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

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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