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Raw Materials: a blessing or a curse?

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Topic: Raw Materials

Policy recommendations

  • The European Union should allow ACP countries to maintain their sovereignty and policy space in relation to the appropriate use of their own natural resources. They should be able to use investment regulations, tariff barriers and export restrictions to promote equitable, local and sustainable economic development.
  • The European Commission through its development policy should stimulate resource-rich developing countries to implement their own industrial policies, to protect their infant industries by using legitimate barriers to trade, and by introducing environmental measures. This should allow resource-rich developing countries to move up the value chain, so that the added value to (semi) processed products will remain in the country of origin and would thus stimulate economic development.
  • Within its development budget the EU should allocate sufficient resources to the building of energy and environmental infrastructure to enable developing countries to stimulate economic development.
  • The EU should use its political and economic power to set clear rules in relation to the extraction of raw materials. Like suggested in the February 2011 RMI update an EU code of conduct for EU companies operating in third countries should be developed and measures should be taken to enforce such a code of conduct.
  • In order to provide for more transparency in the supply chain and to minimize the role of European companies in fuelling conflicts over resources, the EU should implement Country by Country reporting, following the US example of the Dodd Frank Act.
  • Within the EPA negotiations the EU should be more flexible as suggested in the RMI update and make sure developing countries can demonstrate the use of export taxes as a policy tool and therefore keep using them.
  • In all policy initiatives and actions elaborated on the basis of the strategy laid down in the Raw Materials Initiative that affect developing countries, DG Development should be closely involved, and ACP partner countries and civil society organisations should be consulted.

 

 

The new scramble for Africa?!

The EU raw materials strategy could lock resource-rich developing countries in a situation where they have no choice but to remain net exporters of raw materials, instead of being given the chance to develop their own downstream industries and move up the value chain.

For its supply of raw materials for production and industry, the European Union (EU) depends to a very large extent on imports of all principal raw materials; 70 to 100 percent of all raw materials come from outside the EU, for which developing countries provide a key source.(1) These show that the rationale behind the EUs fierce liberalisation efforts is the emergence of new players on the international markets, namely China and India. The increased competition from these economies is seen and felt by companies and governments in the EU as a potential threat to its sophisticated consumer goods industry.

Problem 1: Eliminating export tariffs

Resource-rich (developing) countries are increasingly more aware of the value of their raw materials. Therefore they start to introduce protectionist measures such as export restrictions, restrictive Foreign Direct Investment (FDI) policies, and corporate taxation to limit easy access by (European) operators to their natural resources. For the EU this forms a cause for concern, being dependent upon the import of raw materials for its industry. The EU therefore strives towards unhindered access to third countries’ resources by means of active raw materials diplomacy, aiming to eliminate threats to the European industry’s global competitiveness. (2)
For developing countries, export taxes are a crucial tool (and the only way) to generate taxes from mineral extraction. Developing countries are very well able to show the use of export taxes as a policy tool in order to foster their own economic development (e.g. stimulating the downstream industries). The EU has no right, under international law or under international economic cooperation, to pressure developing countries into liberalising their raw materials markets.

Problem 2: Development policy as an instrument to ensure access to raw materials

The Commission proposes to use development policies and instruments to attain a win-win situation, arguing that good governance of natural resources is equally good for developing countries as the EU’s access to raw materials. In this light, the EU proposes to support capacity building as well as investigate the possibility of investing in infrastructure projects and post-extractive industries, both key to revenue generation and value addition. These proposals can be welcomed if the economic development of these resource rich developing countries is the primary focus and not the unhindered access to raw materials by European companies.

Problem 3: Transparent taxation and Corporate Social Responsibility

Financial transparency helps civil society and national supervisory bodies to hold governments and companies to account for revenue payments and receipts, and in doing so battle fraud and corruption. The EU has adopted legislation on country-by-country and project-by-project reporting (also see our case study on Fair Taxes), which requires EU companies in the extractives sector to disclose payments to governments. It is imperative the EU now needs to rightly implement the adopted legislation on financial transparency to provide citizens with the information to hold governments and companies to account.
Next to financial transparency it is also of great importance that companies report on their social sustainability and the activities they undertake to make sure they are operating in a social responsible manner. Just recently the European Commission had launched a proposal on Non Financial Reporting to which the European Parliament is due to give its opinion on in the fall of 2013. (3) With this legislation EU enlisted companies should report on their social, environmental and human rights impacts in developing countries.

Problem 4: Conflict minerals

Allowing EU companies to source minerals from high-risk and conflict-affected areas, such as the Eastern Democratic Republic of Congo is highly incoherent to the EU’s own development objectives. The current proposal by the European Commission (put forward in March 2014) to address this issue is unfortunately very weak as it is based on a system of voluntary self-certification whereby importers of tin, tantalum, tungsten and gold can certify themselves as sustainable and responsible importers of these raw materials. When they do so, they are expected to perform ‘due diligence’, which means to take into account the consequences and impacts of their trading to a reasonable degree. The European Parliament is divided on the issue, as several MEP’s are striving for binding measures against the trade and use of conflict minerals, believing that voluntary mechanisms are insufficient. In March the International Trade (INTA) and Development (DEVE) committee of the European Parliament will vote on the proposal. We hope to see binding regulations for companies importing raw materials.

For more information please read our impact study on the EU raw Materials Policy and mining in Rwanda

for backgroundpaper on Raw Materials click here
Photo: Lianne Greef