restricted through EU food safety and other standards.










2.3.6


Agriculture forms a key part of the WTO Doha negotiations – indeed the negotiations were previously mandated to start in 1999, before Doha was launched – but these have reached impasse. The Committee is most concerned that failure even to secure an "early harvest" agreement on Trade Facilitation and other agriculture related issues at the next WTO Ministerial meeting could have very serious consequences for the WTO, but even worse for overall global food security.




2.4   Key strategic minerals and raw materials







2.4.1


Access to key strategic minerals and raw materials is the third fundamental, strategic area in considering essential imports for the EU.










2.4.2


These key raw materials include metallic and industrial minerals, construction materials, and base metals, such as cobalt, gallium, indium and a range of rare earths. Their use impacts everyday life in many different ways, most notably in cars, planes and IT appliances. In its 2011 Communication the Commission lists 14 key "critical raw materials", with recycling and substitution rates, which it is currently updating to cover market, technological and other developments. Some basic components will of course already be part of many pre-manufactured imports, and other strategic materials are not currently critical, yet IT and other key equipment can quickly become obsolete and then be readily discarded.










2.4.3


The London Metal Exchange estimates that some 7 % of total consumption of copper comes in the automotive sector, but cars also include steel, aluminium, platinum (60 % of total use), palladium, rhodium, lead, tin, cobalt and zinc. Equally, a mobile phone or an I-pad contains copper, silver, gold, palladium and platinum. Regular replacement of these items, every two years or so, is already a major concern, but the growth in use globally is exponential, with an estimated 2 billion mobile phones already in use in China and India alone. It is estimated that China's share of global copper consumption alone has risen from 12 % to 40 % in 10 years.










2.4.4


Due to technological advances, some of today's most crucial, sought after minerals will often no longer be essential tomorrow, but others, such as rare earths (which now for example form a key part of the latest mobile phones), suddenly come into critical demand. For example, China, with an estimated 97 % of rare earth deposits, imposed export restrictions where as yet no recycling or substitution is possible, but the EU had to launch a second WTO Dispute Panel, despite China losing the first.




3.   The strategic, sustainability challenge for the EU







3.1


The securing of strategic raw materials has been a key foreign policy objective throughout history for states and empires – and now for major companies and corporations as well. As mentioned, no economy is self-reliant when it comes to raw material supplies.










3.2


The ever-present danger remains for unforeseen, short-term shocks, whether price driven or through other causes, from failure of transport or infrastructure, to deliberate blockades, environmental or other crises such as occurred at Fukushima. Recent examples include (in 2006 and 2009) major energy shortages due to disruption of supply from Russia, and the earlier 1970s oil shortages.










3.2.1


Most of the remedies available to the Commission deal with the long-term. The Commission has indeed recognised the issue over many years. It tackles barriers through its trade negotiations and, whilst the Committee is assured that provision is included in each case, there appears to be little emphasis on securing essential imports in an emergency.










3.3


Competence here is among the many challenges facing the EU. The EU has competence in trade matters, but it cannot, unlike the US, individual Member States, military organisations or even individual companies, itself stockpile strategic reserves of oil or other key raw materials. As the RMI review points out, "no Member State would support a stockpiling scheme as a policy option".










3.3.1


The EU can only use "soft" power. Its challenge has to be to develop an over-arching strategic framework. Here the EU is well positioned to take a lead in three key areas: promoting a global framework, promoting sustainability and ensuring the full and active engagement of civil society. With many of the Recommendations covering these, it is not necessary to repeat the arguments here, but the Committee welcomes that twice (15) the Commission has stressed that sustainable mining "can and should contribute to sustainable development". Sustainability has to be fundamental to any EU strategy for sourcing essential imports.










3.4


The role of the private sector is critically important: most mineral extraction is now a market transaction. This is clearly seen in the more open parts of the world, including the EU, US, Australia, South Africa, Brazil and India and to some degree with the major Russian energy companies. Here the Committee particularly welcomes the commitment of the EU Industrial Minerals Association to "work actively towards continuous improvement in economic, environmental and social performance".










3.4.1


As the 2011 Communication states: "Securing supplies of raw materials is essentially the task of companies", adding that the role of public authorities "is to ensure the right framework conditions to allow companies to carry out this task".










3.5


In contrast is a centrally planned economy like China's, with most economic levers and players under various degrees of centralised control. China has a clearer, more complete strategic approach to secure its key future needs in food and feed, water, minerals and energy than any other country, which with particular regard to Africa has led to widespread concern. As the Committee has pointed out, "in its search for new sources of raw materials and outward investment China has adopted partnerships in several African countries that concentrate on investment as business, rather than as aid for development" (16).










