EU Begins Negotiations on Critical Minerals Agreement with the USA

The European Commission (EC) today adopted guidelines for negotiations on a critical minerals agreement with the United States. The aim is to promote supply chains between the EU and the USA for critical raw materials needed for the production of batteries for electric vehicles. The EU’s export of critical raw materials relevant to this industry amounted to €8.3 billion in 2022.

If the EU and the USA reach an agreement on critical minerals, the EU will have the same status under the US Inflation Reduction Act as countries with which the USA has free trade agreements. Companies from the Union will be able to compete on equal terms in the US market with competitors from the USA and third countries, such as Chile, South Korea, and Japan, according to the EC’s statement.

The critical minerals agreement between the EU and the USA will also contribute to strengthening the EU’s production capacities in strategically important industrial sectors. Strict environmental and labor protection provisions will help improve the supply of critical raw materials from sustainable sources.

Additionally, this agreement will support the Commission’s act on zero-emission industry and the act on critical raw materials, aimed at increasing the production of key carbon-neutral technologies in the EU.

The Commission will be authorized to negotiate an agreement that will include provisions to facilitate trade, so that critical raw materials extracted or processed in the EU can be used in vehicles that meet the criteria for US subsidies for clean vehicles.

‘We need to move quickly towards concluding an agreement’

It will also be authorized to cooperate to enhance the sustainability of the critical raw materials sector by promoting high levels of environmental protection, international technical standards, and access to a circular economy, promoting labor rights in the critical raw materials sector, and strengthening sustainable and fair supply chains through common standards and in collaboration with allies and partners.

– Negotiations with the USA on the critical minerals agreement are important because this agreement will allow the Union to receive treatment similar to that of free trade agreements as a US ally under the Inflation Reduction Act. It will ensure fair and unobstructed access to the US market for mining and chemical companies from the Union and enable them to supply electric vehicle manufacturers in the EU and the USA.

We need to move quickly towards concluding this targeted agreement so that companies from the Union have equal treatment as companies from the USA under the Inflation Reduction Act. This will also strengthen our cooperation in developing clean technologies for the green transition and expand access to sustainable and reliable sources of critical minerals without labor exploitation,” said Executive Vice-President of the Commission Valdis Dombrovskis, responsible for trade.

Conditions for Subsidy

The Council will now consider the proposal and make a decision, after which the Commission will be able to start official negotiations with the USA to quickly conclude the agreement.

It is worth noting that the USA enacted the Inflation Reduction Act in August 2022, which introduced incentives for clean vehicles. This is a subsidy in the form of a tax credit for the purchase of battery or fuel cell vehicles that meet the criteria. To qualify for the full subsidy, a vehicle must, among other things, be equipped with a battery containing critical minerals that are at least partially recycled in North America or extracted and processed in the USA or in a country with which the USA has a free trade agreement or a mutual trade agreement.

If the EU and the USA do not reach an agreement on critical minerals, companies from the EU could be excluded from the automotive industry’s supply chains, which would harm exports from the EU. Both parties announced negotiations on the critical minerals agreement in the Joint Statement by President Ursula von der Leyen and President Joe Biden on March 10, 2023, and in the Joint Statement of the EU-US Trade and Technology Council on May 31, according to the statement.