WTO rules in favour of US in rare earths dispute with China

26 March 2014 22:34 Source:ICIS News

WASHINGTON (ICIS)--The World Trade Organization (WTO) said on Wednesday that China has unfairly restricted export of rare earth elements in violation of its rules, a decision hailed by US trade officials who had challenged Beijing’s export limits.

In its ruling, the WTO said that China’s imposition of export duties, quotas and other restrictions on the sale of rare earths to foreign buyers constituted a breach of Beijing’s obligations under WTO rules and in particular China’s WTO Accession Protocol under which the Middle Kingdom was granted WTO membership in 2001.

The World Trade Organization also said that parallel Chinese restrictions on critical metals tungsten and molybdenum were equally in violation of Beijing’s free trade obligations.

US Trade Representative (USTR) Michael Froman hailed the WTO finding, noting that the nearly two-year long investigation by a WTO dispute settlement panel “has agreed with the US in a major dispute, finding in favour of US claims that China’s imposition of export restraints on rare earths, tungsten and molybdenum breach WTO rules”.

The US, EU and Japan in mid-2012 filed a joint complaint against China over its export practices on the critical materials.

The 17 chemical and mineral substances known as rare earth elements (REEs) are crucial to refining, petrochemicals production and other industries, such as manufacture of weapons and space systems, lasers and fibre optic communications, to name but a few applications.

Despite the name, rare earth elements are not actually rare - most of them are found in almost any soil around the world - but extremely rare are those areas in which these substances can be found in concentrations that make mining them commercially feasible. China supplies about 95% of rare earth elements worldwide.

Essentially there are only two places in the world other than China where REEs can be found in such economically viable concentrations: one is in a remote part of Australia and the other is in Mountain Pass, California.

The US used to produce all the rare earths it needed up until 2002 when the Mountain Pass mine was shut down, in part because high federal and state corporate taxes and tough California environmental laws made the mine uncompetitive with much cheaper rare earths mining and production in China.

Since the Mountain Pass mine shutdown, the US has been dependent on China for its rare earth elements.

Froman noted that China’s REEs export restrictions and duties “caused US manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths”.

Senator Lisa Murkowski (Republican-Alaska) also welcomed the WTO finding, but she said that the ruling “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” for REEs, she said.

Murkowski and 18 other senators introduced the Critical Minerals Policy Act (S-1600) late last year. The bill would accelerate permitting and require other administrative measures to ensure that the US resumes rare earths production as soon as possible.

There have been five similar bills introduced in the House, two of which have been approved by the full House and await action by the Senate.

Wednesday's ruling by the WTO panel may be accepted or appealed by China within 60 days.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By Joe Kamalick