EU Advances Legislation on Critical Raw Materials Act (CRMA)
Global Fragmentation Accelerates, Posing Severe Threat to Korean Economy
(Photo by Asia Economy)
[Asia Economy Reporter Kiho Sung] As the European Union (EU) is pushing legislation for the tentative 'Critical Raw Materials Act (CRMA)' to strengthen the supply chain of major mineral raw materials, Korean companies are facing the risk of being caught in a sandwich situation. There are concerns that the EU's raw materials law could become a 'second Inflation Reduction Act (IRA).' Following the United States, Europe is accelerating economic bloc formation, prompting calls for the creation of a Korean version of the Inflation Reduction Act, highlighting the urgent need for government response.
According to related industries on the 28th, the Korea Business Association Europe (KBA Europe) and the Brussels branch of the Korea International Trade Association, which acts as the secretariat of the association, announced that they jointly submitted a statement to the EU Commission on the 25th (local time). The statement said, "CRMA should support the EU's fundamental trade rule of free trade principles," and warned, "If protectionist trends are triggered by some countries introducing laws and regulations favorable only to their own companies, it would be a matter of concern." The general view is that the EU's CRMA will resemble the U.S. Inflation Reduction Act, which focuses benefits on North American electric vehicles.
Due to supply chain disruptions caused by COVID-19 and the Russia-Ukraine war, there is growing momentum for the EU to provide benefits only for domestic production and developed products of key raw materials, based on the energy crisis.
The Brussels Trade Office of the Korea Trade-Investment Promotion Agency (KOTRA) predicted, "In the short term, international cooperation to diversify supply chains and secure raw materials will be strengthened," and "In the long term, sustainable standards for related industries such as eco-friendly mining and metal smelting to build metal supply chains will be established, along with European and international standards." It also foresaw that emphasis on recycled materials will lead to related technology and regulatory developments.
The EU plans to draft the CRMA as early as the first quarter of next year. Ursula von der Leyen, President of the EU Commission, emphasized in her policy speech last September that the dependence on China for rare earths and lithium is excessively high and stressed the importance of building strategic reserves.
The CRMA is expected to include materials with high external dependence or those exposed to supply chain crises by industry, including the existing list of Critical Raw Materials (CRM) managed by the EU. CRM was first designated in 2008 to manage critical raw materials within the region. Since 2011, it has been re-designated every three years based on economic importance and supply crisis within the region. Currently, the critical raw materials are 30 substances re-designated in 2020. Among these, China is the main importer of 19 materials, including magnesium and rare earths.
Within Europe, there is considerable support for the related law. Germany's Federal Ministry for Economic Affairs and Climate Action (BMWK) and France's Ministry of Economy and Finance jointly requested, through a joint statement on legislation, an evaluation of strengthening supply chain crisis management for critical raw materials, the establishment of public-private investment funds for related investments, and investments through existing financial instruments. The European Automobile Manufacturers Association (ACEA), a representative industry association, welcomed the legislative announcement of the CRMA several times through official statements, emphasizing the necessity of the raw materials law.
The problem is that lithium and graphite, which account for a significant portion of the 30 raw materials forming the basis of the CRMA's CRM, are heavily used in electric vehicle batteries. Experts evaluate that this could seriously impact the domestic automobile and battery industries.
Professor Pilsoo Kim of the Department of Future Automotive at Daelim University emphasized, "Following the U.S., Europe is also moving toward bloc formation, and this atmosphere is gradually spreading even to Southeast Asia, so urgent countermeasures are needed." He advised, "There are talks about creating a 'Korean version of the Inflation Reduction Act' domestically, but considering the small domestic market and lack of resources, it is an impossible idea. Since a strong confrontation would put us at a disadvantage, policy direction should be set toward strengthening the free trade system."
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