Rare earth policy puts China again under WTO scanner

BEIJING (Commodity Online) : Challenging China’s rare earth monopoly, US and Mexico have filed a lawsuit to the WTO accusing China of protectionism in their rare earth policy, reported Business Daily, quoting Gan Yong, assistant dean at the Chinese Academy of Engineering and chairman of the Chinese Society of Rare Earths.

On July 5 the WTO ruled that China’s export controls on a number of rare earths such as bauxite, coke and magnesium broke international trade laws. The complaint had been filed by the U.S., the European Union and Mexico in 2009.

The ruling was seen as a sign that lawsuits could be filed against China over its rare-earth export restrictions.

Industry insiders said the WTO ruling would serve as a guideline on how to deal with export restrictions on raw materials such as rare-earth in the futur

"China's exports of raw materials involved in the export tariff and quota measures are inconsistent with China's WTO commitments and the relevant WTO rules", the WTO said.

Shortly after the ruling, vice commerce minister Zhong Shan said the ministry would take steps to reform its rare-earth management, "according to relevant laws and World Trade Organization rules," according to the official Xinhua news agency.

Speaking at a forum, Gan was quoted as saying that the U.S. and Mexico’s lawsuit against China had already made some progress.

He also said the allegations cannot be established technically, since China's rare earth production and export controls are based on resources and environmental protection, and domestic prices of rare-earth products are almost the same as foreign prices

China also did not reduce exports to increase its domestic supply, Gan added.

Zhang Zhong, general manager of Inner Mongolia Baotou Steel Rare-Earth Group Hi-Tech Co. Ltd. (600111,SH), was quoted as saying that the protection of non-renewable resources is an issue recognized around the world.

Last month, the Ministry of Commerce set the rare-earth export quota for the second half of this year at 15,738 tonnes, taking the annual total to 30,184 tonnes -- just shy of the last year’s total of 30,184. That should be sufficient to dispel worldwide concerns that China is tightening exports of its rare-earths, the paper said.

Gan said it was abnormal that 36% of China’s mining resources provide more than 95% of global supplies of rare-earths.

"They [the U.S. and Mexico] reckoned that the measure of supply of rare-earth from China is different inside and outside of the country," Gan said, "but the Chinese control over the export of rare-earth is totally reasonable and is in line with WTO principles, since we do not separately control foreign and domestic supplies but control the total volume without any price discrimination.”

China faces a looming dispute with major trade nations over its rare-earth policies as foreign governments are eager to secure supplies of the valuable raw materials, which are used in high-tech applications ranging from mobile phones to medicine, as well as steel. The country is home to about 90% of the world’s discovered reserves of rare-earth.

The U.S., EU, Japan and other countries have said that China’s rare-earth export restrictions are pushing up global prices and undermining billions of dollars of trade of foreign companies.

The EU has also complained that China’s restrictions on exports of raw materials threaten its industrial output and up to 500,000 jobs. Therefore, the EU believes that it should build on the progress of its WTO complaints against Chinese rare-earth export restrictions to ensure supplies of the raw materials, the paper said.

Gan Yong said the rapid development of China's rare-earth industry was leading to over-production and the rapid consumption of non-renewable resources, which are serious issues.

"In order to change this situation, China has adopted a series of measures to regulate the industry, including the elimination of export tax rebates and separating the control of rare earth minerals and metallurgical products," Gan said.

China exported 36,000 million tons of rare-earth products in 2009 worth $310 million, and 39,813 tons worth $940 million in 2010, according to data provided by Gan. Although the volume stayed almost the same, the price tripled over the course of a year.

Rare-earth prices continue to climb, which is prompting other countries with their own reserves to consider re-opening production. However, that might take some time: the U.S. National Audit Office said in a report last year that it would take the U.S. 15 years to rebuild its rare-earth supply chain

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