US Mulls DSU as Chinese Rare Earth Exports Clawed Back Further
Countries that rely on Rare Earth Metals (REMs) for manufacturing are lashing out at China after Beijing officially announced a further 35 percent reduction in export quotas. The cut, which will affect exports for the first half of 2011, follows a 72 percent reduction in REM exports in the second half of 2010.
China insists that the cuts are meant to address environmental concerns and resource protection related to the natural resource, but some critics say it is veiled attempt to bolster Chinese industry. REMs are crucial elements in the production of a wide variety of advanced technologies including smartphones, computers, and hybrid automobiles. China holds 30 percent of the world’s REM reserves and is responsible for producing roughly 97 percent of the global supply each year.
China maintains that its reduction of REM exports is to prevent resource depletion and is thus a viable trade restriction under GATT Article XX (9) (see Bridges Trade BioRes, 8 November 2010). Many importing countries, however, remain highly critical of China’s actions. The United States Trade Representative has stated that the US will continue to work closely on the issue and will “not hesitate to take further actions [against China], including WTO dispute settlement, if appropriate.”
China’s export reduction is coupled with a new set of environmental standards for the Chinese REM industry in order to curb pollution and improve mining practices. The new standards will reduce the amount of pollution permitted in waste water, as well as regulate emissions of radioactive elements and phosphorus.
Beijing is giving mining companies a two to three year window to adjust their technologies to the new standard. If the companies fail to comply, they will be banned from the industry. It is clear, however, that the clamp-down has already begun. The Ministry of Land and Resources, now controls 11 mining districts and plans to place several other districts under government control in the near future, the New York Times reports.
There is increasing concern that China’s newest export reduction and the new environmental standards will simultaneously squeeze the global REM supply market and increase prices. Prices spiked as high as 300 percent in the second half of 2010 following the initial quota reduction (see Bridges Trade BioRes, 22 November 2010). Niu Jinglu, deputy secretary-general of the Chinese Society of Rare Earths, conceded that the new environmental standards will indeed result in higher prices.
In light of the concern over decreasing REM supply, China’s Chamber of Commerce for Metals, Mineral and Chemicals Importers and Exporters is encouraging other countries to develop or increase their exploitation of REMs in order to diversify the global market.
“International markets will have increasing needs for rare earths,” said Jiang Yu a spokeswoman for China’s Foreign Ministry. “Other countries with rare earth resources should also develop and exploit their resources and jointly shoulder the responsibility for rare earth supply.”
Australia’s Mount Weld and the US’ Mountain Pass in California are the largest known REM reserves outside of China. Although neither reserve currently supplies REMs, processes are currently underway to develop and re-activate mines in these areas.
ICTSD Reporting; “China says Other Countries Should Exploit Rare Earths,” BLOOMBERG, 30 December, 2010; “China seizes Rare Earth Mine Areas,” NEW YORK TIMES, 20 January, 2011; “China to Tighten Limits on Rare Earth Exports,” NEW YORK TIMES, 28 December, 2010; “CCCMC Calls on Diversifying Rare Earth Supplies,” CHINA DAILY, 28 December, 2010; “Global Outlook,” MOLYCORP MINERALS; “New Standards for Rare Earth Sector,” CHINA DAILY, 7 January, 2011; “Update 1 - China to Control Rare Earth Extraction, Pollution,” REUTERS, 7 January, 2010; “US ‘Very Concerned’ About China Rare-Earth Quotas - USTR Spokeswoman,” NASDAQ, 28 December, 2010.