This article is part of a Synergies series on Next generation trade arrangements for environment and sustainable development. Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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Critical minerals have captured the world’s attention as constituting a modern issue straddling matters of security, sovereignty, industry, and sustainability. Characterized by concentration in production and supply chains, they are imperative for energy transition industries and manufacturing of technology and defence equipment. For resource-hungry economies such as the United States, the European Union, Japan, South Korea, and the United Kingdom, securing resilient and sustainable critical minerals supply chains is key to resolving anxieties about perceived Chinese weaponization of supply chains, and ensuring their economic security and national security. For resource-rich developing countries across Asia, Africa, and South America (e.g. Chile), the priority lies in not only securing fair prices, but also leveraging mineral endowments to support domestic industrialization, economic diversification, and escape primary commodity dependence.

In result, we see the re-emergence of an age-old tension that has shaped both the foundations and evolution of global trade. Trade rules conceptualized during the interwar period and institutionalized in the General Agreement on Tariffs and Trade (GATT) were grounded in securing access to raw materials and markets. The references to the “resources of the world” (Preamble, First Recital) and “equitable share of the international supply of products” (Article XX(j)), and rules prohibiting the use of quantitative restrictions (Article XI), also reflect this commitment to the free exchange of goods across borders. Yet, the rules partly and imperfectly accommodate some legitimate public policy concerns, in turn creating the need to experiment with new forms of trade cooperation. This article explores why such an evolution has become necessary, what new trade agreements promise and the challenges they create, and proposes alternative sites of cooperation from the view of resource-rich developing countries. 

Recent episodes reveal a tense relationship between trade rules on one hand, and economic security, sustainability, and industrialization agendas. A festering grievance of developing countries has been the limited policy space to introduce trade policies in pursuit of development, as resulting from World Trade Organization (WTO) rules. Recently re-clarified in the Indonesia – Raw Materials dispute, a WTO panel rejected Indonesia’s arguments that its export ban and domestic processing requirements on nickel ore were necessary to create a domestic electric vehicle industry. It held that such measure constituted violations of the prohibition on export restrictions and failed to genuinely meet any of the enumerated policy objectives. 

Similarly, other resource-rich countries find themselves between a rock and a hard place, navigating the need to attract foreign investments and technology amid fiscal constraints that make subsidies or incentives infeasible but restrictions lucrative, even at the risk of legal challenge. At the same time, the UN Secretary-General’s Panel on Critical Energy Transition Minerals suggests that “static trade and investment rules” be improved to help producer economies realize these goals and avoid a repeat of historical extractivism.

Thus, a complex web of efficiency, legality, and equity concerns complicate global cooperation on critical minerals. While prior forms of trade cooperation on commodities involved the creation of “international commodity agreements” to protect their price stability, the current situation is further problematized by concerns such as sustainable sourcing, supply chain security, and industrialization objectives. In response, new forms of trade cooperation have emerged and are emerging. 

Critical minerals diplomacy has taken shape through a proliferation of sectoral partnerships (in addition to trade and investment agreements) on trade and investment in critical minerals, typically signed by and among developed countries (the United States, EU, Japan, Canada, Australia, UK) and involving some developing countries. Signed as Memoranda of Understanding or Joint Statements between state representatives, these instruments tend to be non-binding in nature, incomprehensive in design, and vague in substance. Their main aims are investment facilitation, uptake of sustainable standards in supply chains, and cooperation on research. Some of them, when signed with developing countries, include vague and non-committal language on value chain integration and value addition at source. But, the non-performance of these commitments may go unchallenged due to their lack of enforceability. Yet, the simultaneous exposure of producer economies to WTO rules that may conversely be used to challenge their measures amounts to selective delegalization, and effectively tilts the balance of power towards the consumer country.  

Further, instruments signed between resource-hungry (and primarily developed) countries seem to serve non-obvious purposes. Although such instruments do not directly seek access to the producer’s resources, they seek to institutionalize cooperation among themselves to shape the future direction of critical minerals cooperation. For example, the adoption of green premiums and standards-based markets—i.e. demand-side measures—is a key economic objective to compete with cheap Chinese exports. Through the phenomena of serial bilateralism and network effects, the repetition of similar commitments across agreements enables these countries to pursue norm-entrepreneurship and, in turn, encourage the direction of cooperation in a pre-determined way. The increasing securitization and commitments to coordinate against third country practices are also victims of these phenomena.

When such shifts occur without the involvement of most producer economies, only some interests disseminate successfully and get considered in formalization processes, thereby providing more power to certain normative ideas, goals, and countries. This is what happened when, predictably, the United States recently established the plurilateral cooperation called the Forum on Resource Geostrategic Engagement (FORGE). It also proposed a plurilateral trade initiative on critical minerals to ensure minimum import prices (based on fair market value) through variable tariffs. The US-EU-Japan trilateral statement highlights the inclusion of border-adjusted price floors, standards-based markets, price gap subsidies, or offtake-agreements in such a plurilateral agreement. The US-Mexico Critical Minerals Action Plan also envisages that an agreement could extend beyond price measures to include trade measures that support supply chain resilience, coordinated rapid responses to supply chain disruptions, and stockpiling. 

