International law aspects of the U.S.-Australia critical mineral and rare earth deal

Upon reading the US-AUS framework concerning the financing of rare earth mining. While there is very little to go on, I wanted to share some thoughts that connect current assessments with what we know about international investment law and existing institutional development.

The Framework commits $1 billion in financing projects within the United States and Australia, coupled with coordination on stockpiling. However, as leading mining expert Gracelin Baskaran observed, a part of the frameworks speaks to “coordinated diplomatic efforts to limit China’s expansion in third-country markets.” The Framework confirms plans for financing and facilitating rare earth mining in other States (Section 7 Third Parties). Specifically, it indicates cooperation “with third parties as appropriate to ensure supply chain security and utilize existing engagement mechanisms.” The Framework also reconfirms foreign investment infrastructure organised by investment contracts, privately negotiated between (private?) mining companies and government actors.

We know the United States prefers to influence through trade restrictions rather than incentives. At first read, the Framework suggests an incentive-based system to respond to supply demands rapidly. Yet, incentives and tools of economic statecraft may change throughout the investment’s extended life cycle. One set of incentives may guide pre-establishment, but the operation, management, and dissolution of these investments would be subject to contractual commitments. With this simple opening Framework, businesses lack information as to what these host States (the source of mining or energy provider) would commit to in terms of international standards or dispute resolution. It will all come down to the investment contracts signed.

We cannot confirm the form of investment contract within this new pricing mechanism, though we could imagine a network of concessions. Or perhaps increased public-private partnership (defined by the World Bank as a “long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance.”) Whether these contracts are protected through internationalisation (which converts contractual obligations to international ones) remains to be seen. However, there is extensive academic scholarship, most notably the work of Jean Ho, on efforts to displace domestic law in favour of international law, in contravention of self-determination and sovereignty.

Many foreign investments are rooted in investment contracts, which raises questions about the purpose of investment treaties in the future. Are such instruments too rigid for the urgent geopolitical issues of the day? In the past, such instruments were strong political signals for attracting foreign investors. Has such a purpose become outdated in the race for future-proofing technological dominance? What about future changes to regulatory systems, which we could anticipate for several reasons, including climate action or economic security? What sorts of assurances would investors require in terms of a predictable and stable legal framework?

Australia and the United States have signed a fair share of investment treaties. A quick search through UNCTAD indicates that Australia has signed investment treaties containing non-discrimination obligations and recourse to investment treaty arbitration. While we do not know the fate of the USMCA, we know it currently includes non-discrimination obligations, which may be vital, for example, for Canadian mining companies seeking to get into this competitive market (though bear in mind there is currently no consent to investment treaty arbitration between Canada and the United States). Any framework that commits to accelerating permitting rare earth mining investments for Australian companies could risk differential treatment with similarly situated Canadian companies, notwithstanding any potential assertion that such discrimination is justified on security grounds. Are there risks of potential investment claims arising from this Framework, or as it hooks into the broader architecture of investment pledges underway by the United States?

Additionally, the Framework confirms plans to develop “standards-based systems in which those who adopt the standards can trade freely and within a pricing framework including price floors or similar measures.” A broader, potential Group of 7 coordinated stable pricing framework may also happen to manage the supply and consumption of selected strategic minerals and materials. This would be a new turn of State intervention, though not historically unprecedented. However, past U.S.-led efforts studied were coordinated with existing GATT norms and emphasised equitable allocation of international supply in critical episodes of short supply. In contrast to the bilateral framework presented here, scientists have urged governments to consider options to avoid inequitable, inefficient, protectionist paths.

There was a shared G-7 commitment for a Partnership for Global Infrastructure and Investment (PGII) “to advance public and private investments in sustainable, inclusive, resilient and quality infrastructure.” This initiative included a commitment of $600 billion from 2022 to 2027 (five years) towards supply chain resilience, with a broad scope for investment, including climate and energy security, digital connectivity, health systems and health security, and gender equality and equity. I do not know the current fate of the PGII. The PGII architecture was opaque, though analysts described it as an alternative to China’s investment infrastructures.

Relatedly, the Framework could lay the foundations for a new approach to financing mining projects for the United States. If so, we might consider the long-term impacts on existing international financing, such as through the multilateral and regional development banks. The shift away from reliance on institutions may mark a turn away from—for example, the World Bank’s past practice of linking development financing to the promotion of liberal, market ideals. However, what principles would guide these new strategic mining, stockpiling, refining, or critical infrastructure contracts remains unclear. Indeed, it remains unclear whether there will be any governing norms crystallising a general approach. International institutions afford accountability and transparency to smaller, open economies. At the bare minimum, questions remain about the potential displacement of existing institutions.

Finally, as mentioned above, the Framework signals an intention to accelerate delivery of critical minerals, including “measures to accelerate, streamline, or deregulate permitting timelines and processes, including to obtain permits for critical minerals and rare earths mining, separation, and processing within their respective domestic regulatory systems, consistent with applicable law.” Yet such permits and processing are requisite checks upon private actions, affording oversight and opportunity to review actions per societal standards and government objectives. Moreover, such assessments can afford a vital opportunity for community engagement over the environmental and social consequences of these projects. We need to understand how the quality of such oversight will continue in a fast-tracked legal system. Speed may respond to one urgent issue today concerning these States’ interest in securing options around China’s power over specific materials and minerals supply. Yet, it must be done in a safe way that does not, in the present, but also long term, become an even worse situation for people.