Consistent with this policy, USTR is evaluating a plurilateral agreement with aligned partners that would:
- Establish pricing mechanisms reflecting market-economy costs of production to enable new private-sector or public-private investment;
- Reduce the impact of “non-market” policies/practices that distort global prices and contribute to overcapacity; and
- Potentially set standards to reduce “regulatory arbitrage” that undermines competitiveness of projects in the parties’ respective jurisdictions.
The Notice states that it “anticipates that such an agreement will include a commitment by all parties to implement minimum prices or other price mechanisms, with appropriate border measures, to ensure secure and fairly priced markets among the parties to the agreement, in order to generate demand for critical minerals produced for market-based investments.” It further provides that USTR is considering “additional measures that would improve price transparency in markets for critical minerals that reflect the costs of extraction, processing, and refining.”
The comment period represents a critical opportunity for stakeholders across the critical mineral supply chain, including producers, consumers, investors and financial institutions, to provide detailed input on next steps in the negotiations. Examples of issues relevant to stakeholders include priority minerals and relevant market dynamics, priority partners, the economic bases for establishing price floors, cost impact, coverage of downstream products, implementation issues, policy coordination on diversifying and securing supply chains, investment policy tools, and scrap flow and recovery.
Below we provide additional background and context on the requests in the Notice and key issues for companies, investors and financial institutions across the value chain to consider.
Issues on Which USTR Seeks Comments
USTR invites comments on the design of a potential plurilateral agreement and other resilience measures. These include:
- Scope and prioritization: How to prioritize which critical minerals (as defined by the U.S. Geological Survey, discussed here) should be included; whether and how minerals can be grouped by common market/supply-chain characteristics; and which trading partners (countries) to include.
- Price-setting: How to calculate target/reference prices for different minerals, how frequently to update them, how to account for differences in costs across markets, and how to ensure prices support a reasonable risk-adjusted return.
- Price adjustment and enforcement tools: Mechanisms by which the United States and other parties could set minimum prices for critical minerals and enforce minimum prices for imports (i.e., specific of compound tariffs, quotas or tariff-rate quotas), other mechanisms to stabilize the price of critical minerals, the appropriate nodes at which price mechanism should be applied, and measures to restrict imports from non-participants.
- Standards and regulatory arbitrage: Common standards that could stabilize markets and address regulatory disparities among parties, and between parties and non-parties.
- Rules for investments in critical mineral supply chains: Whether the agreement should include commitments related to investment screening mechanisms and other investment policy tools (including transparency/notification concepts), how the agreement can take into consideration the issue of ownership of critical mineral assets by non-parties in the jurisdiction of parties to the agreement, and ownership by parties of mining and processing facilities in the territories of non-parties.
- Implementation and enforcement: How to evaluate appropriate phase-in times for price-related and other measures, how to prevent circumvention and avoid gray/black markets, and how to enforce a plurilateral agreement.
- Coordination mechanisms and crisis response: How parties would coordinate their policies to address market changes and disruptions (including public/private coordination such as offtake agreements and financing).
- Relevant legal authorities of potential parties: Legal measures by which other jurisdictions could implement a price mechanism or other relevant measures under the agreement and replicate the expected economic effects of a price mechanism.
- Reference models and legal authorities: Whether prior commodity agreements offer useful reference points, and what authorities other jurisdictions would use to implement, or replicate the effects of, price mechanisms.
- Scrap/recycling flows and other trade measures: Measures to accelerate market-based supply, including ensuring scrap and recyclable materials are available to parties and that foreign policies do not undermine investment.
Issues Relevant to Stakeholders Across the Critical Mineral Value Chain
Many of the topics subject to comment are highly relevant to stakeholders across the critical minerals value chain, including producers, consumers, investors and financial institutions. Important considerations include:
- Priority minerals and relevant market dynamics. Each mineral has different supply chain, production choke point and market dynamics. Comments that help identify the various segments of the supply chain including at the upstream level and various stages of processing (including processing at high purity levels, which are relevant for certain applications), the relative size and development of the mineral market, and minerals that share common characteristics (i.e., byproduct minerals, small volume minerals etc.) will inform USTR’s prioritization of minerals for the plurilateral agreement.
