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Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Abigail Greene ([log in to unmask])

The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters.

No. 338   August 22, 2022
Although no one may have told you, you could have “critical minerals,” especially if you are a country with current mining activity. Those minerals may be disregarded by-products of existing mines or lie in stand-alone deposits or in abandoned tailings. Maximizing income from them raises important issues.
The US government defines a “critical mineral” as a non-fuel mineral or mineral material essential to the economic or national security of the country and which has a supply chain vulnerable to disruption. It names fifty. The Japanese government considers 34 as critical. Other rich countries have similar lists.
Projections of a rapid transition to electric vehicles have led companies and governments of major automobile producing countries to compete to control supplies of minerals that will—or might—be used in batteries and electric motors. The transition to solar and wind power is expected to require critical minerals for turbines and storage. Some minerals are critical for defense and aerospace industries. But no one knows exactly how much of which minerals will be demanded as technology evolves. In this environment, firms and their home country governments are driven by a deep fear of competitors’ (especially Chinese) control of whatever minerals those might be.
This competition has implications for mining countries: 
  • When home country governments see support for their private companies as a security issue, host countries with critical minerals may face threats. The US has warned a country of decreased aid if it failed to grant a US company access to minerals. The German federal and regional governments pressed Bolivia in support of a German company, rather than a Chinese competitor, to mine a lithium deposit. The task for host countries is to turn the pressure around: “if you want access to the mineral, you have to do things for us, or rights go to someone else.” Host countries’ foreign ministries should be involved in ways rare in previous mining negotiations, increasing the difficulty of the always tough task of coordinating internal parties domestic in negotiations with foreign firms.
  • There is a real risk of granting mining rights to firms—but seeing nothing happen. Competition leads firms to tie up deposits to ensure supplies if they eventually need them. But no one is certain how much, if any, of a particular mineral will be needed. The result can be potential revenue sources that remain undeveloped. In response, host country governments must include tight working provisions (“use it or lose it”) in contracts or in mining legislation: commercial production must begin by a certain date; production must remain above a certain level; and suspensions, limited in time. Otherwise, investors should lose their rights, and host countries can seek other investors.
  • When a critical mineral is a by-product of the extraction of another mineral, mining agreements or relevant legislation may have to be modified to account for the new source of revenue. For example, royalties on minerals that may have gone into tailings may have to be adjusted to reflect their new value.
  • When by-products become “critical” and newly valuable, companies currently holding mining rights may sell those rights to other firms that are eager for the byproduct. This happened in the Democratic Republic of the Congo, when Freeport-McMoRan, interested in copper, sold rights to two deposits to China Molybdenum, which wanted the associated cobalt. Similarly, ownership of a rutile deposit in Sierra Leone moved, over the years, from firms interested in rutile for paint pigment to firms interested primarily in the previously unwanted zircon and rare earth sands. In such transactions, buyers and sellers may try to escape tax on gains by selling to holding companies in tax havens, rather than subsidiaries in the countries where mining takes place. Host countries’ ability to collect tax on such transactions will depend on their legislation and contract terms. Host country governments should address this issue before disputes develop that could go to costly international arbitration.
  • The renewed interest by end users in securing sources of materials means that some will increasingly seek control through long-term contracts or outright ownership of mines. When minerals are sold inside firms or under long-term contracts, tax authorities will have to determine meaningful prices, but reliable arms-length published prices do not exist for all critical minerals. Legislation or agreements will have to provide methods (such as Advance Pricing Agreements) for valuing output.
These issues are not completely new. The Chinese government has long viewed access to minerals as essential to its development, and therefore supported its firms abroad. The Japanese government behaved similarly in the 1970s. And the drive to keep deposits out of the hands of competitors was common in the old days of vertically-integrated oligopolies in industries such as aluminum. Disputes over capital gains tax have arisen as petroleum exploration companies have sold rights to producing companies. But now all these issues come together. Governments with critical minerals need to learn from past solutions (and failures) to revise mining and tax legislation, negotiate appropriate contracts and harness foreign offices’ skills if they are to maximize their benefits from the struggle by rich countries to control these minerals.

* Louis T. Wells ([log in to unmask]) is the Herbert F. Johnson Professor of International Management, Emeritus, at Harvard Business School, and a member of the Advisory Committee of CONNEX, which provides assistance to countries negotiating mining and infrastructure agreements. The author wishes to thank Theodore Moran, James Otto and Mohan Yellishetti for their helpful peer reviews.
The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Louis T. Wells, ‘Got “critical minerals”? Hooray! But be careful!,’ Columbia FDI Perspectives No. 338, August 22, 2022. Reprinted with permission from the Columbia Center on Sustainable Investment (” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Abigail Greene, [log in to unmask].  
Most recent Columbia FDI Perspectives   
  • No 337, Charles-Emmanuel Côté, “The new Canadian Model investment treaty: A quiet evolution,” Columbia FDi Perspectives, August 8, 2022
  • No. 336, Phil Baumann, “How host country governments can ensure competitive neutrality in cross-border M&As,” Columbia FDI Perspectives, July 25, 2022
  • No. 335, Karl P. Sauvant and Federico Ortino, “The WTO Investment Facilitation for Development Agreement needs a strong provision on responsible business conduct,” Columbia FDI Perspectives, July 11, 2022
All previous FDI Perspectives are available at

Other relevant CCSI news and announcements
  • The next free Massive Open Online Course (MOOC) on “Natural Resources for Sustainable Development: The Fundamentals of Oil, Gas and Mining Governance” will be available starting September 1, 2022 (at midnight UTC). This joint course was developed by CCSI, the Natural Resource Governance Institute, the World Bank, and the United Nations Sustainable Development Solutions Network (SDSN) and has enrolled thousands of participants from all over the world. Enroll now, and watch the trailer here.
  • CCSI, in partnership with E3G, an independent climate change think tank based in London, UK, is conducting a survey to better understand the economic, financial and regulatory factors that drive and/or limit the necessary domestic and foreign investments in renewable energy sectors. We hope to use the results of this survey combined with desk research to determine the fundamental determinants (and constraints) of renewable energy investments, and the corresponding ways in which economic, policy and regulatory frameworks can be strengthened to accelerate renewable energy investments. If you are in the renewable energy industry, and are interested in participating in this survey or would like to receive more information about this project, please contact Ladan.
Karl P. Sauvant, Ph.D.
Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
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Karl P. Sauvant, PhD

Senior Fellow

Columbia Center on Sustainable Investment
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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"The WTO Investment Facilitation for Development Agreement Needs a Strong Provision on Responsible Business Conduct", Investment Facilitation for Development: A Toolkit for Policy Makers. Second Edition, "Agenda for Practice-oriented Research", "WTO Processes Would Benefit from the Input of Civil Society", "How Would a Future WTO Agreement on Investment Facilitation for Development Encourage Sustainable FDI Flows, and How Could it be Further Strengthened?”, "What Foreign Investors Want: Findings from an Investor Survey", "Incentivising Sustainable FDI", "Green FDI: Encouraging Carbon-neutral Investment", "Extending International Legal Aid from Trade to Investment: An Advisory Centre on International Investment Law", "More Attention to Policies! Improving the Distribution of FDI Benefits", "Facilitating Sustainable FDI in a WTO Investment Facilitation Framework: Four Concrete Proposals", "An Inventory of Concrete Measures to Facilitate the Flow of Sustainable FDI: What? Why? How?", are available at .

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