U.S. wins WTO fight over China’s export limits on rare earth elements critical to high-tech items

McClatchy Foreign StaffMarch 26, 2014 

— The World Trade Organization on Wednesday sided with the United States against China in a trade dispute that could affect the price of nearly every modern electronic product manufactured today.

In its ruling, the WTO found that China had violated world trade regulations by imposing export restrictions on so-called rare earth elements, the lightweight, super-conductive minerals that are critical to a wide range of high-tech products, including hybrid car batteries, wind turbines, energy saving lighting, high-quality steel, electronics, flat-screen televisions and monitors, automobiles, electronics and medical equipment.

China produces 95 percent of the world’s supply rare earth elements _ there’s only one mine currently in the United States, in San Bernardino County in California _ and in the past few years has imposed duties of 25 percent on their export. The United States, the European Union and Japan claimed that those export duties were an unfair restriction on trade. The WTO, in a 257-page ruling, agreed.

“China’s decision to promote its own industry and discriminate against U.S. companies has caused U.S. manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths,” said Michael Froman, the U.S. trade representative. “WTO rules prohibit this kind of discriminatory export restraint and this win today demonstrates that clearly.”

Karel De Gucht, the European Union’s trade commissioner, also welcomed the panel’s findings.

“Today’s ruling shows that no one country can hoard its raw materials from the global marketplace at the expense of its other WTO partners,” De Gucht said. “This decision justifies the EU’s efforts to ensure fair access to much-needed raw materials for Europe’s industries. China cannot use export restrictions to protect its own industries or give them a helping hand on the global market at the expense of foreign competitors.”

The names of the 17 elements known as rare earths wouldn’t be familiar to most consumers _ they include minerals such cerium, thulium and yttrium _ but the products they go into would be, notably cellphones, which contain a variety of rare earths. Other products include self-cleaning ovens and lighter flints, both of which contain cerium, and portable X-ray machines, which use thulium.

The WTO’s ruling also affects tungsten and molybdenum, which also are used in a wide variety of modern products. China in 2012 had imposed a 20 percent duty on those exports.

China’s Ministry of Commerce in a statement expressed regret at the WTO ruling and said it is assessing how to respond. Under WTO dispute settlement rules, China and the other parties have 60 days to appeal.

China had argued that its export duties were put in place to help conserve the supply of an exhaustible natural resource, something that would be allowed under trade regulations. But the WTO said that China “had not demonstrated” that that was the case.

In addition to imposing duties, China in recent years also has reduced its output of rare earths, though it still remained the world’s dominant producer. Of the 111,000 tons of rare earth elements produced in 2011, according to the U.S. Geological Survey, 105,000 tons came from China.

The Congressional Research Service, in a December report, noted that the United States once produced enough rare earth elements for internal use, “but over the past 15 years” _ a period that coincides with the explosion of cellphones and other high-tech devices _ “has become 100 percent reliant on imports, primarily from China, because of lower-cost operations.”

Zarocostas is a McClatchy special correspondent.

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