- Priority partners. For each mineral, information about sources of supply at each stage of the value chain and the key countries driving demand can also help inform USTR’s prioritization of partners for the agreement. Inclusion of supplier countries in terms of geology and location of processing capacity is relevant for providing a sufficient supply base among partners in the plurilateral agreement. Inclusion of consumer countries is relevant for comprising a sufficient demand base to sustain supply at market prices.
- Bases for price floors. As discussed in our prior alert, producers have struggled to generate investment for projects when their cost structure remains uncompetitive due to price volatility and non-market policies and practices. For each mineral, key issues will therefore include identifying the bases and manner in which prices are currently set (i.e., price reporting agencies, exchanges, etc.), predominant producer(s), how to accurately reflect cost of production and profit margins necessary for projects to be investable, and how to account for changes in costs overtime (such as raw material costs or labor). The price floor for bankability can also vary even among developed economies depending on currencies, interest rates, availability of private equity or credit and public funding, and other distinguishing features of national and regional economies. USTR must also consider the appropriate stage of production at which a price floor may be set, which may vary depending on both mineral and stage of processing.
- Cost impacts. For consumer industries in particular, key issues include the impact of increased costs on production and competitiveness, and ways to mitigate negative impacts.
- Coverage of downstream products. Key issues include how a price floor on the mineral or components could be tracked and incorporated into finished products, and the feasibility of administering the price floors at a component level.
- Manner of implementation. USTR has indicated that it is considering border adjustment mechanisms. Key issues include appropriate tools for implementing a border adjustment measure and mechanisms for countries that are part of the agreement to share information to facilitate compliance.
- Feasibility of implementation. Given the current concentration of the supply chains of various minerals in particular countries and the time it would take to implement the agreement, it is important to consider appropriate phase-in periods to allow time for alternative supply to come online and for related adjustments to sourcing.
- Recommendations for coordinating on projects and market disruptions. Along with price floors, to support the goal of diversifying mineral supply chains, key issues include coordinating with partner countries on investments in projects and coordination on policies to prevent supply disruptions and harmonize treatment of non-parties to the agreement. This would advance the goals of the FORGE initiatives and various bilateral Memoranda of Understanding, and also ultimately provide demand for material requested by Original Equipment Manufacturers under Project Vault (discussed here). These provisions in the agreement could build upon those in other recent trade agreements, such as the U.S.-Argentine Republic Agreement on Reciprocal Trade and the Agreement Between the United States of America and the Republic of Indonesia on Reciprocal Trade (U.S.-Indonesia Agreement). These agreements often include commitments by partner countries to “allow and facilitate U.S. investment” in the mineral supply chains, and commitments by the United States to work with financing agencies, such as the Export-Import Bank of the United States (EXIM Bank) and the U.S. Development Finance Corporation (DFC) to consider supporting investment financing in critical sectors.
- Investment policy tools and screening mechanisms. In the critical minerals sector, it is common for companies in the developed world to own or control assets in third countries, particularly in the global south. For example, there are a number of foreign-owned assets in countries such as Indonesia and the Democratic Republic of Congo, among others. Another subject for industry comment will be how the plurilateral agreement can account for such issues. Typically, border-adjusted measures are enforced by country of origin versus ownership of the exporting party. In this regard, the U.S.-Indonesia Agreement provides that Indonesia, “in accordance with its national interest and domestic laws and regulations, shall adopt and implement measures to address unfair practices of companies operating in Indonesia and owned or controlled by third countries when such practices, in Indonesia’s jurisdiction, result in” among other things, “the export of below-market price goods to the United States.” Stakeholders should also consider how the agreement will frame coordination of inbound investment screening tools and policies among countries in the agreement, which have also featured in critical mineral MOUs the Administration has recently announced with trading partners.
- Scrap. Scrap recovery can provide an important source of supply for critical minerals. Key issues here for comment include measures by countries to promote the collection of waste, recovery of critical minerals from waste streams, the role of recycling programs of manufacturers of components and finished products, and the feasibility and value of potential controls on the flow of scrap as was contemplated in the Section 232 investigation of copper imports (discussed here).
These are only non-exhaustive, illustrative examples of the issues that stakeholders across the critical minerals value chain should consider commenting on in response to the Notice. The plurilateral agreement will be novel, implicating wide-ranging issues across private and public law, international economics and development, and finance, and so robust and sustained industry expertise and engagement will play a critical role in shaping next steps.