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25 September 2023

 

The European Parliament adopts its position on the EU’s Critical Raw Material Act – Towards a WTO-compatible measure?

On 14 September 2023, the European Parliament adopted its position on the European Commission’s (hereinafter, Commission) Proposal for a Regulation establishing a framework for ensuring a secure and sustainable supply of critical raw materials (hereinafter, the Critical Raw Materials Act), which was published on 16 March 2023. The Critical Raw Materials Act aims at ensuring the EU’s access to secure, diversified, affordable and sustainable critical materials in order to meet its climate and digital objectives. However, the proposal risks violating international trade rules.

An overview of the EU’s approach on critical raw materials

The EU has been working to secure future supply chains in a context of environmental and geopolitical imperatives, in which access to critical raw materials is required in order to enable the transition to ‘green’ and more environmentally friendly technologies.

The EU's approach to critical raw materials circles around the identification of specific materials that are crucial to the EU’s economy based on criteria such as economic importance and supply risk. Since 2011, the EU regularly updates its list of critical raw materials, and this approach includes various measures aimed at securing access and promoting sustainable use, such as the establishment, in 2020, of an industrial alliance dedicated to securing a sustainable supply of raw materials in Europe.

The Commission’s Proposal for the Critical Raw Materials Act focuses on increasing the availability of such materials in the EU Single Market and aims at ensuring the EU’s access to “a secure, diversified, affordable and sustainable supply of critical raw materials”. The Commission considers that such materials are crucially needed for certain strategic sectors, including “the net zero industry, the digital industry, aerospace, and defence sectors”. As the demand for such raw materials is projected to increase, the EU heavily relies on imports from third country suppliers that possess large concentrations of critical raw materials in their territories. For instance, the production of lithium, the raw material needed for batteries, is concentrated in Argentina, Australia, Chile, and China. The EU Critical Raw Materials Act aims at strengthening the EU’s entire value chain for critical raw materials, diversifying imports, and enhancing sustainability (see Trade Perspectives, Issue No. 6 of 27 March 2023).

The Critical Raw Materials Act

As mentioned above, the Proposal for the Critical Raw Materials Act focuses on increasing the availability of critical raw materials in the EU, on one hand, and ensuring the EU’s access to a secure and diversified supply of these materials, on the other hand.

The Proposal for the Critical Raw Materials Act proposes to include the 2020 List of critical raw materials and a new strategic raw materials list under the framework of the Regulation. To strengthen the different stages of the strategic raw materials value chain, the Proposal for the Critical Raw Materials Act provides clear benchmarks for the EU’s domestic capacities and for the sourcing of raw materials: 1) A minimum of 10% of the EU’s annual consumption for extraction; 2) A minimum of 40% of the EU’s annual consumption for processing; 3) A minimum of 15% of the EU’s annual consumption for recycling; and 4) Not more than 65% of the EU’s annual consumption of each strategic raw material at any relevant stage of processing from a single third country.

The Proposal for the Critical Raw Materials Act pursues to reduce the “administrative burden and simplify permitting procedures for critical raw materials projects in the EU”. For instance, the Critical Raw Materials Act would establish a new framework to select and implement Strategic Projects that can benefit from “support for access to finance and shorter permitting timeframes”.

The Critical Raw Materials Act would also provide for the “monitoring of critical raw materials supply chains, and the coordination of strategic raw materials stocks among EU Member States”. As clarified in the Questions and Answers published by the Commission, certain large companies would need to perform an audit of their strategic raw materials supply chains containing “a company-level stress test”. This is intended to ensure that companies “take into account the supply risks of strategic raw materials and develop appropriate mitigation strategies to be better prepared in the event of a supply disruption”. Under the Critical Raw Materials Act, the Commission would “strengthen the uptake and deployment of breakthrough technologies in critical raw materials”.

According to the Commission’s Proposal, the EU Member States would be required to “adopt and implement national measures to improve the collection of critical raw materials rich waste and ensure its recycling into secondary critical raw materials”. Together with private operators, EU Member States would have to “investigate the potential for recovery of critical raw materials from extractive waste”, and products containing permanent magnets would need to “meet circularity requirements and provide information on the recyclability and recycled content”. With respect to the international engagement, the EU would be required to “seek mutually beneficial partnerships with emerging markets and developing economies, notably in the framework of its Global Gateway strategy”. The EU would step up its trade actions, such as by establishing a critical raw materials club with like-minded countries and by expanding its network of Sustainable Investment Facilitation Agreements and preferential trade agreements.

