WTO Rules in Rare Earths Case

March 26, 2014. The World Trade Organization (WTO) released its panel reports [258 pages in PDF] in its case titled "China -- Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum".

The WTO panel found that the People's Republic of China's (PRC) export duties on rare earths are inconsistent with its accession protocol, and its export duties are inconsistent with the General Agreement on Tariffs and Trade 1994 (GATT 1994). The panel also faulted the PRC's restrictions on the trading rights of enterprises exporting rare earths.

The US, Japan and EU filed complaints, which are nominally requests for consultations, in March of 2012. See, stories titled "US, Japan and EU Take Rare Earths Issue to WTO" and "OUSTR Explains Rare Earths Request for Consultations" in TLJ Daily E-Mail Alert No. 2,349, March 14, 2012.

The US, Japan and EU requested that the WTO establish a dispute settlement panel (DSP) to rule on their complaints June 27, 2012. See, story titled "US, Japan and EU Request WTO DSP for REM Complaint Against PRC" in TLJ Daily E-Mail Alert No. 2,406, July 20, 2012.

Rare earth materials (REMs) have a wide range of uses. Among other things, they are used in such information and communications technology (ICT) products as fiber optic cable and smart phone screens. However, one of their key uses is in making permanent magnets, which have the properties of compactness, high strength, and very strong magnetic fields. These magnets are used in computer hard drives, cell phones, loudspeakers, headphones, magnetic resonance imaging, cordless electric tools, and other products.

The rare earth elements from which REMs are made are Scandium, Yttrium, Lanthanum, Cerium, Praseodymium, Neodymium, Promethium, Samarium, Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Thulium, Ytterbium, and Lutetium. See also, periodic table. This case also involved Molybdenum and Tungsten.

Almost all of the world's supply of REMs now comes from the PRC. The PRC has attempted to leverage this to gain competitive advantages.

The European Commission (EC) stated in a release that "The verdict is clear: export restrictions cannot be imposed supposedly to conserve exhaustible natural resources if domestic use of the same raw materials is not limited for the same purpose."

The EC added that "Neither the complainants nor the panel contest China's right to put in place environmental and conservation policies. However, as unequivocally confirmed by the WTO Panel, the sovereign right of a country over its natural resources does not allow it to control international markets or the global distribution of raw materials. A WTO Member may decide on the level or pace at which it uses its resources but once raw materials have been extracted, they are subject to WTO trade rules. The extracting country cannot limit the sales of its raw materials to its domestic industry, giving them a competitive edge over foreign firms."

USTR Michael Froman (at right) stated in a release that "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. WTO rules prohibit this kind of discriminatory export restraint and this win today, along with our win 2 years ago in an earlier case, demonstrates that clearly."

The OUSTR release also states that "The Chinese export restraints challenged in this dispute include export duties and export quotas, as well as related export quota administration requirements. These types of export restraints can skew the playing field against the United States and other countries in the production and export of downstream products. They can artificially increase world prices for these raw material inputs while artificially lowering prices for Chinese producers. This enables China's domestic downstream producers to produce lower-priced products from the raw materials and thereby creates significant advantages for China's producers when competing against U.S. and other producers both in China's market and other countries' markets. The export restraints can also create substantial pressure on foreign downstream producers to move their operations, jobs and technologies to China."

US Responsibility for Rare Earths Problems. While almost all REM production is now in the PRC, rare earth elements are also located in many other nations, including the US. However, they must be mined and extracted. The US has more stringent environmental protection regulation, as well as more tedious permitting processes, that effectively preclude domestic production.

The US could eliminate the PRC's ability to leverage its position as sole supplier by resuming US production. Indeed, the Republican controlled House passed a bill last year with this as a goal. However, there is broad opposition within the Democratic Party, and enactment into law is highly unlikely at this time.

See, HR 761 [LOC | WW], the "National Strategic and Critical Minerals Production Act of 2013", and story titled "House Passes Rare Earths Bill" in TLJ Daily E-Mail Alert No. 2,604, September 24 2013.

See also, story titled "Sen. Murkowski Assigns Some Blame for Rare Earths Problem on US Government Regulation" in TLJ Daily E-Mail Alert No. 2,349, March 14, 2012.

(Published in TLJ Daily E-Mail Alert No. 2,640, April 8, 2014.)