The WTO will officially issue a preliminary report in a landmark case against China’s export restrictions on rare earth minerals, tungsten and molybdenum. These restrictions include export duties, export quotas, minimum export price requirements and export licensing requirements. The case was initiated in July 2012 by the United States, the European Union, and Japan.
In this case the United States along with others have accused China of using export taxes and quotas to force companies to move their factories to China to tap these resources. China as the primary source of rare earths has gained the ability to significantly affect global supply and pricing. China has established the position as the world’s largest producer of rare earths accounting for over 90% of world’s output. The Chinese government stressed that its export restraint measures aimed at protecting the environment and its scarce resources.
The WTO allows members to export restraints if they are accompanied by simultaneous restrictions over domestic production or consumption in order to protect their resources and environment. In this case the Chinese government has set the same quota system in the domestic market while China has met global market demand every year. China’s export quotas and tariffs system were considered a key factor which has resulted in a different pricing structure. The prices for rare earths inside China are still significantly cheaper than those sold to the rest of the world resulting in claims of an unfair market environment for foreign companies.
China will appeal the WTO’s ruling after the preliminary report is formal published. “We will actively use the right to appeal the WTO’s decision.” Gan Yong, president of the Association of China Rare earth Industry, said in an interview with the state-run China Enterprise News. On March 21th The China News Service reports quote a senior official from Chinese MOFCOM sources saying “China has the preparation early for this result”.
In my opinion rare earths are crucial to many developing China’s industries especially emerging industries of strategic importance such as clean energy and high-tech products. It is difficult or even impossible for the Chinese government to consider relaxing its control of the rare earths sector. The loss of the WTO suit will result in Chinese government taking steps to remove the export quota and its related to export restrictions as well as to obey the ruling The rare earth WTO case against China however may result in an opposite effect.
As everyone knows China has dominated the rare earth market because of the world’s cheapest price in the past several decades. “The rare earth WTO case against China aims to obtain more of the rare earth raw material at a cheaper price, if the government can’t effectively to curb the Illegal exploitation and export of rare earth, which will impact on China’s national security”, some experts have said.
“We are still facing a very grim situation in the rare earth sector”, said Gan Yong. Illegal mining, processing, trading and smuggling remain the biggest threat to the country’s rare earth industry until recently which has resulted in significant pollution. China’s low prices for its rare earth elements have plagued the development of its rare earth industry which has resulted in a sharp drop in profits last year.
Influenced by the rare earth WTO case China’s rare earth policy of strategic adjustment will be inevitable. In fact China is speeding up its consolidation plan led by the six the State-backed large rare earth groups in order to monopolize over the country’s domestic rare earths upstream while planning to cut the number of rare earth enterprises by a large margin in the year. Moreover, China’s MIIT said that the government is speeding up the formulating legislation titled” Regulations on Control of Rare Metals” in order to protect the rare metals resources.
It is noteworthy that the Baotou government has published its titled “Baotou rare earth industry development of long-term planning programs”, which basically says that Baotou’s rare earth resources in situ process rate will be reached 100% in 2015, this means that the rare earth WTO case against China may result in Baotou no longer exporting its rare earth raw material after two years.