The Council’s and the European Parliament’s position

The European Parliament adopted its position on the proposal on 14 September 2023. The Council of the EU adopted its position on 30 June 2023. The Council’s position differs from the Commission’s proposal by, for instance, raising the level of ambition for processing and recycling capacity and by adding Bauxite, Alumina and Aluminium to the scope. It also wishes to exclude EU Member States that do not have relevant geological conditions, and which provide evidence of this, from the obligation to conduct national exploration programmes. It also aims at clarifying the roles of the Critical Raw Materials Board, bringing it more closely in line with other similar bodies (i.e., the Chips Act Board).

The European Parliament adopted its position on the Critical Raw Materials Act with 515 votes in favour, 34 against, and 28 abstentions. The European Parliament’s report on this legislative file highlights “the importance of securing strategic partnerships between the EU and third countries on critical raw materials, in order to diversify the EU’s supply – on an equal footing, with benefits for all sides”. The Commission had proposed setting an EU goal for domestic refining and processing capacity of critical raw materials at 40%. The European Parliament proposes to increase this goal to 50%, aligning with the demands of EU Member States in the Council of the EU.

Additionally, the European Parliament proposes to place stronger focus on research and innovation “concerning substitute materials and production processes that could replace raw materials in strategic technologies”. In this regard, the European Parliament proposes to include a provision on ‘secondary strategic raw materials’, which is to state that “the Commission shall give specific consideration to the relevance of a secondary raw material for the green and digital transition”. ‘Secondary raw materials’ refers to “recycled materials that can be used in manufacturing processes instead of or alongside virgin raw materials”, such as ferrous scrap (i.e., any scrap metal consisting primarily of iron, steel, or both).

Following the EU legislative procedure, the proposal will now be discussed in trilogues, which is the process of negotiation between the Commission, the European Parliament and the Council of the EU on the basis of their own proposals and amendments. Once a compromise text is found, the compromise text is then proposed in the respective institution for adoption.

Towards a WTO-compatible measure?

The Critical Raw Materials Act contains a set of actions, including the provision of clear benchmarks for the EU’s domestic capacities and for the sourcing of raw materials.

The Critical Raw Materials Act must be compatible with the EU’s obligations under the rules of the World Trade Organization (hereinafter, WTO). Article I of the General Agreement on Tariffs and Trade (hereinafter, GATT) on non-discrimination requires that the EU not discriminate among WTO Members. Any measure undertaken to secure access to critical raw materials must, therefore, not discriminate between domestic and foreign entities or between trading partners. At first sight, the proposed Critical Raw Materials Act looks fundamentally justifiable within the WTO framework. However, the devil is in the details and many details to implement the Critical Raw Materials Act would be clarified through delegated and implementing acts, which still need to be drafted. For instance, the elements and the evidence to be taken into account when assessing the fulfilment of the recognition criteria for strategic projects would be determined through a delegated act. Therefore, it is vis-à-vis those details that compliance with WTO rules would need to be carefully assessed. In its effort to gain strategic autonomy from supplying countries with a more than substantial share in the total supply of a certain critical raw material, such as China, the EU should ensure not to limit imports or not to impose trade restrictive measures in order to ensure an increased supply from other supplying countries, as this could lead to the violation of Article I and/or Article XI of the GATT.

The proposed Critical Raw Materials Act would provide the possibility to access to finance for national critical raw materials projects. Under the WTO Agreement on Subsidies and Countervailing Measures (hereinafter, SCM Agreement) certain types of subsidies are considered trade distortive, among which export subsidies, local content subsidies and import-substitution subsidies with which the EU could be tempted to support the use of domestic over imported goods. It is conceivable that a European industry in transformation, whether mining, recycling or processing, will argue that the transforming industry in Europe needs protection from imports. Therefore, there is a risk included in the Critical Raw Material Act that the EU could consider the imposition of industry protective measures, such as safeguards, on certain imports.

