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China Rare Earths: The Saga Continues

by Elizabeth C. Economy
July 7, 2011

A worker holds one of scrap mobile phones, at a recycling facility of Re-Tem Corp, in Tokyo on October 15, 2010. Re-Tem Corp researches and develops the recycling of rare earth metals vital to the production of electronics. Japanese high-tech companies face higher input costs for rare earth metals as dominant supplier China curbs exports.

A worker holds one of scrap mobile phones, at a recycling facility of Re-Tem Corp, in Tokyo on October 15, 2010. Re-Tem Corp researches and develops the recycling of rare earth metals vital to the production of electronics. Japanese high-tech companies face higher input costs for rare earth metals as dominant supplier China curbs exports. (Toru Hanai/Courtesy Reuters)

Nine months after the original brouhaha over China’s plans to decrease dramatically its exports of rare earths, the international community has called foul again on a closely related issue: China’s export curbs on other raw materials, such as magnesium and silicon. On July 5th, the World Trade Organization (WTO) ruled that China had violated WTO rules when it curbed its exports of these and other raw materials. (Thus far, the Chinese response to the first ruling has been muted, but all indications are that Beijing will appeal the ruling.)

Now China is worried that it will face a similar suit on rare earths. Whether it would fare better in such a case is uncertain, but unlikely. The WTO allows for export restrictions when a country is trying to conserve non-renewable natural resources, which China is clearly trying to do. The hitch is that this exception also demands similar restrictions on domestic production and consumption. China can’t offer more favorable policies to its own companies than to the rest of the world. That is going to be a high bar for China to meet.

With regard to rare earths, just one day after the WTO ruling, Deputy Commerce Minister Zhong Shan has said that regulation of rare earths would proceed according to Chinese and WTO law, but he didn’t elaborate as to whether Chinese regulations would be modified if they conflicted with WTO rules. He stressed that “Improving the regulation of rare earth exports will help us to protect the environment and promote industrial restructuring, as well as allow the rare earth industry to develop in a healthy way.” Meanwhile such “regulation” is causing a dramatic jump in rare earth prices. Already in the first half of 2011, China cut its rare earth exports by 35 percent, precipitating a rapid rise in prices. For example, dysprosium, a metal used in hybrid cars and smartphones, has increased in price twelve-fold over the past year.

The challenge for the rest of the world, as some of the commentators on my post on this topic last fall suggested, is that there is no quick fix. Developing alternative sources — whether in Mongolia, Australia, or the United States — will take time. Exploitation of undersea reserves, which recently made a big splash in the media, may turn out to be folly or prohibitively expensive. At the very least, it will take time to realize. And developing and deploying substitutes for rare earths will in many instances require massive and costly shifts in manufacturing.

In the end, the brightest spot for the rest of the world may be the potential for Chinese actions to spur a significant global effort on rare earths recovery and recycling. Already, Japanese, American, and French companies have developed new technologies to extract some of these rare earths from washing machines, batteries, and air conditioners.  How much of global demand this recycling can meet remains to be seen, but it is all upside. Maybe there is a neodymium lining to all of this after all. I’ll keep you posted.

Post a Comment 5 Comments

  • Posted by solomon

    Question: if the chinese decide to appeal — how much time does that whole process involve before a final decision is rendered by higher court?

    One commentator in another blog suggested 90 days.

    what do you think or better yet know.

  • Posted by john

    If China sits on 30% of the rare earth metal then why should they export to the world and have 90% of the world market.

    China has every right to protect its resource for future generation. The West wants to deplete China of its resource and then exploit it after its depleted.

    It is unreasonable. A country should be allow to export what it wishes. It is of national security.

  • Posted by Rider I

    It really does not matter as long as the CCP and MSS do not disband their non market approach to their economy. Why would the WTO appeals court try and justify the worlds biggest non market economy and its centralized planning entity the SASAC as a not a non market enity. When they where the one’s who have centralized the worlds jobs and taxes along with 97% of the worlds resources to their non market activities. Specifically due to pin point placement of WTO and World Bank economic leadership of their MSS espionage agents. Which the MSS is now expanding their bases and trying to seek more espionage seats.

    Rider I
    http://rideriantieconomicwarfaretrisiii.blogspot.com/

  • Posted by RousseauC

    china should definitely apply the same policies to domestic firms so those american and european firms have no excuse to complain to wto.

    the legal process, as is always, could be years before a final verdict is made…

  • Posted by Elizabeth C. Economy

    Solomon, China has 60 days to appeal to the WTO appellate body, which then has 90 days to render its final decision. LE

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