Original URL: http://www.theregister.co.uk/2011/07/07/wto_rules_that_china_broke_export_laws/

WTO: China being naughty over rare-earth exports

Trying to lure more factories from overseas

By Tim Worstall

Posted in Law, 7th July 2011 08:00 GMT

China's a naughty boy then according to the World Trade Organisation: they have just lost a case about their restrictions on the exports of raw materials. This has implications for every tecchie's favourite metals, the rare earths.

You'll recall that Japan has found billions of tonnes of them under the Pacific, tonnes that may or may not be recoverable at reasonable prices. You'll also recall the stories ad nauseam about how China controls 97 per cent of the world's production of the "iums" that make modern electronics work.

That's not quite what's had people up in arms though. It was China's deliberate use of restrictive export quotas that kept material in the country that did. The aim was and is quite simple. Digging up rare earths and then separating them from each other – and sloughing off the various other bits and pieces – is a not very interesting nor profitable business: it's also horribly polluting. What is full of lovely added value is making them into things: magnets perhaps, batteries more so. And, at the top end, making lutetium oxide crystals for MRI machines is a huge money-spinner. What China would like is to get people to move these high value-add processes to China.

One example might be a factory in the southern US which uses Chinese Lu2O3 to make those crystals: restrict the export of the rare earth and the factory might come running. Almost all of the ballasts for CFLs and other light bulbs are made in Illinois: these good high-paying jobs would have to move if rare earths could not be exported from China and only products made of rare earths could be. The current effects on prices are explained by the Wall Street Journal:

Cerium oxide ... sold within China for $28.64 a kilogram at the start of this month ... The price for lanthanum oxide ... fell 4.4% to $24.77 a kilogram. The price of neodymium oxide ... fell 2.2% to $236.84 a kilogram ... [T]he prices for the three elements still were well below their prices on the global market. Cerium sells for $150.60 a kilogram on the international market; lanthanum for $140.10 a kilogram; and neodymium for $330 a kilogram.

The news is though that these restrictions have, in a related case, been ruled illegal by the WTO:

The Ministry of Commerce will study and take steps forward in rare earth export management "according to relevant laws and World Trade Organization rules," China's vice commerce minister Zhong Shan said, according to the official Xinhua news agency.

The WTO ruled on Tuesday that China broke international law when it curbed exports of coveted raw materials such as bauxite, coke and magnesium used in the production of steel, electronics and medicines.

Do understand that the WTO isn't world government, nor it is an international law court, in the sense of ruling on whatever international laws there may be. The "court" at the WTO is a contract enforcement mechanism.

Essentially, simplistically, the WTO is a contract: every country that is a member agrees to treat other members' exports the same way as it treats its own. At the heart of it is "most favoured nation" status. The best deal a country gives to any WTO member is the same deal it has to give to every other WTO member. And yes, that does apply to what it allows to be exported as well as what it allows to be imported.

This is the rule which China has been found in violation of: a WTO member is not allowed to say that these people here can have this stuff but those nasty foreigners over there cannot. It can indeed say that no one can have it, or that there will only be so much and that the various other members have to fight (ie, bid) for it, but only on a level playing field.

In the longer term, people will carry on looking for rare earths outside China and supply issues will fade away: in the interim, China has been very naughty, which is really about all the WTO can say and do about the matter. ®