Way ahead

In general terms, industry associations welcomed the EU’s Critical Raw Materials Act and the benefits it promises to deliver, but concern are being raised with respect to certain provisions, such as the increase of the administrative burdens. The EU’s approach to critical raw materials, while fundamentally justifiable within the WTO framework, needs careful attention to various legal nuances. Striking a balance between securing access to critical raw materials and respecting international trade rules is vital in fostering a stable and predictable global trading environment. Now that the Council of the EU and the European Parliament have defined their respective positions, they will enter into trilogue negotiations with the European Commission to agree on a text. The European Parliament aims at concluding such negotiations by the end of 2023.

 

To enhance the digital economy in the region, ASEAN Member States officially launch negotiations for the ASEAN Digital Economy Framework Agreement

On 3 September 2023, the ASEAN Economic Ministers launched negotiations for an ASEAN Digital Economy Framework Agreement (hereinafter, ASEAN DEFA), which was announced as “the first major regionwide digital economy agreement in the world”. The ASEAN Economic Ministers also endorsed the Framework for Negotiating ASEAN Digital Economy Framework Agreement (hereinafter, Negotiating Framework), which sets out the elements that will be covered in the negotiations, as well as the negotiation processes and timelines. On 19 August 2023, the ASEAN Economic Ministers had endorsed a Study on the ASEAN Digital Economy Framework Agreement, which is considered as “an important preparatory work for ASEAN to embark on DEFA negotiations”. The launch of the ASEAN DEFA negotiations is a notable development in ASEAN’s digital integration agenda, which intends to facilitate cross-border digital trade and improve digital rules in key areas, such as digital payments and data flows.

Furthering ASEAN’s cooperation in the digital ecosystem

The Bandar Seri Begawan Roadmap (BSBR): An ASEAN Digital Transformation Agenda To Accelerate ASEAN’s Economic Recovery and Digital Economy Integration, which was endorsed by the ASEAN Member States on 18 October 2021, highlights the need for clearly defined and comprehensive rules to ensure “sound, competitive regional digital ecosystems”, and to “remain competitive”. Building on ASEAN’s digital and e-commerce instruments, the Roadmap concludes that “transforming the region into an ASEAN Digital Economy becomes a logical next”. In this context, the Roadmap had called for the commencement of negotiations of the ASEAN DEFA and mandated a Study on an ASEAN DEFA to “examine areas that can be included in a framework”. According to the Study, the ASEAN DEFA has the potential to “double ASEAN’s internet economy from USD 1 trillion to USD 2 trillion by 2030”.

Overview of the ASEAN DEFA

The ASEAN DEFA is intended to strengthen ASEAN’s regional digital integration and foster ASEAN’s cooperation regarding the digital economy, “while also considering on addressing the digital and development gaps” of ASEAN Member States. With the aim of empowering ASEAN businesses and stakeholders and creating a secure digital environment, the Negotiating Framework states that the ASEAN DEFA would “provide a coherent, harmonized, collaborative, and rules-based approach to ASEAN’s cooperation in the digital ecosystem”.

The Negotiating Framework states that the negotiations for the ASEAN DEFA would “bring tangible benefits to businesses and peoples in the region”, “be forward looking, comprehensive, have broader and deeper engagement, and seek to improve on existing commitments”, and “would be ambitious and build on relevant ASEAN documents”. The Negotiating Framework does not impose limitations on the scope and coverage of the ASEAN DEFA, but expressly identifies the following nine core elements to be negotiated by ASEAN Member States: 1) Digital trade; 2) Cross-border e-commerce; 3) Payments and e-invoicing; 4) Digital ID and authentication; 5) Online safety and cybersecurity; 6) Cross-border data flows and data protection; 7) Competition policy; 8) Cooperation on emerging topics, such as artificial intelligence; and 9) Talent mobility and cooperation.

