EU, Japan, US open WTO row with China over rare earths

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Europe yesterday (13 March) challenged China in the World Trade Organization over its export restrictions on raw materials, simultaneously launching proceedings with the US and Japan for the first time.

The move follows a successful EU challenge at the WTO on similar restrictions for other raw materials earlier this year, the latest challenge covers exports of 17 rare-earth metals, as well as tungsten and molybdenum.

Beijing has set quotas for exports of rare earths, which are critical to the defence industry and manufacturers of high-tech products from hybrid cars to flat-screen televisions.

“These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and green business applications,” said EU Trade Commissioner Karel De Gucht, adding that China's restrictions on rare earths “violate international trade rules and must be removed”.

EU looks for knockout blow

The WTO in July 2011 ordered China to end its quotas and export duties on nine industrial raw materials, and an appeals body uphold that decision in January.

An EU official close to the case said China had made no moves to free the export restrictions since the earlier ruling and the new case was designed to get decisive results.

The official said EU companies had been compelled to relocate to China to get rare earths, and that the restrictions were costing European business “trillions of euros”.

China has denied the allegations in the WTO case, saying that it had enforced the quotas to ensure there was no environmental damage caused by excessive mining.

The EU claims that export restrictions do not address to this aim, saying there are more effective environmental protections that do not discriminate against foreign industries.

Chinese have faith in the WTO system

Wang Xining, a spokesman with the Chinese Mission in Brussels, said: “We have different views over the issue of raw materials exports, and we hope the issue will be properly dealt with within the WTO mechanism.”

Chinese experts told EURACTIV they hoped that proper weight would be accorded to the environmental arguments within the WTO, adding that it would inevitably involve a “long drawn-out procedure”.

The EU official said that sanctions – which can include import bans – would only result from failure of the long trade procedure at the WTO. If sanctions are ultimately necessary, however, the official said they would correspond to the trade abuse, and would amount to ‘very, very significant numbers’.

“We've got to take control of our energy future and we cannot let that energy industry take root in some other country because they were allowed to break the rules,” US President Barack Obama said in a White House press conference.

“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. This leaves us no choice but to challenge China's export regime again to ensure fair access for our businesses to these materials,” said EU Trade Commissioner Karel De Gucht.

But Ivor Shrago, chairman of the mining services firm Rare Earths Global, said the US was in trouble because it took the wrong decisions in the past. “They took a deliberate decision about 20 years ago not to develop [rare earth mining] and instead to buy the completed products,” he told the BBC. “Because of the deliberate decision that was taken, in China we have developed skills and expertise that the others do not have.”

Rare earth elements are used to manufacture high-tech products such as wind turbines, electronic consumer goods, nanotechnologies, batteries for electric cars and military equipment.

According to the EU, China is responsible for 97% of world production of rare earth metals.

Since 2005, China has imposed a rapid diminution of export quotas on a number of rare metals (from 60,000 tonnes in 2006 to 14,500 tonnes in 2011) and is mulling the introduction of a full export ban as of 2015.

In June 2010, an EU expert group identified rare earths among a group of 14 raw materials seen as "critical" for EU industries. It suggested that the European Union's global diplomacy should be geared up to ensure that companies gain easier access to them in future.

  • End of May: A WTO settlement panel will convene in Geneva to consider the three parallel cases brought against China by the EU, US and Japan, if a satisfactory resolution has not been negotiated by then.

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