Environmental Defense of Rare Earth Export Quotas May Invite WTO Action

Also published on RareMetalBlog.com

The China-Japan economic dialogue concluded last weekend in Beijing with Japan raising concerns over the impact of China's rare earth export restrictions on the global economy. As noted in the London REE report on Tuesday, the complaints were dismissed by China’s Minister of Commerce Chen Daming, who reiterated that decisions to limit production and export of rare earths are based on concerns about environmental protection and not contradictory to WTO rules. It is looking increasingly likely that we will soon find out whether the WTO agrees with China’s claims.

In my previous post, I discussed the relationship between the raw materials case currently under review by a WTO dispute settlement panel and the current rare earth situation. In the raw materials case before the WTO, China has also defended its export controls by claiming that they are necessary to protect against environmental degradation. As China further entrenches its defense of rare earth export controls behind environmental principles, the forthcoming decision on China’s raw materials export controls becomes ever more relevant.

Most outside of China believe that the environmental protection argument holds little credibility in the defense of export controls, which only serve to create distinct price advantages for domestic end-users and manufacturers. However, production controls, which limit the annual amount of rare earth production and are also currently applied by the Chinese government, do not create the same unequal economic conditions as export controls and have been recognized in other industries as acceptable under the WTO. Assuming the dispute settlement panel does find China’s export controls to not be in accord with WTO rules, it is very likely that China will shift towards greater reliance on production controls. Such a change would satisfy the WTO by creating a more level playing field for domestic and international purchasers and allow China to escape financial penalties or the imposition of countervailing duties. It would also allow China to maintain control over the primary supply and global prices for many raw materials, including rare earths. However, without WTO involvement and the threat of financial penalties against Chinese industries, international manufacturers will have to continue to compete against manufacturers with subsidized raw material and rare earth resources.  

Comments

[Terence Bell]

Philip Burgert, writing on ResourceInvestor.com earlier this week, highlighted what may be the beginning of a WTO case against Chinese RE export restrictions:

"A trade case filed late last week by the United Steelworkers union against an array of Chinese policies and practices that the union says threaten the future of America’s alternative and renewable energy sector makes the country’s restrictions of access to rare earth materials a top complaint."

He goes on to point out that the trade case emphasizes the cost benefits provided to Chinese manufacturers by export restraints, particularly in green technology industries.

Although the timing of the filing, without question, is highly politicized - the Obama Administration will need to make a decision whether to accept the case a week prior to mid-term elections - support for such a case is growing quickly.

To read the full article, click here:
http://www.resourceinvestor.com/News/2010/9/Pages/Rare-Earths-at-Center-of-USWs-301-Petition-on-China.aspx

[purchasing]

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