Rare minerals in exchange for development

Analysis of the Agreement on Rare Earth Metals and Commodities for Ukraine. Shadow areas of the agreement. Risks, scenarios, and opportunities.

19 May, 2025

Politics & Law

Reforms

World

Trade & Investment

Yaroslav Romanchuk

An event that claims to be the most important for the country, not only this year, but also in the entire history of US-Ukrainian relations - the agreement on rare earth metals between the US and Ukrainian governments was signed on April 30, 2025, after long negotiations and ratified.

The agreement titled "CRM-US-UA" (Critical Raw Materials – United States – Ukraine) is definitely not a typical commercial contract — it contains far too much vague language, which is uncharacteristic of agreements of this kind. At the same time, this Agreement is not typical of standard international treaties on friendship and partnership between countries, because it is based on quite specific goods. This agreement cannot be considered a legal basis for a common security system: it lacks the features of security treaties.

Agreement СРМ-US-UA is a legal and institutional hybrid between two countries, each of which sees it as it wants. It combines the different perceptions, requirements, and projections of the future of the two governments and can become the basis for a strategic partnership between the United States and Ukraine in a variety of areas, from energy and mining to security. But this potential will not be realized by itself; a lot of work needs to be done, first of all, by the Ukrainian side.

For the American side, this agreement is a documentary confirmation of the demand for rare earth metals and the decoupling of supply chains from China for these critically important components in modern manufacturing of various types of goods. If Ukraine has what the United States needs for its strategic goals, for strengthening security, for creating a full cycle of production of modern goods within the countries of the Axis of Good and the virtue of freedom, then this niche should be grasped with both hands.

But does America have what Ukraine needs?

A strategic partnership between the two countries would be a gift of fate for our country, but it must be earned. For this, it is necessary to become a part of the American political and economic elites. Ukraine should be perceived by both U.S. parties as a Western-oriented, free country — in other words, as a like-minded partner. So far, this is not the case, because for the last 30 years, Ukrainian political, economic, nomenklatura, and power elites have not been building strategic partnerships with powerful, resourceful, authoritative countries, structures, and organizations, but rather solving their own petty, narrow departmental issues. They were not ready for a full-fledged partnership, for granting foreign capital access to Ukraine's rich resources.

Is Ukraine ready for full-fledged strategic cooperation with Western partners?

For decades, Ukraine has been in the hands of local nomenklatura-oligarchic clans, some of which actively cooperated with the Kremlin. They earned money together, hid profits offshore together, and jointly built the Oligarchy/Schematism model. They turned Ukraine into a territory of their personal enrichment with the subsequent export of capital abroad. Sad to say, but for the vast majority of beneficiaries of the Ukrainian oligarchy, Ukraine was not a home to be equipped, protected, and enriched, but a resource colony.

"We make money in Ukraine, on Ukrainians, and take the profits abroad" - this principle has been in effect for 30+ years under the cover of all presidents, prime ministers, members of the Verkhovna Rada, and local authorities. The system of enrichment of 3% of the population at the expense of 97% of others has brought Ukraine to the status of the poorest country in Europe. The aggressive neighbor took advantage of the Ukrainian "schematism" to paralyze any systemic institutional reforms in the country and discredit the idea of freedom in the eyes of Ukrainians. We have to admit that they have succeeded, especially in the areas of monetary, fiscal, and regulatory policy. Ukraine has become a business state. The right to speak on behalf of which has been usurped by clans and groups competing with each other.

Unfortunately, the "hot", large-scale war of Nazi Russia against Ukraine did not destroy the legal and institutional foundations of this model, but only changed the beneficiaries. Moreover, the formation of new groups of VIP bureaucracy based on annual redistribution of about 70% of the country's GDP, control over resources and assets under martial law has brought Ukraine closer to a large-scale redistribution of property. Due to the threat of a clash of interests between old and new groups of influence, Ukraine may plunge into a long period of strife, conflict, and sharp confrontation, in which a new participant, the United States, has suddenly appeared.

