In a decision that has taken two years to reach, the World Trade Organization (WTO) ruled last week that China’s export restrictions on rare earth elements, molybdenum and tungsten are inconsistent with its obligations as a WTO member.
China accounts for more than 90 percent of production of rare earth minerals—used in everything from military equipment and hybrid and electric cars, to smartphones and tablet computers—even though China has only about 30 percent of the deposits of rare earths. In 2009, China limited exports of rare earths, saying the move was to reduce pollution and preserve resources to prevent over-mining. Chinese officials had also expressed the hope that foreign companies which use rare earths would shift production to China and give technology to local partners.
The U.S. complained to the WTO about the restrictions, arguing that China artificially raised the prices of rare earths for other countries and gave preferable pricing to Chinese manufacturers for competitive advantage. The European Union and Japan also joined the complaint.
Finally, last week, the WTO issued a finding. After examining the various domestic measures that China claimed restricted domestic access to rare earths, tungsten, and molybdenum, the Panel concluded that the overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers. Under the circumstances, the Panel concluded that the “even-handedness” required by the Appellate Body under Article XX(g) had not been met, and hence the quotas could not be justified under that provision.
The WTO ruling comes as good news to everyone outside of China. U.S. News ran an AP story reporting that the EU issued a statement that no one contests China’s right to impose environmental and conservation policies. However, EU officials said the panel’s ruling affirms that “the sovereign right of a country over its natural resources does not allow it to control international markets or the global distribution of raw materials.”
The news was also well received in the U.S. The U.S. News article also notes that U.S. Trade Rep. Michael Froman said in a statement, “China’s decision to promote its own industry and discriminate against U.S. companies has caused U.S. manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths.”
The flip side of the coin, of course, is that the WTO ruling was not well received in China. Indeed, Reuters reports that China’s Ministry of Commerce said the head of its treaty and law department welcomed the WTO’s recognition of its efforts to conserve resources and protect the environment, but regretted that the panel found China’s export duties, quotas, and quota administration breached WTO rules.
“China believes that these regulatory measures are perfectly consistent with the objective of sustainable development promoted by the WTO,” China’s Ministry of Commerce said in a statement, according to Reuters.
The WTO panel’s report on China’s export restraints, which include the export duties and quotas, may be adopted or appealed within 60 days. If adopted, the U.S., EU and Japan would be entitled to retaliate trade-wise if China does not comply with WTO rules.
China isn’t the only source of rare earth elements. In fact, the materials are found around the world. The problem is that mines in other countries were closed when China undercut world prices in the 1990s, and ramping back up is both time consuming and costly. Nonetheless, notable work has been done by Quest Rare Minerals Ltd. in northeastern Québec, Molycorp is working to bring its Mountain Pass, CA facility back up to speed, and Australian mining company Lynas is working in Australia as well as Malaysia.
Given those, and other companies’ work, and the ruling by the WTO panel, it will be interesting to see what happens next.