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(EDITORIAL from Korea Times on March 21)

All News 07:23 March 21, 2023

Challenges and responses
: Firms need to diversify supply channels to tackle EU's act

Posing both risks and opportunities for domestic companies, the European Union unveiled a draft of its own Green Deal Industrial Plan on Thursday. The new device is composed of a Critical Raw Materials Act (CRMA), designed to boost Europe's ability to acquire and cultivate significant materials.

Dubbed the European version of the U.S. Inflation Reduction Act (IRA), the law is designed to limit the import of such materials from a certain "third" country to 65 percent of the total consumption within the entire EU bloc by the year 2030. Included in the list are 16 materials, such as nickel, lithium and manganese essential for manufacturing batteries and other rare earth ingredients for permanent magnets, etc.

The EU's move allegedly targets China, although it stopped short of identifying that country in the draft for the act. This represents the EU's unswerving will to reduce its reliance on China for imports of such materials in the event of possible ruptures in global supply channels. Currently, the EU obtains more than 90 percent of its supply of major rare earth materials from China, key resources for the production of electric vehicles and semiconductors. This illustrates the intensifying global competition for the global supply of relevant materials.

Wariness in Western countries to the possible global supply disorder was triggered by Russia's invasion of Ukraine and exacerbated by the intensifying hegemony confrontation between the United States and China. China has been flexing its influence on the global diplomatic stage recently as seen in its mediating role between Saudi Arabia and Iran. It is also poised to play a peacemaking role between Russia and Ukraine.

Domestic companies are paying keen attention to the possible impact to be brought on them by the EU's recent move. The Korea International Trade Association (KITA) released a report Sunday, positively assessing the EU's envisaged act. It said the new act will help expand the local companies' exploration into the EU markets and cooperation with European companies.

"Investment for the technology development and reuse of core materials will likely increase. Korean companies should have strategic approaches to fully take advantage of the possible increase in demand for collection and recycling of used batteries in the EU," KITA said in the report.

The nation's three major battery makers ― LG Energy Solution, SK on and Samsung SDI ― currently account for the lion's share of the European market. They have already been diversifying supply channels. Yet they will likely face a growing setback in their bids to reduce the reliance on China for the supply of the key materials in a short span of time.

For instance, Korean firms relied on China to meet 90 percent of their lithium hydroxide requirements last year. It is time for them to adopt special measures to expand channels to source the key materials.

Major local carmakers have been engrossed in efforts to cope with the envisioned introduction of the CRMA. The EU Commission is asking them to submit information on the permanent magnet regarding recycling capacity and portions.

Hyundai Motor is now manufacturing electric vehicles in the Czech Republic, while Kia Motors unveiled a plan to produce the EVs in Slovakia. Domestic firms should preemptively tackle the looming challenges.

Steel companies are also grappling with ways to expand exports into the EU, while positively coping with the EU's move toward the Carbon Border Adjustment Mechanism (CBAM). For this, they are seeking to expand the operations of electric furnaces.

The Yoon Suk Yeol administration, for its part, should do what it can to minimize the possible burden on domestic enterprises through close consultations with the EU authorities. The government plans to hold consultations with relevant businesses soon. They need to maintain systematic and close cooperation.

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