Europe's dependence on cheap raw materials is threatening the progress of developing nations
Could the global financial crisis further marginalise the world's poorest countries? The answer may well be yes if European governments get their way in implementing a little-known initiative dreamed up by policymakers in Brussels and backed by the British government.
Two years ago EU governments quietly launched a new strategy to address its dependence on imports of "strategically important raw materials" – especially "hi-tech" metals like cobalt, rare earths and titanium – along with wood, chemicals and hides and skins. Access to these was seen as critical to the EU's industrial competitiveness. The European commission is about to release a progress report on implementing the strategy – dubbed the Raw Materials Initiative – that is likely to mark a step-up in a new global resource grab.
In order for EU companies to gain access to new supplies of these raw materials, Brussels is pushing for fundamental changes to other countries' trade policies. It wants developing countries to stop restricting exports of these materials and to abolish investment rules that deny EU companies access to them. The main targets are China, Russia and Ukraine – and, critically, poorer African countries. The problem is that such "restrictive" trade policies can be critical to reducing poverty, something that EU free trade ideologues continue to reject.
The Kenyan government, for instance, imposes a 40% tax on exports of raw hides and skins from cattle, to keep them in the country and develop the leather processing industry. Exports of leather have boomed since the tax was introduced, adding €80m to government revenues since 2005 and helping to create 7,000 new jobs in Nairobi's tanneries. Yet, in trade negotiations, the EU is pushing for severe limits on the use of Kenya's export taxes, as it is with the 70 other countries applying similar restrictions.
The EU wants its companies to have the same access rights to raw materials as local businesses. It rejects the idea that poor countries should restrict foreign investment to promote industrialisation, even though the most economically successful countries, including most EU states, in the past often did precisely that. As Ha-Joon Chang wrote in these pages last week, South Korea owes its staggering rise to wealth partly to banning foreign investment in key industrial sectors and imposing limits on foreign ownership of companies.
EU firms have already acquired or requested 5m hectares of land in developing countries to produce biofuels. With investment barriers eliminated, land-grabbing, deforestation and dubious mining projects by EU companies are likely to multiply. Poor countries need to attract more investment but on their own terms, not those of EU firms.
If preventing development were not enough, the EU's new resource grab also risks increasing tensions among the world's great power blocs. China and the west are vying for control over raw materials while Africa remains plagued by conflict over diamonds, timber and oil. According to the UK Ministry of Defence, the shift in global power from the west to Asia, along with the challenges of climate change, resource scarcity and population growth, are likely to result in "intense competition between major powers" and "scrambles for energy, minerals and fertile land are likely to occur with increasing intensity".
EU trade policy has long been hijacked by European business, which wants raw materials at cheap prices. EU priorities are a mirror image of positions adopted by corporate lobby groups. The commission frankly states: "We will rely on EU business to provide much of the information on the barriers which affect their trade or investment with third countries". There is a serious risk that Europe's budget and unemployment crisis will put policymakers even more in hock to the demands of big business.
It is hardly surprising that European policy faces mounting opposition from most African countries, which have long opposed signing investment agreements with the EU. The Raw Materials Initiative should be opposed by Europe's citizens, too, because it distracts from the need to reduce their own consumption. Europeans already consume four times as much as the average African. It is in their own interest to demand new international action to manage use of the world's limited natural resources equitably and sustainably.