Although further details of the plurilateral initiative are awaited, there are some immediate noticeable concerns. While price support may enhance project feasibility and secure fair prices for raw commodities, it does little to diversify supply, leaves industrialization objectives unaddressed, and provides limited guarantees on sustainability standards. Moreover, such bloc-based behaviour risks inviting further trade hostilities with China and places producer countries in a precarious position of navigating geopolitical hostilities between sides.  

As of now, the evolution of critical minerals diplomacy is moving towards formalization among a group of countries. But it remains plagued by power asymmetries in bargaining, battles of narratives (such as demand vs. supply, security vs. industrialization), fragmentation, and ensuing lack of transparency—typically to the detriment of developing producer countries. Thus, producer economies must not remain silent actors. Instead, they must critically assess the implications of such an agreement for them and create negotiating strategies to ensure their resource wealth may be optimized in accordance with national goals. Needless to add that such goals must be matched by existing or planned threshold national capabilities, like electric power. Additionally, they must identify appropriate platforms in which to ground their approach to minerals cooperation. 

Although innovations in global cooperation are progressing across bilateral, regional, and even some multilateral formats, it is surprising that the world’s central institution on global trade, the WTO, has not yet been a focal point of critical minerals cooperation. Yet, the WTO as a system has several mechanisms and characteristics that may help countries overcome the problems identified and facilitate a balanced approach to critical minerals trade. 

First, it involves 166 members, representing an overwhelming portion of the world economy. Second, the heart of the matter is trade in critical minerals, despite the various “ands”. Monitoring trade flows and policies, as well as reporting trade concerns and needs of countries, are already functions that WTO performs. The WTO also has a strong and neutral Secretariat to assist in performing those functions, the institutional memory of which will be difficult to replicate elsewhere. Through its committees, it has experience in facilitating discussions on national security, industrial policy, tariffs, and standards. Third, it contains transparency mechanisms, to record both trade measures as well as bilateral agreements. It can help cure the opacity associated with several critical minerals instruments that poses severe domestic accountability and global governance challenges, since they do not constitute “free trade agreements” under Article XXIV of the GATT. 

A potential plurilateral critical minerals initiative at the WTO could facilitate opportunities for cooperation while signalling a commitment to an international legal and rules-based system. For a plurilateral agreement within the WTO to be effective in addressing both demand and supply side concerns, it should include the participation of major producing and consuming economies. Yet, the experience of the joint initiatives proves that even though discussions may commence, say at the initiation of resource-rich countries, the formal addition of any rules agreed to the rulebook may prove difficult. Alternatively, a code of best practices may be easier achieved. Such a code could pertain to technical assistance and transfers, geological mapping cooperation, or support for industrialization concerns through permission for time-bound restrictions comprising local content policies and investment conditions, for example. While WTO dispute resolution for not complying with value addition commitments may not be available to producer economies, guarantees against initiation of disputes for pursuing time-bound restrictions would still help. Such discussions could begin informally, as has been practiced with sustainable trade, but which may at the minimum still help shape the normative dimensions of the issue before progressing to a formalized structure.

Yet, in this current scenario, it is necessary to acknowledge that a general weakening of multilateralism, a sense that some issues like economic security should be outside the WTO’s scope, or the divisiveness of issues involved guaranteeing consensus-related challenges, may have discouraged countries from initiating discussions there. Nonetheless, in light of recent efforts to formalize critical minerals agreements, including tariff policies outside the WTO, producer countries should request discussions on the topic at the WTO and encourage wide participation, especially of large members like the EU. In contrast to joining established groups driven by powerful consumer nations, the WTO (though not free of power politics) could nonetheless provide a more neutral opportunity.  

If these fail, alternative options should include multi-pronged strategies, one of which is signing binding critical minerals agreements that seriously address sustainability and industrialization concerns. Additionally, other candidate sites of cooperation are regional groupings that have strong value propositions for critical mineral value chains. For instance, regional cooperation in the ASEAN region or African countries for a battery value chain could be leveraged to improve negotiating capacities vis-à-vis consumer countries. While these proposals are more holistic in the sense of addressing access and industrialization objectives, other options such as a “minerals trust”—i.e. a central repository managing the trade in critical minerals—could ensure fair prices. 

Several efforts are also taking shape at the G7, G20, World Bank, International Energy Agency, and the UNCTAD. These institutions typically address non-trade concerns, such as finance and infrastructure, as well as generating information to support countries in policymaking. Academic institutions and think tanks may also be enlisted to support governments in building negotiating strategies and capacities. It is imperative that such efforts continue not in silos, but through institutional cooperation.

A plethora of interests is being injected into critical minerals cooperation. While blunt instruments such as export bans should be avoided, it is clear that the interests of the global energy transition, strategic interests of economic security, and evolving normative positions demand serious cooperation and engagement between producer and consumer countries. Yet, the emerging architecture of critical minerals cooperation risks reproducing long-standing asymmetries between resource-consuming and resource-producing economies. Platforms and avenues that enable wide-ranging cooperation on diverse sets of issues should be pursued instead. The good news is that such a platform is readily available. The tougher question is whether the key countries will find the collective political will to use it soon enough.

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Sunayana Sasmal is Research Fellow in International Trade at the UK Trade Policy Observatory, University of Sussex.

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