China Blocks EU, US, Japan Request for WTO Dispute Panel on Rare Earths

11 July 2012

The EU, US, and Japan have taken the next step in their dispute with China over the latter's export restrictions on rare earths, formally requesting the establishment of a dispute panel at Tuesday's WTO Dispute Settlement Body (DSB) meeting. While the request was rejected by Beijing, trade experts expect a second panel request to be made later this month.

The request is the latest effort by Brussels, Washington, and Tokyo to prompt Beijing to lift its export restrictions on rare earths, as well as tungsten and molybdenum. (See Bridges Weekly, 14 March 2012) The 17 rare earth elements have unique magnetic, heat resistant, and phosphorescent properties, and are essential for the production of high-tech and green energy products, including wind turbines, engines for electric and hybrid vehicles, and medical equipment.

Beijing, which produces over 90 percent of the global supply of rare earths, maintains that these measures are intended to limit environmental damage and conserve natural resources, with officials recently defending the restrictions in a white paper issued on 20 June. (See Bridges Weekly, 27 June 2012)

"The government is strengthening the management of the industry to protect the environment and resources, which is beneficial for the sustainable development of the industry and totally conforms to WTO regulations," Su Bo, China's vice minister of industry and information technology, said last month. "The protection of the environment is never a pretext for gaining advantage or increasing economic returns."

The complaining parties, for their part, argue that the export restrictions are disruptive to domestic industries and result in increased production costs, while also providing Chinese competitors with cheaper and easier access to the elements compared to foreign manufacturers.

"China's restrictions on rare earths and other products are a violation of China's WTO commitments and continue to significantly distort global markets, creating a disadvantage for our companies," EU Trade Commissioner Karel De Gucht said in a statement on 27 June.

The panel request comes after formal consultations between the parties - the first step in the WTO dispute settlement process - failed to reach a resolution. A second panel request from the complainants is widely expected at the upcoming DSB meeting on 23 July; should the second request be made, a panel will automatically be established, as required by WTO rules. Experts anticipate a panel ruling in late summer 2013, at the earliest.

Export restrictions draw attention in Indonesia

The outcome of this case is being highly watched by trade observers, given its potential ramifications for the use of export restrictions in other countries. Just last week, Indonesia announced it would be moving forward with its plan to tax unprocessed mineral exports, despite protests from both the foreign and domestic business communities.

The new tax is designed to prevent overexploitation of Indonesian mines before Jakarta's 2014 ban on the export of unprocessed metals goes into effect, government officials have said.

Under the impending 2014 ban, miners will be expected to either establish smelters or cooperate with other companies to process minerals ahead of exporting; if they wish to continue exporting unprocessed ores once the ban is in place, miners will need to demonstrate concrete plans for eventually implementing one or both of these requirements.

ICTSD reporting; "U.S., Europe and Japan Escalate Rare-Earth Dispute With China," THE NEW YORK TIMES, 27 June 2012; "Govt to go ahead with export restriction despite protests," THE JAKARTA POST, 6 July 2012.

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