WTO labels Chinese rare earths restrictions illegal

China’s Ministry of Commerce reacted with regret, while the United Steelworkers applauded Wednesday’s publication of the World Trade Organization’s decision that China’s restrictions on rare earths, molybdenum and tungsten exports violated global trade rules. 

"Today's ruling by the WTO on rare earth shows that no one country can hoard its raw materials from the global market place at the expense of its other WTO partners," said European Union Trade Commissioner, Karel De Gucht.

US Trade Representative, Michael Froman, declared: “China’s decision to promote its own industry and discriminate against US companies has caused US manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same use.

“We hope this will discourage further breaches of WTO rules that hurt American manufacturers. This victory shows that we stand prepared to take action whenever necessary to protect the high-quality middle class American jobs that trade supports,” Froman added.

The official WTO announcement came five months after Chinese officials had already publicly disclosed that they had lost the case.

Ironically, the decision will probably not have much of an effect on rare earth markets and prices, as new supplies for rare earths outside of China come online, and REE prices have plunged since the European Union, Japan’s Ministry of Economy, Trade and Industry, and the Obama administration, requested dispute settlement consultations with China regarding 17 rare earths, tungsten and moly by the WTO on March 13, 2012.

The dispute arose in 2010, after China drastically reduced its export quotas by 40% for rare earths, and caused a spike in world prices and considerably disrupted the global rare earths market. The case was built upon an earlier WTO dispute, when the US successfully challenged China’s use of export quotas on raw materials used in the steel, aluminum, and chemical industries.

In a news release on Wednesday, the USW said it had originally filed a complaint “against a broad range of Chinese predatory and protectionist policies harming the U.S. alternative and renewable energy sector. The products are also critical to a number of defense components and systems.”

“Companies have had to locate production in China because of their protectionist policies,” said USW President Leo W Gerard. “China has also tried to hold countries hostage to rare earth supplies.

“In Washington, when you try to promote a new approach, one of the first questions policy makers often asks: Is it WTO legal? Policy makers in China ask a different question: How long can we get away with it?” Gerard asserted.

“China achieved its intended goal of moving production out of the United States and into China,” he declared.

In its defence, China’s Ministry of Commerce had argued that “facing severe resources and environmental pressure, the Chinese government has enhanced the management of resource products which are high-polluting and high-energy consuming.” Chinese officials asserted that their tariffs and restrictions were perfectly consistent with sustainable development, and contributed to the coordinated development of resources, the environment, and to human beings.

However, the WTO said China’s “export quotas were designed to achieve industrial policy goals rather than conservation”, and that the conservation argument does not apply to “measures to control the international market for a natural resources.

The head of China’s Department of Treaty and Law said that China welcomes the panel’s ruling regarding ‘export performance’ and regretted its ruling over the measures taken by China on rare earths exports, Xinhua News Agency reported. 

Beijing now has 60 days to file an appeal of the WTO decision. The WTO panel has suggested that its ruling has broader implications for permanent sovereignty over natural resources. The panel contends that once a country’s natural resources are placed in global markets for sale, they should be subject to WTO rules. The Financial Times suggested the ruling could make it hard for other countries to impose or maintain export restrictions on raw materials.

China’s share of rare earths production is now down to 80%. New projects such as Molycorp’s Mountain Pass Project near Las Vegas, Nevada, are operating and, ironically, selling some of their product to China. 

Gerard observed that the production of light rare earths at Molycorp “will help ensure that China can’t hold America and other nations hostage in the future.” 

US Senator, Lisa Murkowski, R-Alaska, the ranking member of the Senate Committee on Energy and Natural Resources, observed that, “While I am happy to see this ruling come out in our favor, it by no means resolves the fact that we are almost entirely dependent on a foreign nation for our supply of rare earth elements.

“We can file trade complaint after trade complaint, but there is no substitute for the steps that we know we must take to reconstitute our own domestic supply chain.

“To truly protect our security and promote our competitiveness, we must begin producing more of the minerals we have here at home, including rare earth elements,” she stressed.

Senate Finance Committee Chairman, Ron Wyden, D-Oregon, said, “To compete in the global, high-tech economy for decades to come—and secure the jobs that come with it—the United States also needs to develop a stable rare earths supply chain here in America, which is why Sen. Murkowski and I have introduced legislation to do just that.” 

The senators have introduced the US Senate version of the Critical Minerals Policy Act of 2013.


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