Rare Earth - A Strategic Edge for Vietnam's Negotiation Power

(SGI) - In a bid to reduce reliance on crucial raw materials, the European Union (EU) took a significant step in July 2023 by enacting the Critical Raw Materials Act (CRM Act), specifically addressing the semiconductor industry, also known as rare earth.

Rare Earth - A Strategic Edge for Vietnam's Negotiation Power

This initiative outlines a strategic approach to diversify supply chains and build stronger connections with resource-rich and reliable countries. Could the EU's pursuit of strategic autonomy in critical raw materials present an opportunity for Vietnam to emerge as a crucial partner?

CRM: The Vital Quest for EU Semiconductor Survival

For numerous years, the European Union (EU) has heavily relied on suppliers from the United States (for chip design) and Taiwan and Southeast Asia (for chip production) within the semiconductor industry, securing a modest 9% global market share. Recognizing the vulnerability associated with such dependence, the EU has recently intensified efforts to diversify its Critical Raw Materials (CRM) supply. This strategic shift involves the negotiation of free trade agreements (FTAs) with various countries and regions.

The EU has incorporated CRM-related chapters or content in most of its recent FTAs with global partners, including Chile, Mexico, New Zealand, the United Kingdom, Korea, Singapore, and Vietnam. Moreover, ongoing negotiations for FTAs with countries such as Indonesia and Australia also involve discussions on CRM-related issues. The EU's proactive approach in addressing the "survival" issue within its semiconductor sector underscores the significance of securing diverse and reliable sources of critical raw materials in the global market.

In addition to negotiating free trade agreements, the European Union (EU) is actively seeking additional Critical Raw Material (CRM) partners through individual agreements. As of November 2022, the EU entered into a strategic partnership with Namibia, aiming to establish a sustainable CRM value chain. Furthermore, in June 2023, the EU and the United States initiated regulations authorizing and defining the scope for negotiations on the Critical Minerals Agreement. During the same period, the EU signed an agreement with Argentina, committing to developing a roadmap within six months to achieve cooperative goals in the CRM sector.

Similar to the EU-US partnership, the agreement with Argentina prioritizes collaboration to meet Environmental, Social, and Governance (ESG) criteria aligned with international standards. The focus is on minimizing the environmental and climate impacts of mining projects and integrating sustainable raw material supply chains. These agreements underscore the EU's commitment to fostering responsible and sustainable practices in the CRM sector while expanding its global network of partners to ensure a diversified and reliable supply chain for critical raw materials.

While the European Union (EU) pursues a strategy to diversify its Critical Raw Material (CRM) supply, it encounters several challenges. Some CRMs, crucial for the digital transition and renewable energy, are limited in rare earth elements, presenting a hurdle for the EU's evolving needs. Furthermore, the extraction of CRMs in certain countries can lead to environmental and social issues that do not align with EU regulations.

Compounding these challenges is intense global competition, particularly with nations like the United States and China, both of which exhibit significant CRM demand. Moreover, countries with abundant CRM sources implement strategies to limit exports, aiming to foster the development of local industries. These multifaceted challenges underscore the complexity of the EU's efforts to secure a diversified and sustainable CRM supply chain amid evolving global dynamics and competition.

Vietnam's Strategic Edge: A Key Player in EU's CRM Supply Diversification

Amid the European Union's (EU) Critical Raw Material (CRM) supply diversification strategy, Vietnam emerges as a crucial potential partner, boasting significant mineral resources essential for the EU's strategic industries. Vietnam holds the world's second-largest reserves of rare earths, a vital component in various industries. This places Vietnam just behind China in rare earth reserves.

Both the United States and the EU have expressed keen interest in Vietnam's rare earth resources. A notable instance is the visit by Executive Vice President and Trade Commissioner of the European Commission (EC), Valdis Dombrovskis, to Vietnam in early November. During this visit, Dombrovskis highlighted the EU's eagerness to collaborate with Vietnam in the field of rare earths. Such cooperation is envisioned as a means to drive green transition initiatives and advance the digital economy, establishing Vietnam as a key player in the EU's quest for a diversified and secure CRM supply chain.

The European Union has recently formulated a Raw Material Strategy, outlining its objective to diversify supply sources, collaborate with other nations, and promote not only the extraction but also the processing of raw materials. This strategy seeks to enhance the value of resources for partner countries. Mr. Valdis Dombrovskis, the Executive Vice President and Trade Commissioner of the European Commission, emphasized that this presents a significant opportunity for Vietnam to bolster its negotiating power in rare earth cooperation projects.

The strategy encourages countries to engage not just in the exploitation but also the processing of these critical materials, creating a mutually beneficial approach. This positions Vietnam to leverage its abundant rare earth resources, providing a pathway for fruitful cooperation with Europe. As Vietnam explores potential partnerships, the emphasis is on finding solutions that maximize benefits in both the extraction and processing stages of this strategically important material.

In addition to rare earth cooperation, Vietnam is positioned to play a crucial role as a semiconductor production partner for the European Union (EU). Amid plans by the United States and other nations to establish Vietnam as a "semiconductor production center" in the region, this aligns with the EU's strategic vision. In line with the EU's strategy to strengthen its leadership in the semiconductor industry, this alliance can concentrate on chip design, with subsequent collaboration involving Vietnam in the production phase. The prospect of Vietnam emerging as a semiconductor hub holds significant promise for reinforcing ties between the EU and Vietnam in the realm of cutting-edge technology and innovation.

Recent developments indicate tangible steps towards collaboration between Vietnam and the European Union (EU) in the semiconductor industry. During Dutch Prime Minister Mark Rutte's visit to Vietnam on November 2, discussions with Prime Minister Phạm Minh Chính centered on maximizing cooperation potential in high technology, electronic circuit production, semiconductor devices, digital platforms, telecommunications ecosystems, digital transformation, and human resource development in these fields.

Furthermore, the EU has the opportunity to support Vietnam in training semiconductor engineers, aligning with the Vietnamese government's goal of cultivating 50,000 semiconductor engineers. This initiative, overseen by the Ministry of Planning and Investment, aims to develop a comprehensive implementation plan. The collaboration extends beyond training, as Vietnamese experts could contribute to chip design projects in the EU. Importantly, the distinction between design (in the EU) and production (in Vietnam) ensures non-competitive collaboration, making this partnership feasible and mutually beneficial.

Vietnam boasts substantial rare earth reserves, totaling approximately 22 million tons, positioning it as the world's second-largest reserve holder after China. These resources are primarily concentrated in the Northwest region, encompassing provinces such as Lai Châu, Lào Cai, Yên Bái, as well as other areas including Hà Giang, Cao Bằng, Lạng Sơn, Nghệ An, Kon Tum, and Lâm Đồng, according to data from the US Geological Survey. This abundance of rare earth resources further strengthens Vietnam's role as a valuable partner for the EU in the semiconductor industry.

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