Friday October 18, 2019

US FILES SUIT OVER CHINA’S RARE EARTH  EXPORT QUOTAS

March 13, 2012

On March 13, 2012, the United States, the European Union, and Japan filed a joint suit with the World Trade Organization, claiming that China’s restrictions on rare earth exports violate WTO rules. Rare earth metals are used in many high-tech industries, especially in the manufacture of “green” products such as electric cars and wind turbines. The joint complaint argues that, by restricting exports of rare earths, China is giving an unfair competitive advantage to its domestic industries. China rejects this claim, saying that WTO regulations provide for its right to protect its natural resources and prevent environmental damage from over-mining.

China has close to a monopoly on rare earth minerals, as it produces over 95% of the world’s supply. China began setting quotas on rare earth exports in 2009, reportedly in an attempt to prevent over-mining and to preserve the environment. Foreign countries, including the US, have claimed instead that China’s export restrictions are nothing more than an attempt to artificially aid Chinese industry by limiting the supply (and thus raising the prices) of rare earths for foreign companies. In a statement on the case, U.S. Trade Representative Ron Kirk argued that China’s rare earth policies hurt American workers and industry, and must be overturned. President Obama highlighted the importance of rare earths in “green” industry, and implied that the restrictions on rare earths hinder efforts to rethink global energy consumption.

China has categorically rejected the claims that its restrictions on rare earths are deliberately designed to harm foreign industries. Beijing officials say the quotas are not a form of trade protectionism, but rather a necessary part of protecting China’s environment and insuring that the resources are not exhausted in the near future. One estimate by a Chinese source predicts that at the current rate of excavation, some rare earths will be exhausted in twenty years; therefore, China argues that restrictions are necessary to ration the supply of a limited resource.

While acknowledging that setting quotas will raise prices, Chinese experts argue the price raise merely takes into account the “environmental costs” of mining for rare earths, something that should have been included in pricing from the outset. According to this logic, in the past Chinese rare earths had artificially low prices caused by intense competition between suppliers and the over-mining of resources; the advent of export quotas is merely normalizing the prices, not falsely inflating them. Chinese officials further argue that, while China provides over 90% of the world’s rare earths, it only contains around 30% of Earth’s rare earth deposits. Other countries, including the US, are not heavily mining for rare earths themselves, but instead expect China to supply these resources. Foreign Ministry spokesman Liu Weimin highlighted the “huge environmental pressure” that China faces to provide rare earths for the world market; export quotas are a way to mitigate these pressures.

China’s fierce reaction to the joint complaint includes a threat to file a counter suit if pushed on the issue. Chinese officials maintain that they have a right to provide for China’s environmental future by protecting its natural resources. While the Chinese government expressed its regret at the WTO complaint, it vowed to hold its ground against the suit. China has warned that the WTO complaint could start a larger “trade war”; such a dispute would likely harm the still-fragile world economy.

Further complicating the situation, many officials in China see the rare earth trade suit as merely one part of an aggressive Western strategy to attack China’s trade regulations. In recent months, American and/or European officials have filed five trade cases against China. President Obama also recently created a trade enforcement unit to pursue trade violations, a move that is widely seen as targeting China. In January, the WTO ruled against China in another case filed by the EU, ruling that China must eliminate export taxes on various industrial materials (not including rare earths).

The sudden rise in trade cases has put Beijing on the defensive even as it prepares for a leadership transition later on in the year. With President Obama facing a reelection bid at the same time, both America and China may be using trade disputes to gain political favor domestically.

 

For further information on the trade dispute over rare earths, please see the following news sources:

Washington Post – “U.S. challenges China’s curbs on mineral exports; China vows to push back

NY Times – “Trade Issues With China Flare Anew

China Daily – “Experts say no more cheap rare earths from China

BBC – “US, EU and Japan challenge China on rare earths at WTO

 

For Chinese commentary on the trade dispute, please see the following news sources:

Xinhua -“工信部部长苗圩:如被起诉中国将主动应诉稀土出口案

Sina -“美欧日将就中国稀土出口问题向世贸提出诉讼

 

Edited and compiled by Shannon Reed.