The EU’s worrying new resource grab

Mark Curtis explains how the European Commission’s raw-materials proposals will harm developing countries.

The European Commission will in December publish a communication on its Raw Materials Initiative, a strategy to enable EU companies to access ‘strategically important’ minerals and resources – a definition that includes wood, hides and skins. The Commission argues that the initiative will also promote the EU’s development objectives. Increasing evidence suggests, however, that it will lock poorer countries into poverty and could increase the likelihood of resource conflicts.

The main problem is with the trade policies accompanying the initiative. First, the EU wants to curb developing countries’ ability to levy taxes on the exports of their raw materials. But around 70 countries currently use export taxes to increase government revenue or to protect the environment. Most importantly, levying such taxes helps develop manufacturing companies and processing industries by providing an incentive to keep raw materials in a country.

The Kenyan government, for example, recently introduced a 40% tax on the export of raw hides and skins to help develop its own leather industry. In the past few years, my analysis is that around 7,000 new jobs have been created in Nairobi’s tanneries while increasing incomes for a further 40,000 people in cottage industries. Government earnings from the sector have risen by more than €8 million. This diversification away from dependence on raw materials is what the EU says it wants to help developing countries achieve. Yet in ‘free trade’ negotiations with Kenya, Brussels is pushing for severe limits on the use of these export taxes.

The second way in which the EU is kicking away the ladder for poor countries to develop is by seeking new powers for EU companies investing overseas. In every trade negotiation, the Commission is pushing for ‘national treatment’, according EU companies the same investment rights as local businesses. If this seems fair, we should recall that the economically most successful countries have often restricted foreign investment to promote industrialisation. In the past, most EU states and also South Korea, the most successful (former) developing country, even banned foreign investment in some sectors and imposed limits on foreign ownership. With investment barriers eliminated, land-grabbing, deforestation and bad mining projects by foreign companies are likely to become even more widespread.

The Commission argues that Europe’s competitiveness requires access to ‘hi-tech’ metals, especially rare earths, which are vital to future ‘green technology’. Its main targets are China and Russia, which hold major reserves of important raw materials and which, the Commission claims, gain unfair advantage by restricting their exports to develop processing industries. Yet this does not explain why poor African and Asian countries are also targeted. Even more dangerous is that both Brussels and Beijing, through their unilateral resource grabs, may be contributing to a great-power competition for resources, possibly leading to resource conflicts. Instead, the world needs a new international process for managing the equitable use of the world’s limited natural resources.

Although the EU’s initiative also addresses recycling, pushing for ever greater access to raw materials distracts from the need to reduce consumption of them. The average European consumes three times more than the average Asian and more than four times as much as the average African. Indeed, Europe already accounts for a quarter of world imports of raw materials, and depends on them more than any other world region.

In reality, the Commission’s strategy has been hijacked by companies that want raw materials at cheap prices. It is no surprise it faces mounting opposition from developing countries, which are fighting to preserve the right to use export taxes and have long opposed investment agreements with the EU. The Raw Materials Initiative should be opposed by EU citizens too.

Mark Curtis is director of Curtis Research, a UK-based consultancy, and the author of a paper on the initiative commissioned by a group of European NGOs.