Korean companies face new obstacle as EU pushes for U.S. IRA-like policy

Written opinion to the European Commission [Source : KITA]

The European Union has sought feedback from companies globally on its Critical Raw Material Act (CRMA) to reduce its dependency on countries such as China, stoking concerns that its new law would resemble U.S. Inflation Reduction Act (IRA) and could undermine South Korean firms’ competitiveness.

The Korean Business Association Europe (KBA Europe) and the Brussels branch of the Korea International Trade Association said last week that they had submitted written opinion to the European Commission.

“CRMA must support the principle of free trade, which is EU’s fundamental trade rule,” KITA and KBA Europe said in their opinion. “It is worrisome when countries become protective and introduce laws and regulations that are only beneficial to domestic companies”

The need for the Korea industries and government to take pre-emptive steps as the Europe’s CRMA is expected to take a similar form to the U.S. Inflation Reduction Act, which provides incentives to only those electric vehicles produced in North America.

The EU is likely to legislate CRMA in a way that benefits only domestically made and developed products of major raw materials as it suffered severe supply chain disruptions from the pandemic and an energy crisis from the war between Russia and Ukraine. A draft of the CRMA is expected to be drawn within the first quarter of next year, at the earliest. Ursula von der Leyen, president of the European Committee, warned in a policy speech in September that reliance on China’s rare earth and lithium is too high and stressed the importance of building strategic reserves.

The so-called CRMA, like the U.S. IRA, is likely to focus on how to strengthen and provide incentives on supply of major raw materially domestically to curb reliance on Chinese goods. The regulation is expected to identify important strategic raw materials as well as measures and goals to secure them. It’s likely that this will include the list of key raw materials previously managed by the EU and materials that are highly dependent on external resources or those exposed to supply disruptions.

CRM list [Source : European Commission]

EU’s critical raw material list was first made in 2008 to manage key raw materials in the region and has been re-designated every three years since 2011 based on regional economic importance and supply disruptions. There are currently 30 materials on the list, which were designated in 2020. China is the main supplier of 19 of those materials, including magnesium and rare earth.

“CMRA should ensure that both EU and non-EU companies aren’t excessively influenced by minimum administrative burdens excessive data requirements,” KITA said in its written opinion to EU.

An official at the Korea Trade-Investment Promotion Agency warned that CRMA could introduce common goals such as procurement of at least 30 percent of EU refined lithium demand from within the region and recover at least 20 percent of rare earth through recycling by 2030.

The issue is that lithium and graphite, which account for a significant amount of 30 items on the critical raw material list, are heavily used to make batteries for EVs. An official in the automobile sector said Hyundai Motor Co. and Kia Corp. with their car plants in the Czech Republic and Slovakia, respectively, may have to produce and sell EVs in Europe.

An official from Korea’s Trade, Industry and Energy Ministry projected that some of the provisions of future CRMA would increase the burden on Korean companies and may violate the provisions prohibiting the implantation of the Korea-EU Free Trade Agreement. The official warned that Korean companies should be discriminated.