Digital development gaps in ASEAN

Currently, a “digital divide” in terms of the development of digital infrastructure and related regulatory frameworks still exists between ASEAN Member States. The ASEAN Digital Integration Index Report published in 2021 reported that Singapore and Malaysia had done well across several digital integration indicators (e.g., digital payments and identities, data protection and cybersecurity, and digital skills and talent), while Indonesia, Thailand, and Brunei Darussalam still lacked one or more indicators. According to the Report, Cambodia, Lao PDR, and Myanmar still scored below average across all indicators. The development of ASEAN Member States’ domestic regulations also differs. For instance, Lao PDR, Brunei Darussalam, Cambodia, and Myanmar still do not have comprehensive personal data protection laws in place, in contrast to Singapore, which has comprehensive laws on data protection and has concluded several ambitious digital agreements with third countries.

In light of the digital development gaps in ASEAN, the Negotiating Framework states that the ASEAN DEFA would “take into consideration the different levels of development of the participating countries and offer ways for addressing the digital gaps within and among ASEAN Member States” and would be designed to “be structurally flexible”. In this context, commitments under the ASEAN DEFA, especially the nine core elements, would likely be tailored in accordance with each ASEAN Member State’s readiness, which could include different implementation dates and depth of commitments. In fact, certain core elements could help to address ASEAN’s regulatory gaps. For instance, the element on ‘Talent Mobility and Cooperation’ could facilitate digital talent mobility between ASEAN Member States, particularly from ASEAN Member States that have adequate resources and facilities, to those that need support. The element on ‘Cooperation on Emerging Topics’ could also help ASEAN Member States to share best practices with respect to relevant standards for new technological innovations.

Beyond electronic commerce?

As stated in the Negotiating Framework, the ASEAN DEFA would “be ambitious and build on relevant ASEAN documents, namely the ASEAN Agreement on Electronic Commerce and the ASEAN Digital Integration Framework”, and would “seek to improve on existing commitments, in relevant ASEAN documents and agreements and ASEAN plus agreements”. This would be a significant milestone, as ASEAN’s digital commitments currently remain limited to e-commerce, with a particular focus on, inter alia, paperless trading, electronic invoicing, consumer protection, and cybersecurity, with rather general commitments.

Over the years, ASEAN Member States have concluded various instruments to facilitate cross-border e-commerce, such as the ASEAN Digital Integration Framework Action Plan 2019-2025, which highlights the need to harmonise e-commerce rules to support digital integration within ASEAN. On 26 October 2021, ASEAN Member States issued the ASEAN Leaders’ Statement on Advancing Digital Transformation, which contains the ASEAN Member States’ commitments to establishing an agreement to strengthen regional digital integration and transformation.

The ASEAN Agreement on Electronic Commerce, which entered into force on 3 December 2021, sets forth the ASEAN Member States’ commitments to cooperate in important areas, such as online consumer protection and e-commerce. Yet, this Agreement does not contain strong commitments and merely provides for enhanced cooperation on e-commerce, which is limited to trade in services (see Trade Perspectives, Issue No. 4 of 27 February 2023). Despite these instruments, there is still no set of standards or disciplines that govern digital trade within ASEAN. Noting that the core elements identified under the Negotiating Framework are more comprehensive vis-a-vis existing instruments, the ASEAN DEFA would be ASEAN’s first digital agreement that covers a wide range of digital economy issues beyond e-commerce.

Enhancing digital trade in the region and providing benefits for businesses

The ASEAN DEFA is set to introduce a wide range of new commitments, building upon ASEAN’s existing agreements and instruments, that would enhance digital trade and allow ASEAN businesses to, inter alia, benefit from the elimination of barriers to digital trade; transfer data more freely and securely; operate in a secure online environment; cooperate on relevant standards pertaining to new technological innovations; and benefit from the interoperability of digital payments and electronic invoicing. Notably, under the core element that focuses on eliminating barriers to digital trade, the ASEAN DEFA would, inter alia, pursue to facilitate paperless trade, making it convenient for businesses to conduct cross-border trade.

With respect to digital payments, in 2022, Indonesia, Singapore, Malaysia, Thailand, and the Philippines, joined by Viet Nam in 2023, signed a Memorandum of Understanding on Cooperation in Regional Payment Connectivity, which consists of several modalities, including QR-codes and fast cross-border payments. In practical terms, this initiative allows, for example, Indonesian consumers to pay products purchased in Thailand in Indonesian Rupiah by scanning a QR code. With digital payments as one of the core elements of the negotiations, the ASEAN DEFA could encourage other ASEAN Member States to join such agreements and initiate other types of cooperation that focus on, inter alia, the development of relevant regulations in digital payments and the provision of technical operability. In the long run, the ASEAN DEFA could make intra-ASEAN payments more seamless and convenient.

