The joint complaint the U.S., EU and Japan are bringing to the WTO against China over rare earths has been a case in waiting ever since the U.S. and the EU won over other Chinese industrial raw material export restrictions in January. Those set a precedent for the successful argument that export restrictions by commodity producers glut domestic markets and thus let raw materials to be bought cheaply to domestic manufacturers in a way that can be considered trade distorting.
In the case of rare earths, the group of minerals used by high-tech, military and green technology manufacturers of which China produces 90% of the world’s supply, Beijing says it is prudently managing a scarce resource plagued by illegal mining–though rare earths would be less of a scare resource if more mines in the U.S., Australia and South Africa driven out of production by an earlier glutting of international markets were to reopen. The Catch-22 is the more mines that reopen, the more international prices are pushed down making reopening of more uneconomic, and leaving Chinese producers with great sway over international supplies.
This is a delicate dance for both sides, and one with political sub-themes, too, with there being leadership elections in Beijing and Washington. The two sides have 60 days to work out a deal before the complainants can ask the WTO to rule, which is what this Bystander expects to happen. However, we still hold to our view that, recent precedent not withstanding, this is far from an open and shut case. Beijing’s tough enforcement of its environmental protections of rare earths makes the case that they are a mere pretext for protectionism more difficult to sustain than was the case with the export restrictions on coke, zinc, bauxite and the six other raw materials that the WTO ruled in January did break world trade rules.