Brussels is already preparing an emergency team

A decision made thousands of kilometers away could end up affecting a European factory that needs chips, magnets or processed materials to maintain its production. That is the fragility that Brussels is trying to reduce as a particularly sensitive date approaches in its trade relationship with China. For years, Europe has built industrial chains that are highly exposed to certain suppliers. Now, when geopolitical tensions interfere with supply, the European Commission is trying to prevent the next crisis from encountering it again by reacting when the problem is already on the table.

China concentrates supply: The figures help to understand the dimension of the problem. China represents 66% of all rare earths extracted in the world, but its weight increases to 88% when we talk about refined supply, according to the Financial Times. This second proportion is the most revealing, because having the mineral is not enough if there is a lack of industrial capacity to process it and leave it ready for use. For Europe, dependence does not end at the mine: it continues in the plants that convert these raw materials into products that can be used by their manufacturers.

October, the date that worries Brussels: China lifted a one-year ban on some exports of magnets and rare earth raw materials, but that commitment expires in October. European officials remain hopeful that Beijing will extend the truce, although they cannot rule out restrictions returning when the deadline expires. The relief also did not eliminate all controls, because China maintained a licensing system which requires European buyers to submit applications and provide information about their production processes and customers. This uncertainty explains why Brussels prepares responses before learning of the Chinese decision.

A team to anticipate the crisis: According to three officials cited by the Financial Times, the Commission is preparing an emergency force whose first meeting is scheduled for September. Brussels wants to bring together those responsible for industry, commerce, financial services, economy and development aid in the same group, together with the central unit under the direct control of Ursula von der Leyen. Your goal will be to identify problems early and coordinate a common response. China will be one of its focuses, but not the only one, since the initiative also aims to respond to other economic and industrial threats.

Find suppliers and mobilize European money: The strategy combines two moves. On the one hand, identify alternative suppliers and consider the use of EU funds to help maintain supply if an interruption occurs. On the other hand, change the rules with which the most exposed companies operate through a future diversification law, which would force them to reduce their dependence on a single source for certain key inputs. The Commission does not intend to replace Chinese supply overnight, but rather to better spread a risk that today is excessively concentrated.

Nexperia already showed the risk: The closest precedent is not in rare earths, but in semiconductors. Last October, a dispute between the Dutch government and Nexperia’s Chinese owner caused chip supply tensions, to the point that the automobile industry warned of possible shortages. Faced with this pressure, the EU chose to temporarily relax the sanctions applied to another Chinese supplier. The episode showed how high dependency can quickly reduce Brussels’ room for action when the industry begins to run out of alternatives.

Brussels is preparing for the worst scenario: The Commission is also working on measures to make better use of the resources available within Europe. The proposal planned for September would include a tax on the export of aluminum scrap, designed to keep more material in the block and encourage its transformation into new metal, according to sources cited by the Financial Times. Actions are also being studied to increase the recycling of rare earth magnets. The logic is simple: importing from more places helps, but recovering more materials within the EU also reduces foreign exposure.

Images | Carl Gruner

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