ASEAN stakeholders could also benefit from the new frameworks on digital trade, cross-border e-commerce, and cross-border data flows, as the ASEAN DEFA strives to, inter alia, “facilitate cross-border data flow and establish frameworks to protect data privacy”. Barriers to data flows could also be addressed. Currently, the ASEAN Member States pursue different approaches, and, for instance, Singapore and the Philippines have established frameworks to support the liberalisation of cross-border data flows. On the other hand, Viet Nam and Indonesia adopted a more restrictive approach by strengthening their data localisation laws. While the DEFA might not address all differences between ASEAN Member States, it could establish a unified approach on data protection, which would facilitate seamless and secure data flows across the ASEAN.

The anticipated negotiations

The negotiations for the ASEAN DEFA are much anticipated, as they will mark an important step towards digital integration and a stronger digital economy in the region. Notably, having an ASEAN-wide framework that covers comprehensive issues could help the ASEAN Member States that still lag behind in terms of digital regulation to “bridge the gap”. ASEAN Member States committed to conclude the ASEAN DEFA negotiations by 2025 and Thailand has been appointed as the Chair of the ASEAN DEFA Negotiating Committee. The first ASEAN DEFA Negotiating Committee meeting is scheduled to take place at the end of 2023. Interested stakeholders should continue to monitor the progress of the negotiations and share their positions and interests.

 

Australia’s mandatory alcohol pregnancy warning – A different approach to alcohol warning labels compared to Ireland and France

On 31 July 2023, Australia’s new mandatory alcohol pregnancy warning label entered into force for all alcoholic beverages, including those imported. This article provides an overview of the labelling requirements, also in the context of the recently adopted alcohol warning label in Ireland, contextualises them within the relevant international trade law, and discusses the reactions from the industry.

Australia’s alcohol pregnancy warning label

Under Australia’s rules, packaged and individual alcoholic drinks with more than 1.15% alcohol by volume (ABV) are required to display the pregnancy warning label, which “must be an image containing the pregnancy warning pictogram with a black pregnant silhouette and red circle and strikethrough, the signal words ‘PREGNANCY WARNING’ in red coloured capital letters, and the statement ‘Alcohol can cause lifelong harm to your baby’. The label must follow strict size, format, colour, and font specifications. From 1 February 2024, the outer packaging made of post-printed corrugated cardboard and containing more than one individual unit of alcoholic beverage, must display either the pregnancy warning mark or an optional alternative mark. On 4 May 2023, optional alternative requirements for pregnancy warning labels for alcohol being sold with corrugated cardboard outer packaging (for example, ‘cases of beer’) have been introduced by Food Standards Australia New Zealand (FSANZ), a statutory authority in the Australian Government Health portfolio that develops food standards for Australia and New Zealand.

The alcoholic beverages industry in Australia has protested against the mandatory label and maintained that there is a working and effective voluntary “labelling scheme already in place with no need for legislation to govern it”. Nonetheless, Food Standards Australia New Zealand (FSANZ) moved forward with the legislation.

Similar labels in Ireland and France

In Ireland, on 22 May 2023, the Minister for Health, Stephen Donnelly, signed the Public Health (Alcohol) (Labelling) Regulations 2023 into law, which provide that the labels of alcoholic products must state the calorie content and grams of alcohol in the product. Labels will also warn about the risk of consuming alcoholic beverages when pregnant and of the risk of liver disease and fatal cancers deriving from alcohol consumption. The new rules will apply from 22 May 2026 and the three-year transition period aims at giving businesses sufficient time to prepare for the changes.

