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China loses trade dispute over rare earth exports

Mar 26,2014 - Last updated at Mar 26,2014

GENEVA/WASHINGTON — China has lost a dispute at the World Trade Organisation (WTO) over limits on rare earth and metals exports, handing Europe and the United States a victory over what they see as Beijing's unfair trade practices.

"Today's ruling by the WTO on rare earth shows that no one country can hoard its raw materials from the global market place at the expense of its other WTO partners," said European Union (EU) Trade Commissioner Karel De Gucht. 

China produces more than 90 per cent of the world's rare earths, key elements in defence industry components and modern technology from iPhones and disk drives to wind turbines.

China imposed strict rare earth export quotas in 2010, saying it was trying to curtail pollution and preserve resources.

Prices of the prized commodities soared by hundreds of per cent and the United States, EU and Japan complained that the export restrictions gave Chinese companies an unfair competitive edge. 

China said limits on exports of rare earths, as well as the metals tungsten and molybdenum, were needed to prevent over-mining.

Any of the parties in the case can appeal within 60 days.

The US said the export limits allowed China to artificially increase world prices for raw materials crucial to make products like hybrid car batteries, wind turbines and energy-efficient lighting, while artificially lowering prices for Chinese producers.

"China's decision to promote its own industry and discriminate against US companies has caused US manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths," US Trade Representative (USTR) Michael Froman said in a statement.

Rare earth industries

Demand for rare earths comes from a variety of industries. General Electric uses rare earths in wind turbines. Toyota and Nissan use them for their hybrid and electric cars, while Blackberry and Apple  need them for smartphones and tablet computers. The USTR cites estimates that industries using rare earths contribute more than $300 billion to the US economy. 

Shares of companies mining or exploring for new sources of rare earths soared in 2010 on speculation that China's crackdown could boost demand for alternative sources, but a slump in prices recently as new supply has come on board from Australia has weighed on earnings of producers like Molycorp Inc.

China had been widely expected to lose the case, after a successful challenge two years ago to China's export restraints on a different set of raw materials used in the steel, aluminum and chemical industries, including bauxite and magnesium.    

China's ministry of commerce said the head of its treaty and law department welcomed the WTO's recognition of its efforts to conserve resources and protect the environment, but regretted that the panel found China's export duties, quotas and quota administration breached WTO rules.

"China believes that these regulatory measures are perfectly consistent with the objective of sustainable development promoted by the WTO," it said in a statement, adding that China was currently assessing the WTO report. 

The European Commission said no-one disputed China's right to put in place environmental and conservation policies.

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