The United States of America can play the role of Ukraine's partner in capitalizing and monetizing important sectors of the country's economy. Undoubtedly, American business has powerful technological and financial resources to develop and commercialize Ukraine's natural resources and sell them on the world market. Theoretically, it can engage in large-scale commercialization of this segment of the Ukrainian economy, but the Minerals Agreement is clearly not enough for this.
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Agreement СРМ-US-UA: restart of Ukrainian institutions of power or another political ritual?

It is one thing to have an agreement between private corporations, owners of resources and assets, and quite another to have general agreements between governments. There may be a vast gap between the first and the second. This gap could easily accommodate political-commercial plots of 'deals' disguised as international public-private partnerships. In light of the information that Elon Musk uncovered with his DOGE, considering the findings and conclusions of the State Audit Service regarding Pentagon and other federal agencies' spending, it is impossible to exclude the possibility of 'schemes' by American businesses, especially if there are potential secrecy regimes, resource allocation, and tax-free jurisdictions, as well as granting tax-exempt status to all commercial activities within the framework of U.S.-Ukrainian commercial relations. All these aspects remain outside the Agreement СРМ-US-UA. There is a threat of repeating the fate of the Law on the Land-Lease for the Defense of Democracy in Ukraine of 2022 (entered into force 09.05.2022). Ukraine received nothing under it, and the sluggish work of both sides turned everything into an imitation of aid.

**If there is no political will, no concentration of resources, including administrative ones, to implement the Minerals Agreement between Ukraine and the United States, it risks turning into another political and legal ritual. **

The Government of Ukraine can use the Agreement with the United States as a powerful incentive for domestic reforms.

L"The American people express a desire to invest... in a free, sovereign, and secure Ukraine."L

This requires Ukraine to leave the shameful 150th place in the Index of Economic Freedom and 102nd place in the International Property Rights Index. The United States and the Ukrainian government agreed that their partnership.

L"is the flagship mechanism for encouraging transparent, accountable, future-oriented investment."L

This provision can be seen as a call to improve the quality of public administration, which, in Ukraine, according to the World Bank, is at a critically low level. The reform of the public administration system is not just about cosmetic changes in the structure of the executive branch or personnel appointments. This means a significant reduction in the functions of the State, the establishment of a new balance of power between the Verkhovna Rada, the President, and the Government, and the redistribution of powers between central and local authorities.

If this is not done, the likelihood of recurring management crises and the capture of the center of the decision-making system by powerful lobbying groups remains very high. Moreover, if large investments in the raw materials and energy sectors of the Ukrainian economy materialize, a new group of influence is likely to form. It will consist of Ukrainian decision-makers and commercial participants, as well as American and other foreign stakeholders in these projects, including those who will lobby for relevant decisions within the U.S. executive and legislative branches

In the worst-case scenario, the Agreement СРМ-US-UA it could turn into an international nomenklatura-commercial 'inner circle,' and within Ukraine, lead not to systemic market reforms or the liberation of entrepreneurship, but rather to reshaping the composition and structure of the Ukrainian oligarchy.
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The following provision of the Agreement gives reason to hope that the United States will not only implement the commercial part of the agreement, but will also push the Ukrainian authorities to create full-fledged Western institutions:

L"The Parties acknowledge that Ukraine's recovery requires not only financial investment but also structural, institutional, and technological transformation, aligned with democratic values, market principles, and the rule of law."L

At one time, for the political, economic, and intellectual elites of Central, Eastern Europe (CEE) and the Baltic states, such an external incentive for reform was NATO and EU membership. The unification of different political forces to achieve this goal created a real institutional breakthrough for them. A comparison of the qualitative and quantitative indicators of those countries that joined the EU convinces us that the development strategy was chosen correctly. They joined the group of high-income countries with high-quality development and growth institutions. Over the period 2004-2024, Hungary increased its GDP per capita by 2.3 times; the Czech Republic by 2.7 times; Slovakia - 3.2 times; Estonia - 3.5 times; Poland managed to increase its per capita GDP by 3.7 times, and Lithuania by 4.4 times.

