EU Prepares Trade Options To Counter China Rare Earth Curbs

The European Union (EU) is working on trade options to counter China’s planned export controls on critical raw materials should the bloc fail to reach a diplomatic solution with Beijing.

The European Commission is preparing a list of trade measures by the end of the month that can later be deployed against China to boost its negotiating leverage, according to people familiar with the matter. The commission is also developing a plan to protect critical supplies in the short-term and secure other sources. 

China’s export restrictions would pose a massive threat to Europe’s industry and security, as the inputs are critical across sectors and used in everything from electric vehicle batteries to defense manufacturing. The EU’s trade chief Maros Sefcovic held talks with his Chinese counterpart, Wang Wentao, without reaching an agreement that addressed the bloc’s concerns.

“We have no interest in escalation,” Sefcovic told reporters after the call Tuesday. “However, this situation casts a shadow over our relationship, therefore a prompt resolution is essential.”

Sefcovic said that contact would intensify and that a Chinese team will come to Brussels to discuss the matter in the coming days.

A spokesperson for the commission, which handles trade matters for the bloc, declined to comment on preparation of the measures. 

The issue will likely be addressed at an EU leaders’ summit in Brussels this week, though the commission wants to avoid a discussion on specific measures, said the people, who spoke on the condition of anonymity. They declined to say what trade options the EU could consider, citing the sensitive nature of the matter.

Beijing announced plans to significantly tighten controls on its exports of rare earths and other critical materials earlier this month. Under the measures, overseas exporters of items that use even traces of certain rare earths sourced from China would need an export license.

Over the past week, Beijing has been trying to calm fears among foreign officials over the proposed framework. It says the curbs are a “responsible act” intended to protect world peace and stability. China accounts for about 70% of the global supply of rare earths.

A report published this week by the European Council on Foreign Relations suggests that potential choke-points that the EU could leverage include aviation parts, older deep ultraviolet lithography machines and specialty steel products such as high-precision bearings.

The EU is also in discussions with Group of Seven nations over the possibility of coordinated efforts to diversify away from Chinese supplies.

“In order to offset unfair trade practices,” according to a draft version of the summit conclusions seen by Bloomberg, “the European Council invites the commission to make full use of the EU’s economic security instruments.”