Rare Earth WTO case against China may result in opposite effect

WTO-ChinaThe 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.

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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.


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Hongpo Shen

About Hongpo Shen

Hongpo Shen is a Chinese freelance writer, professional blogger focusing on China's rare earth market, and previously held 15 years of experience in the local government of Shanghai, China. whose degrees include International Economics & Trade and Political Science. He has been an editor for InvestorIntel since May 2012.
  1. Does it seem ironic (polite term) that the WTO seems determined to reduce the export imposts that provide Moly & Lynas a pricing advantage into the catalyst industry (only remaining RE market predominantly ROW) for the Ce & La that makes up 83% & 73% of production respectively?
    Good thing China is smarter than that.

    • It’s the tariffs that create the divergence between domestic Chinese prices and FOB prices. The WTO has point on this issue, although I have a vested interest in seeing the divergence remain. The 40% difference between in-China prices and rest of world prices incentivizes manufacturing to relocate to China and rare earths are not the only commodity with an export tariff. It will certainly be an area of debate, but I don’t see China complying without a drawn out appeal process.

  2. Repealing the export quotas will have no effect. China is simply not producing the amount of rare earths needed to satisfy ROW demand. It is almost comical the U.S. and WTO think by eliminating an arbitrary quota enough rare earth will spring into existence. China is stepping down from their role as the world supplier of rare earths and it seems little can be done, hence the absolute need for new producers, such as Molycorp. Unless the WTO can demand China increase it’s production quotas, which I highly doubt because it is for one imperialistic and two detrimental to the environment and pollution in China, this is the path industry is on. If China were still producing massive amounts of rare earth and refusing to export any, the WTO would have a point, but that is not the case.

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