The Ministry of Trade, Industry and Energy evaluated the draft EU Critical Raw Materials Act and Carbon Neutral Industry Act released by the European Union (EU), stating that "unlike the U.S. Inflation Reduction Act (IRA), there are no discriminatory provisions included."
On the 17th, the ministry analyzed that the draft Critical Raw Materials Act does not contain discriminatory provisions against non-EU companies or local sourcing requirements for raw materials, and the Carbon Neutral Industry Act is expected to apply equally to both EU-based companies and exporters. It announced plans to hold a corporate meeting next week to identify industry risks and opportunities and to seek response measures.
"Less than 65% imports from third countries"
The ministry expects that since the two bills are drafts from the EU Commission, they will require negotiations with the European Parliament and the Council of Ministers, and the legislative process will take one to two years. The Critical Raw Materials Act announced by the EU Commission on the 16th (local time) focuses on limiting the import of more than 65% of the EU’s strategic raw material consumption from specific third countries by 2030 to reduce supply chain dependence on China.
Based on this, the EU announced plans to conduct supply chain audits targeting large companies within the EU that use strategic raw materials. It also intends to set targets for member states to establish measures related to pollutant collection and recycling, aiming for 10% domestic mining, 40% processing, and 15% recycling of EU raw material consumption by 2030. Although these provisions are expected to burden the domestic battery industry, which has production plants in Poland, Hungary, and other countries, the ministry maintains that there are no provisions discriminating between domestic and foreign companies.
The Carbon Neutral Industry Act, released alongside the draft, defines eight technologies?including solar power, batteries, and carbon capture and storage?as "strategic carbon-neutral technologies" and aims to increase the manufacturing capacity of related industries within the EU to 40% by 2030. The EU plans to limit the permit period for new domestic projects related to carbon-neutral technologies to no more than 18 months and introduce regulatory sandboxes to simplify administrative procedures. When reviewing public procurement bids within the EU, the EU will consider whether the dependency on components from specific countries exceeds 65% and the sustainability of the products.
No discrimination, but a 'European version of IRA'
Although the ministry states there are no discriminatory provisions, the draft’s "critical raw materials monitoring and supply chain stress tests" clause includes a provision to conduct periodic "audits" of the critical raw materials supply chains for large companies. The audit targets are companies with more than 500 employees and annual sales exceeding 150 million euros, approximately 210 billion won, which is expected to include major domestic large corporations operating locally.
If the EU conducts frequent supply chain audits targeting large companies, concerns arise that the burden on Korea’s battery industry, which has a high proportion of Chinese raw materials, will inevitably increase. For example, last year, the dependency on Chinese imports for lithium hydroxide, a key battery raw material, was 90%, and the proportion of Chinese-made precursors, which account for 70% of the cost, reached 95.3%.
The government plans to analyze the impact of the bills by industry and whether they violate World Trade Organization (WTO) norms, and to establish specific response plans to minimize the burden on Korean companies and maximize opportunities through continuous consultations with EU authorities. The ministry has consistently conveyed to the EU that the Critical Raw Materials Act should not apply differential investment, licensing, or incentives to companies inside and outside the EU and should harmonize with existing labor and environmental standards. Prior to the EU’s announcement of the bills, the ministry held three public-private joint meetings in October and November of last year and January of this year to gather opinions from industry and experts.
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