China’s Rare Earth Trade Restrictions Dismissed By WTO, WTF?

February 10, 2012 | Filed under Environment | Posted by

Sandra Wirtz at the American Resources Policy Network notes a big issue for the U.S. and EU in a recent World Trade Organization ruling:

The World Trade Organization (WTO) recently made headlines over its decision to notify the Chinese government that it is in violation of international trade rules regarding the country’s raw materials export restrictions covering bauxite, zinc, yellow phosphorus and six other industrial minerals.

The case – brought about by the U.S., European Union, and Mexico in 2009 – upheld an the initial WTO ruling, and constitutes the supra-national body’s final holding on China’s policies.

Implications for rare earths?

Rare earth elements (REEs) – the group of 17 elements without which we would not have our smartphones, tablets, and flat screen TVs – were not at issue in the WTO’s decision. While the WTO does not treat prior rulings as precedent, some in the international trade community were quick to claim a linkage in the WTO’s logic to China’s export controls on rare earths. European Union Trade Commissioner, Karl De Gucht, had this to say in a press statement:

China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime – including for rare earths – in line with WTO rules.

Why is this an issue? For one, it’s an issue because the current administration’s hostility toward domestic resource extraction and mining means that we’re decades from being able to be self sufficient in these critical elements. From Resource Investor:

The current size of the rare earth sector is estimated at US$10-15 billion annually. Global production is about 120,000-130,000 tonnes of rare-earth oxides per year.

China provides 97% of the world’s REE production but, according to the USGS Mineral Commodity Summaries 2011 China only has 48% of the world’s known reserves of rare earths. Demand inside China is growing at a faster rate than outside of the country as a consequence China has been imposing export quotas on rare earths which has created two separate rare earth markets – an internal Chinese market and globally, pretty much everyone else. The Chinese export quota for the year sets the global supply and price of REEs.

China dominates the market in many mining sectors, though just as with REE’s they don’t necessarily dominate the known reserves in those sectors. What we and the EU are setting ourselves up for is the potential for China to hold us hostage for critical technology and us having no recourse – at least no recourse for the 10-15 years it would typically take to bring domesitc production online. That’s not a particularly comforting thought…

Update: The American Resource Policy Network article changed after this piece was published to reflect that the REE’s were not the subject of the WTO action. I have updated the quoted content here as well.

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Posted by on February 10, 2012.
Filed under Environment.
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Kevin founded Wizbang in 2003. He still contributes occasionally and handles all the technical and design work for the site.

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  • GarandFan

    And the WTO expects China to do what? 

    I do hope everyone of those idiots on the panel promises to hold their breath until China complies.

    • herddog505

      Does anybody know the Chinese for, “Screw you, b*tches!  We pay your bills, so you shut your mouths!”?

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

    It needs to be clearly understood that the REE were NOT involved in this decision.  The WTO didn’t punt; the case had to do with the other commodities.

    There is certainly a question about whether the existing agreements can force a country to export more of a limited and vital resource, though.  The reason China controls nearly all the world’s production with just under half the known reserves is the expense of extracting these elements, both in labor and pollution. 

    I doubt the WTO and side agreements address a situation where we say to China:  “We don’t want to spend the money to develop our own resources or risk our miners or environment, so you MUST share your production with us.”

  • Brucepall

    This is basic ECON 101.   China is learning to be good little capitalist.  The reason they control 97% of the world’s currently extracted supply IS because of their cheap labor rates and lack of environmental controls.  

    Does this mean they control 97% of the world’s in-the-ground supply.  Nope, not even close.  There are at least a dozen of companies throughout the globe (that I know of), including American, that have restarted production or are near production of Rare Earths.

    Am I mad at China?  Meh.  They are fixing to learn another economic lesson about price incentives, and how entrepreneurs will arise outta (seemingly) no-where to meet global demand.

    Bottom line – China’s control of the extracted Rare Earth market is temporary.  And make no mistake – what we’re really talking about here is profit ($).  Like I said at the beginning – its basic ECON 101.  

    If your a smart investor – there is a great deal of money to be made in Rare Earth stocks – at least until global supply, demand and market forces reach a new equilibrium.  Three years on I’ve been trading stock of these extraction companies… and smiling all the way to the bank.  FWIW- 

    Semper Fidelis-

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