Source: World Economic Outlook Database. IMF. April 2025.
https://www.imf.org/en/Publications/WEO/weo-database/2025/april

Will the US-Ukraine agreement become a catalyst for systemic market reforms?

Institutional nudge (following nudge theory) by the EU, the US, and NATO countries has undoubtedly become a very important factor in neutralizing the influence of post-Soviet, post-socialist network organizations and structures that wanted to restore the old ways of life and turn countries into authoritarian, oligarchic regimes. For 34 years, these forces in Ukraine have become very influential in shaping the state's policy in general and economic policy in particular. There has been a seizure by various groups of influence, network structures that include oligarchs, representatives of the Ukrainian authorities, deep state (regulators, managers of permitting procedures, law enforcement agencies, judiciary), as well as politicians represented by the legislative, executive, and local authorities. Each of them has its own contacts and partnerships with political, economic, and civil society organizations in the West. They did not solve the problems of the Ukrainian economy, but rather strengthened ineffective institutions and vicious ties with their presence, resources, and authority.

To use the Agreement СРМ-US-UA as a catalyst for systemic market reforms, neutralizing the influence of the old system's stakeholders and consolidating pro-market forces for freedom, a clearly defined, structured, authorized political force is needed.

There is no such force in Ukraine today. Therefore, the likelihood of using this Agreement (as in the CEE and Baltic countries) as an institutional nudge is very low—unless something unexpected happens within the country's leadership, something in the category of a 'black swan' event.

On the other hand, it is necessary to take into account the security factor and the existential threat from Nazi Russia. The fourth year of large-scale war and 11 years since the beginning of the Russian invasion have depleted Ukraine's material and human resources. The status and capabilities of the old oligarchy have changed significantly. During the war, new nomenclature and commercial groups were formed, which began to claim a place in the mechanisms of rent distribution.

In this situation large Ukrainian business, formed before the full-scale war, can become a powerful source of support for systemic market reforms, not because they were suddenly inspired by the ideas of L. von Mises, F. von Hayek or M. Friedman, but because, as the Agreement says, transformations based on democratic values, market principles and the rule of law increase their chances of preserving and increasing their capital. Ideally, the emergence of a partnership between "American supporters of the free market in Ukraine - large and medium-sized Ukrainian businesses, political forces-architects of liberal reforms in Ukraine" could become a real game changer, i.e., a turning point in the development of our country.

Gray areas of the Agreement on Rare Earth Minerals

At first glance, the U.S.-Ukrainian partnership in the field of raw materials looks logical and reasonable. America needs rare earth metals, which it has everything to mine. Ukraine has these natural resources, but it has neither the money, nor the technology, nor the willingness to mine them on its own without causing an explosion of public outrage. In addition, Ukraine is unlikely to be able to solve the security problem on its own.

Therefore, a strategic partnership with the United States at various levels would be a breakthrough for Ukraine. But the Agreement СРМ-US-UA - it's definitely not a breakthrough. It is more like a check, testing the parties for readiness for partnership, in fact, it is a political and commercial experiment of limited effect.

What are the main weaknesses and fragilities of this Agreement in terms of its contribution to rapid, sustainable economic growth and the release of entrepreneurial capital throughout Ukraine?