Already in 2018, the Government of Ireland had enacted the Public Health (Alcohol) Act for the protection of human health (see Trade Perspectives, Issue No. 2 of 26 January 2018). Under Section 12 of the Public Health (Alcohol) Act, the Minister for Health is empowered to make regulations to require that the labels of alcoholic products contain the following: 1) A warning to inform consumers of the danger of alcohol consumption; 2) A warning to inform consumers of the danger of alcohol consumption when pregnant; 3) A warning to inform consumers of the direct link between alcohol and cancers; 4) The quantity of grams of alcohol contained in the product; 5) The number of calories contained in the alcoholic product; and 6) A link to a website that gives information on alcohol and the related harms. Based on Section 12 of the Public Health (Alcohol) Act, the Public Health (Alcohol) (Labelling) Regulations, with their requirement for mandatory health warning labels on all alcoholic product packaging, apply to all alcoholic products sold in Ireland, whether produced domestically or imported into the country.

It must be noted that Ireland is not the first EU Member State to introduce additional labelling rules on alcoholic beverages. In France, operators have the choice between a pictogram or the written message “The consumption of alcoholic beverages during pregnancy, even in small quantities, can have serious consequences on the health of the child".

Consistency with WTO law?

Additional warning labels must comply with international trade rules. Article 2.2 of the WTO Agreement on Technical Barriers to Trade (hereinafter, TBT Agreement) provides that WTO Members “shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create. Such legitimate objectives are, inter alia, the protection of human health or safety, animal or plant life or health, or the environment”. The Government of Ireland, for example, argues that the high volumes and harmful patterns of alcohol consumption in Ireland were responsible for an enormous burden of public health harms and healthcare costs. The Regulations are designed to reduce these harms and the related costs for the protection of the health of Irish citizens. The labelling regulations, also in Australia, apply to all alcoholic products sold in the country, whether produced domestically or imported. Therefore, in accordance with Article 2.1 of the TBT Agreement, products imported from the territory of any other WTO Member will be accorded treatment no less favourable than that accorded to ‘like’ products of national origin and to ‘like’ products originating in any other country.

According to Article 2.2 of the TBT Agreement, WTO Members must ensure that technical regulations do not create unnecessary obstacles to international trade. For this purpose, technical regulations must not be more trade-restrictive than necessary to fulfil a legitimate objective (e.g., the protection of human health). Arguably, the objective of the alcohol warning labels could be addressed by more effective and less trade-restrictive public policies. For instance, Ireland’s regulations require the quantity of grams of alcohol and the number of calories contained in the alcoholic product to be indicated. If such nutritional information were to be provided, the rationale for imposing additional warnings is no longer clear. Other less trade-restrictive information measures, such as campaigns to encourage the population to eat and drink healthily and promoting physical activity programmes, also appear to be available. Australia’s label or the French pictogram may also be considered less prominent on a label and, therefore, less trade-restrictive information measures than the label that will be required in Ireland.

Article 2.4 of the TBT Agreement provides that, in principle, technical regulations must be based on relevant international standards, where they exist. Section 5 of the Codex Guidelines on Nutrition Labelling recommends, in relation to supplementary nutrition information, that it should be intended to increase consumers’ understanding of the nutritional value of their food, assisting in interpreting the nutrient declaration. The Codex Guidelines on Nutrition Labelling state that the information in the nutrient declaration “should not lead consumers to believe that there is exact quantitative knowledge of what individuals should eat in order to maintain health, but rather to convey an understanding of the quantity of nutrients contained in the product”. Arguably, a warning label, such as the one in Ireland, together with a mandatory nutrition declaration, is not the right tool to increase consumers’ understanding of the nutrients contained in the product.

Additionally, the manner in which the legitimate public health objective is pursued in Ireland and in Australia appears to be incompatible with the list of prohibited claims under section 3 of the Codex General Guidelines on Claims. For instance, Section 3.5 of the guidelines prohibits “claims which could give rise to doubt about the safety of similar food or which could arouse or exploit fear in the consumer”. Arguably, the warning labels, in case they are considered claims, risk generally demonising alcoholic beverages.

Outlook

Australia’s new mandatory alcohol pregnancy warning label entered into force for all alcoholic beverages, including those imported, on 31 July 2023, while the new labelling rules in Ireland will apply from 22 May 2026. Stakeholders should monitor the further discussions on alcohol warning labels, also within the WTO TBT Committee, while businesses should start familiarising themselves with the new rules and prepare for compliance.

 

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Ignacio Carreño, Joanna Christy, Tobias Dolle, Alya Mahira, Lourdes Medina Perez, Akshay Nair, and Paolo R. Vergano contributed to this issue.

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