US, EU, and Japan challenge China’s rare earth export restrictions

In a tripartite challenge against China's export restrictions on rare earth materials, the US, European Union, and Japan filed a complaint with the World Trade Organization. 

The United States, the European Union and Japan, lodged a joint complaint at the World Trade Organization (WTO) Tuesday regarding China’s export restrictions on rare earth exports, materials critical for the production of numerous high-tech products. 

The three trade powers aim to increase the pressure on Beijing’s export quotas of raw materials, asking the WTO for dispute settlement consultations, which is the first step in a longer process.

The US, EU, and Japan argue that by setting export restrictions such as quotas and taxes, China artificially lowers domestic prices and boosts domestic supply, thus granting local manufacturers an advantage against foreign competition. As a result, Chinese companies have access to more and cheaper rare earth materials, and foreign firms have to grapple with smaller and more expensive supplies.

"China's restrictions on rare earths and other products violate international trade rules and must be removed," said EU Trade Commissioner Karel De Guchtin a EU statement.

Rare earth minerals consist of a group of 17 elements with widespread applications in hi-tech businesses, cell phones, computers, light bulbs, and green products such as wind turbines and hybrid cars. 

China currently monopolizes the rare earths trade, holding approximately 30 percent of the global reserves and producing 97 percent share of the world supply, according to the ruling Chinese Communist party's official organ, the People’s Daily.  For instance, China accounts for 91 percent of the world production of Tungsten, a chemical element used in the electronics, aerospace, medical, and automotive sectors.  

Pressure within the US

Facing re-election later in the year, and with the US economy already dominating the campaign, the Obama administration seems to assume a more confrontational stance on Beijing’s trade policies amid Republican accusations of being too soft with China.

"America's workers and manufacturers are being hurt in both established and budding industrial sectors by these policies. China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace," said US Trade Representative Ron Kirk, according to Reuters.

'We think our policy is in line with WTO'

China rejects such criticism, saying that the country had imposed the quotas due to concerns of possible environmental damages excessive mining can generate.

"We think the policy is in line with WTO rules," said Chinese foreign ministry spokesman Liu Weimin, according to the BBC.

"Exports have been stable. China will continue to export, and will manage rare earths based on WTO rules," Mr. Liu said.

The WTO recently ruled in favor of a joint complaint by the EU, US, and Mexico in another challenge against China’s restrictions on similar export materials. But China has neither responded to nor accepted the ruling, raising concerns over the country’s genuine intentions and validating those who warn over the adverse economic impact Chinese trade protectionism has on a crumbling world economy.

“Despite the clear ruling of the WTO in our first dispute on raw materials, China has made no attempt to remove the other export restrictions,” said EU trade commissioner Karel De Gucht.

Security issue?

In the past, the United States was self-sufficient in terms of rare earth materials. But after the 2002 closure of its main mine in Mountain Pass, Calif., the country started depending on imports. Defense analysts say this dependence might compromise the country’s security capabilities since some materials are hard to replace.  

“The lack of a domestic supply of rare earth minerals could severely affect the US's ability to manufacture advanced-technology products. A rare earth supply shortage would present a threat notably to the emerging clean energy industry but also to the telecommunications and defense sectors,” reported GlobalSecurity.org, a think tank that analyzes security challenges.