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China's rare earth supply crimp plan ruled to be illegal

Europe, USA and Japan will dig this World Trade Organisation ruling

Internet Security Threat Report 2014

The World Trade Organisation (WTO) has ruled in favour of the EU, US and Japan in their dispute against what they described as China’s unfair rare earth export rules.

The WTO agreed to begin the investigation back in 2012 after complaints from the three that China was trying to push up prices and restrict exports by imposing increased duties, export quotas and minimum price requirements, and limiting the enterprises allowed to export the stuff.

The ruling applied to “various forms of rare earths”, molybdenum, and tungsten.

In a ruling on Wednesday, the WTO found that the export duties were “inconsistent with China's WTO obligations”; that the quotas “could not be justified”; and that the limitations on export companies “breach its WTO obligations”.

For its part, China has always claimed that it imposed the curbs to protect natural resources and promote “sustainable economic development”. The country produced over 90 per cent of the world’s rare earths despite apparently holding less than a third of global reserves.

In a statement, the EU claimed the ruling shows that “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”.

It added:

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.

This ruling secures non-discriminatory access to raw materials. The EU believes this is in the interest of all WTO members, since all countries – whether developed or developing – rely on each other for their raw materials and global production chains.

China’s rare earth strategy appears to have backfired rather spectacularly.

Rather than push up prices and create a monopoly, it forced other countries to restart rare earth production of their own to build up stockpiles.

A global economic slowdown has not helped its cause – pushing prices down and leading to a drop in demand which has even forced the temporary closure of China’s biggest rare earth company, the Inner Mongolia Baotou Steel Rare Earth Hi-Tech Company. ®

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