[News Terms] What Is the 'Critical Raw Materials Act (CRMA)' That the EU Plans to Enact?

Finished vehicles are waiting in the storage yard next to the export shipment dock at Hyundai Motor Company's Ulsan plant / Photo by Yonhap News

South Korean export companies operating in Europe are facing an emergency. This is due to the upcoming passage early next year of the so-called European version of the 'Inflation Reduction Act (IRA)', known as the 'Critical Raw Materials Act (CRMA)'. The bill is expected to focus on reducing dependence on overseas resources and components to establish a stable supply chain within Europe.

What is the EU's Critical Raw Materials Act (CRMA)?

The European Commission, which oversees the common market regulations of the 27 EU member states, has long designated several raw materials essential to European industry as 'Critical Raw Materials (CRM)'. The Commission first announced a list of 14 minerals as 'CRM' in 2011 and has updated the list every three years, which now includes over 30 items.

The updated 2020 list of Critical Raw Materials (CRM) by the European Union. It includes materials related to eco-friendly vehicles and energy facilities, such as lithium and titanium. / Photo by EU Executive Commission official website capture

The Commission designates CRMs based on three criteria. The first is 'Link to industry', referring to raw materials critically used in general manufacturing. The second is 'Modern technology', which includes rare earth elements related to electronics and automation industries such as smartphones and robots. The third is 'Environment', covering minerals related to secondary batteries and renewable energy facilities. This means that raw materials used in Korea’s major exports to the EU?from semiconductors to wireless communication devices and electric vehicles?could be included in the CRM list at any time.

"At least 30% of lithium must be sourced within the EU"?Potential protectionist legislation

In the past, the Commission only defined CRMs and conducted research analyzing supply risks, without showing any intention to introduce related regulations. However, recently the Commission announced it will legislate the CRMA by the first quarter (January to March) of next year to promote domestic supply of CRMs.

The specific contents of the CRMA have not yet been disclosed. However, if the act discriminates against manufactured goods using minerals from regions such as China and Asia to encourage European mineral production and consumption, there is concern it could become a protectionist law similar to the US IRA. The recently enacted IRA includes provisions denying government subsidies for electric vehicle batteries unless the raw materials originate from the US or North America, which has sparked controversy.

EU Commission building in Brussels, Belgium / Photo by Yonhap News

Voices supporting protectionism have already emerged within the Commission. According to the EU policy media outlet 'EURACTIV', Thierry Breton, the Commissioner for Internal Market, stated last September that "at least 30% of refined lithium demand in Europe and an average of 20% of all rare earth elements must be supplied within the EU."

If the CRMA imposes additional tariffs or withdraws subsidies on manufactured goods with low proportions of European minerals, South Korea’s export competitiveness to the EU will suffer significant damage. Even if tariffs are not imposed, overseas countries exporting to the EU may be required to provide various certification documents, such as the proportion of European materials per product, due to the CRMA. This would create very cumbersome non-tariff barriers, especially for small and medium-sized enterprises.

"The principle of free trade must be upheld"?Concerns conveyed by domestic companies

It is known that domestic companies have also conveyed their concerns about the CRMA to the Commission. According to 'Yonhap News' on the 26th, the European Korean Business Association (KBA Europe) and the Brussels branch of the Korea International Trade Association (KITA) jointly submitted a statement saying, "The CRMA needs to support the fundamental EU trade rule of free trade principles."

They expressed concern about the trend of protectionism triggered by some countries introducing discriminatory laws and regulations favoring their own companies, emphasizing that "the CRMA should ensure minimal administrative burdens and reasonable documentation requirements so that both EU and non-EU companies are not excessively affected."