EU, critical raw materials and due diligence
Why you should read about critical raw materials? These substances affect many and different indutries: renewable energies, electric vehicles, smartphones, ICT, fertilizers and other ones…
On 18 March 2024 European Council adopted the proposal of the European critical raw material act which covers rare earths and materials with a high risk of risk disruption. It is in line, among others, with the European Green Deal strategy, the European Climate Law, Batteries Regulation and the 2022 Versailles Declaration.
Essentially, the three pillars of this act are: a) diversify the critical raw materials supply in the perspective of the Europian autonomy b) promoting the circularity; c) develop reserch and innovation.
At this regard, Mr.Jo Brouns declared: “…With the Critical Raw Materials Act we want to turn the challenges of our dependencies into strategic autonomy and an opportunity for our economy. This legislative act will boost our mining sector, enhance our recycling and processing capacities, create local and good quality jobs, and ensure that our industry is up and ready for the digital and green transitions….”.
To compleate the picture, it is important to add that:
- the EU and Norway signed a Memorandum of Understanding (MoU) launching a strategic partnership to develop sustainable land-based raw materials and battery value chains:
- the EU recommendation 2023/2585 of 6 October 2023 on improving the rate of return of used and waste mobile phones, tablets and laptops suggests: “…Small consumer electronics, such as mobile phones, tablets and laptops, have a high embedded value of interest in a circular economy as they contain a large variety of materials, including important critical raw materials, which can be recycled or recovered when waste is managed effectively. Circular models such as reuse, repair or remanufacturing of small consumer electronics, as well as recycling the precious and critical raw materials contained in them, therefore contribute to waste prevention by reintroducing products, components, and secondary raw materials into the economy. Furthermore, the repair and reuse of electrical and electronic equipment as well as the preparation for reuse and recycling of WEEE can boost green jobs in the circular economy. For example, reuse activities in electrical and electronic equipment can create between 60 and 140 jobs per 1 000 tonnes collected with a view to being reused…”
Which are the EU critical raw materials? These CRM are: Boron, Helium, Platinum group metals, Tungsten, Cobalt, Heavy rare earth elements, Phosphate Rock, Vanadium, Aluminium/Bauxite/alumina, Coking Coal, Lithium, Phosphorus, Antimony, Feldspar, Light rare earth elements, Scandium, Arsenic, Fluorspar, Magnesium, Silicon metal, Baryte, Gallium, Manganese, Strontium, Beryllium, Germanium, Natural Graphite, Tantalum, Bismuth, Hafnium, Niobium, Titanium metal, Copper, Nickel. In other words, these substances here are a set of non-energy, non-agricultural raw materials that, due to their high economic importance and their exposure to high supply risk, often caused by a high concentration of supply from a few third countries, are considered critical.
The main economic fields where these materials are employed are: the electrification of automotive industry, phones, wind turbins, fertilizer, semiconductors, aeroplanes industry.
Why the critical raw material do concern the EU? According to the proposal of the regulation, they “…are found at the beginning of all industrial value chains…”and “…are often indispensable inputs for a wide set of strategic sectors including renewable energy, the digital industry, the space and defence sectors and the health sector. At the same time, extraction and processing of CRMs can have negative environmental impacts, depending on the methods and processes used, as well as social impacts….”. In addition, the critical raw materials demand is linked to the development of the green industry, indeed, “…With the global shift towards renewable energy and the digitalisation of our economies and societies, demand for some of these critical raw materials is forecasted to rapidly increase in the coming decades…”.
How to manage the CRM import and production in compliance with sustainability and circular economy? According to the new legal framework, sustainability is an important element of the critical raw materials. Indeed, the production of these materials at different stages of the value chain generates environmental impacts, whether on climate, water, fauna or flora. In order to limit such damage and incentivise the production of more sustainable critical raw materials, the E.U entities bodies have to be empowered to develop a system for the calculation of the environmental footprint of critical raw materials, including a verification process, to ensure that critical raw materials placed on the Union market publicly display information on such footprint. The system should be based on taking into account scientifically sound assessment methods and relevant international standards in the area of life cycle assessment. In particular, the certification of CRM can be obtained in the context of a broad range of public and private certification schemes available with varying scopes and stringency, creating the potential for confusion regarding the nature and veracity of claims made about the relative sustainability of critical raw materials placed on the Union market based on such certification.
Finally, it is interesting to add that article 25 of the proposal lists some actions which should promote a circilar flow of the CRM management: “…national measures on circularity: “…1. Each Member State shall …..adopt and implement national programmes containing measures designed to:
(a) increase the collection of waste with high critical raw materials recovery potential and ensure their introduction into the appropriate recycling system, with a view to maximising the availability and quality of recyclable material as an input to critical raw material recycling facilities;
(b) increase the re-use of products and components with high critical raw materials recovery potential;
(c) increase the use of secondary critical raw materials in manufacturing, including, where appropriate, by taking recycled content into account in award criteria related to public procurement;
(d) increase the technological maturity of recycling technologies for critical raw materials and to promote materials efficiency and the substitution of critical raw materials in applications, at least by including support actions to that effect under national research & innovation programmes;
(e) ensure that their workforce is equipped with the skills needed to support circularity of the critical raw materials value chain…”.
Which are the tasks for the economic operators? To answer this question, we should consider the article 23 of the proposal of the regulation on CRM which sets a due diligence obligation for the producer and importer. In particolar, the mentioned rule about the company rules preparness lays down that “Member States shall identify the large companies that manufacture strategic technologies using strategic raw materials on their territory…” for “strategic technologies” the mentioned article means “…batteries for energy storage and e-mobility, equipment related to hydrogen production and utilisation, equipment related to renewable energy
generation, traction motors, heat pumps, data transmission and storage, mobile electronic devices, equipment related to additive manufacturing, robotics, drones, rocket launchers, satellites and advanced chips…”.
- Obligation of audit on the supply chain: “…Large companies identified by Member States ….shall, every two years, perform an audit of their supply chain, including:
(a) a mapping of where the strategic raw materials they use are extracted, processed or recycled;
(b) a stress test of their supply chain of strategic raw materials, consisting of an assessment of its vulnerability to supply disruptions by estimating the impact of different scenarios that may cause such disruptions and their potential effects, taking into account at least the elements listed in Article 19(3)…”.
- Obligation of report containing the results of the mentioned audit to their board of directors.
From a customs prospective, the economic operators have to take care of:
- Customs classification;
- Customs controls.