3.5.1


Yet others say that China has made "bad" deals and is significantly overpaying for its raw materials, and that by dealing with countries which would cause political difficulties for others it is actually broadening the availability of such minerals.










3.6


For many developing resource poor countries, securing access to raw materials is difficult. Even resource-rich, exporting countries need to eradicate poverty. They need to gain more value-added input from processing, as well as establish a working partnership with the private sector.










3.6.1


The concerns on "conflict minerals" have been mentioned. This EC initiative only relates to conflict or post war zones, but as is stated, "the extraction, handling, trading and processing of minerals have been associated with the misuse of revenues, economic setbacks, political conflict and state fragility" underlined by misuse of revenues by belligerents, the so-called "Resource Curse".










3.6.2


Initiatives, such as EITI must be encouraged and fully supported, and full participatory processes involving civil society must be established. That and social dialogue are key factors in ensuring good governance and in combatting corruption. The monitoring role established for civil society in recent EU trade agreements offers an excellent precedent here, but civil society should also be fully and actively engaged, with due regard for transparency, at each stage of the negotiations for FTAs, EPAs and PCAs, before these are concluded. As the private sector plays a key role the voice of the social partners is also critical.




4.   Current Commission strategic minerals and raw materials policy







4.1


The Commission (DG Enterprise) launched its "Raw Materials Initiative" in 2008, This has three pillars based on first a level playing field in access to resources in third countries, secondly fostering a sustainable supply from European resources and thirdly through boosting resource efficiency/recycling.










4.1.1


These latter pillars are of fundamental importance but fall outside the scope of this Opinion. However, the Committee would challenge why so large a percentage of the EU's recyclable metals waste is exported outside the EU, when recycled scrap metal is often considerably more valuable and cheaper than the original raw material: we are effectively subsidising China.










4.2


The Commission’s 2011 Communication adopted the report of its Ad-hoc Working Group on defining critical raw materials. This the Committee covered in its Opinion Tackling Challenges in Commodity Markets and on Raw Materials
 (17) which also looked at the role of financial markets.










4.2.1


As mentioned, the Communication listed 14 key critical raw materials, with their recycling and substitution rates. The Committee welcomes that the current revision is in full consultation with stakeholders, despite not examining policy options that, in countries such as the US or the UK, would be expected to play an integral part.










4.2.2


The Committee welcomes the overall, very thorough methodology used. Amongst other factors, this looks at minerals (and by-products) that are of significant economic importance (whilst comparing minerals with very different properties and used by a very wide range of sectors), those that have a high supply risk, and those with a lack of ready substitutes. Using World Bank indicators, source countries are identified with poor governance or a high risk of disruptive events (from the arbitrary imposition of export quotas to civil war), or where there are low environmental standards. Potential recycling rates are also examined, as are ore grade quality, price volatility and continuing geographic availability. This detailed work remains essential.





Brussels, 16 October 2013.


The President of the European Economic and Social Committee

Henri MALOSSE





(1)  EU Trade Policy for Raw Materials – Second Activity Report, May 2012.

(2)  COM(2008) 699 final and COM(2013) 442 final.

(3)  Commission Communication A Decent Life For All: Ending poverty and giving the world a sustainable future (COM(2013) 92 final, 27 February 2013; OJ C 271, 19.9.2013, p. 144-150.

(4)  See footnote 1.

(5)  COM(2011) 25 final.

(6)  OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Second Edition 2012.

(7)  COM(2006) 567 final, 4 October 2006, point 3.1.iii.

(8)  See footnote 1.

(9)  Extractive Industries Transparency Initiative.

(10)  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 — Energy Roadmap 2050, COM(2011) 885 final, OJ C 229, 31.7.2012, p. 126–132.

(11)  Commission Communication COM(2011) 540 final as quoted in Committee Opinion Intergovernmental agreements between Member States and third countries in the field of energy – OJ C 68, 6.3.2012, p. 65-69.

(12)  EESC's opinion on The External dimension of the EU's energy policy, OJ C 182, 4.8.2009, p. 8-12.

(13)  EESC's opinion on Energy supply – what kind of neighbourhood policy do we need to ensure security of supply to the EU – OJ C 132 3.5.2011, p. 15-21.

(14)  EESC's opinion on Trade and food security, OJ C 255, 22.9.2010, p. 1-9.

(15)  See footnotes 2, 5.

(16)  EESC's opinion Towards a comprehensive European international investment policy, OJ C 318, 29.10.2011.

(17)  OJ C 318, 29.10.2011 p. 76-81.