EU Warns It Lacks Near-Term Power to Sway China on Rare Earths

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(Bloomberg) — The European Union is privately warning that there’s little it can do in the near term to compel China to ease export controls on critical rare earths, a move that’s caused major disruptions for Europe’s industry, including auto and defense manufacturers.

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Senior EU officials have told member states that efforts to diversify away from China are difficult and the bloc’s economic security plans have so far fallen short, according to people familiar with the discussions. 

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Beijing has been throttling shipments of rare earth magnets that are used in everything from electric vehicle batteries to defense manufacturing, requiring companies to obtain import permits. While the EU will benefit from an agreement between US President Donald Trump and China’s Xi Jinping to pause stringent new export controls China announced in October, earlier restrictions imposed in April will remain, said the people. 

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Discussions between Chinese and EU officials in recent days have failed to move the needle, said the people, who spoke on the condition of anonymity. 

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A spokesman for the European Commission, Olof Gill, said discussions with China on rare earth exports have intensified in an effort to simplify procedures and provide more certainty to European industry. Those engagements will continue, he said. 

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“China and Europe have extensive common interests and enormous potential for cooperation in trade,” He Yadong, a spokesperson with China’s Ministry of Commerce, told reporters Thursday. “China is willing to deepen mutually beneficial cooperation with the European Union, explore the possibilities of negotiating various economic and trade agreements.”

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China and the EU have been discussing the issuance of general licenses, which would allow for repeated shipments of rare earths over a period of time to pre-approved buyers, the people said. But they cautioned such a solution would take time and the EU would ultimately remain at the whim of decisions taken in Beijing. 

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The commission, which handles trade matters for the EU, briefed ambassadors from the bloc’s 27 member states on Wednesday on the latest developments.

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The US said this month that China would issue general licenses valid for exports of rare earths, gallium, germanium, antimony and graphite. Washington said in return, it would lower tariffs on China’s exports and roll back some export controls on Chinese companies. 

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A report published earlier this year by the National University of Singapore notes that Beijing’s dominance over some heavy rare earths is “near-absolute,” with these elements being critical inputs for “industries of the future such as robotics, automation, advanced defense, electric vehicles, and green energy technologies.”

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Any concessions the EU wins will almost certainly come with demands from China, the people said. Beijing has strongly protested against sanctions the bloc imposed on several Chinese firms over their support for Russia’s war against Ukraine, even as the vast majority of supplies Moscow’s war machine depends on are shipped from China and Hong Kong.