The agreement was signed by politicians and officials, not private investors and businessmen. The Agreement will be implemented by the relevant government agencies of the United States and Ukraine. The beneficiaries of the agreement will be determined by nomenclature mechanisms rather than market ones. The selection criteria, requirements for commercial participants in projects, relationships between them, the mode of organization of production, export-import operations, pricing policy, sales, and payment regime - all this will be under the influence of authorized officials. Every public-private partnership carries high risks of corruption, backroom deals, shady schemes, and violations of market competition rules.
Ukraine declares the preservation of state ownership of subsoil and raw material projects to be implemented under the Agreement СРМ-US-UA. This is an institutional, systemic defect of this agreement. The preservation of state ownership of a large part of the country's resources and assets means preserving the risks of state capture of the political, nomenclature-based decision-making system by lobby groups.
The Government of Ukraine retains substantial authority and control over various stages of the implementation of the Agreement, including the issuance of a license, resolving land issues, and identifying areas/locations for commercial projects. Thus, the risks of nomenclature and power interventionism in the activities of commercial parties to the Agreement remain.
The Agreement provides for the exemption of commercial participants from taxes, duties, and other mandatory payments on the territory of Ukraine. This mode is clearly discriminatory for other types of activities, Ukrainian entrepreneurship in general. Such tax offshoring is an artificial separation of a large sector of the economy from the general business environment. It is not only about tax and customs policy, but also about the currency, exchange rate, and regulatory regime. It turns out that the raw materials and energy sectors can become much larger than the IT sector, for the development of which the Ukrainian government once provided a favorable tax regime.

Source: Law of Ukraine "On Stimulating the Development of the Digital Economy in Ukraine". Bulletins of the Verkhovna Rada of Ukraine (VRU).), 2023, №№ 6-7, p. 18. https://zakon.rada.gov.ua/laws/show/1667-IX#Text

Conclusions

This investment project can be a recipient of the state budget for many years. At the same time, the timeframe and scope of benefits from the implementation of the Agreement, i.e., the commercialization of Ukraine's subsoil and raw material potential, remain unknown. At this stage, it is very difficult to predict more or less accurately the financial parameters of investment projects under the Agreement for the following reasons:

We do not have accurate information on the volume of rare earth metals and other raw materials in Ukraine. The terms of identification of these resources, assessment of their commercial potential, and the required amount of investment are not defined.
We do not have any information on the future demand for the goods that could potentially be exported from Ukraine under the Agreement. Accordingly, it is extremely problematic to calculate the estimated profits, dividends, and payback periods of projects.
We objectively do not have reliable information on the direction, speed, intensity of development of modern technologies that largely shape the demand for rare earth minerals and energy products.
Ukraine's security remains in a zone of radical uncertainty. Russia's large-scale war against Ukraine continues. The enemy has occupied and still controls about 20% of Ukraine's territory. The future of the Russian-Ukrainian war is uncertain. In the Agreement СРМ-US-UA, there is nothing about Ukraine's security. Therefore, the timing of the start of commercial projects, let alone their implementation, bringing them to the break-even point, and profitability, are unknown. Accordingly, there are no grounds or valid data to assess the monetary and investment benefits to Ukraine from the signed agreements.
In the Agreement СРМ-US-UA, there is no definition of what is considered a success and what is considered a failure of projects, and there are no clear time frames for their implementation. The Agreement does not contain an exit strategy for either the Ukrainian or the American side. State-owned raw materials and energy projects may be slowed down and implemented inefficiently, but market participants, private businesses, will be virtually barred from entering this business because of the monopoly right of the US-Ukrainian partners to our mineral resources and energy. Instead of dynamic growth and development, we may end up with a merger of political and economic power in the hands of a narrow group of decision-makers who will have enormous influence over the formation of the future structure of capital.

International Liberty Institute (ILI) welcomes the signing of the Agreement СРМ-US-UA as a diplomatic, political ritual on a commercial theme. It is one of the pillars for building trust between the countries, intensifying dialogue at various levels, and identifying common areas of interest between the United States and Ukraine, not only in the field of rare earth minerals. If there is political will from the Trump Administration (which is currently very weakly manifested), the American institutional nudge could become a catalyst for very important, valuable, and necessary reforms for Ukraine. If the parties to the intergovernmental partnership follow the path of cooperation between officials and state-owned businesses, the good intentions of the Agreement will turn into empty fantasies of high-ranking officials about rare earth metals.

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Yaroslav Romanchuk

A well-known Ukrainian and Belarusian economist, popularizer of the Austrian economic school in the post-Soviet space. He specializes in reforms in transitional economies in the post-socialist space.

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