Beijing within its rights to limit exports of commodity, experts say

China is likely to be embroiled in a new round of trade disputes this year, as the United States, the European Union and Japan are expected to lodge complaints with the World Trade Organization (WTO) against the nation's controls on exports of rare earths.

On March 13 US President Barack Obama said the US, the EU and Japan will take the dispute against China to the WTO.

Reacting to the news, the Ministry of Industry and Information Technology, which supervises the production of the rare earths, said that it is fully prepared to fight the case and will continue to consolidate the industry in a sustainable way.

"China's export policy for rare earths is aimed at protecting the environment and resources, and not targeted at certain overseas buyers or a case of trade protectionism," said Miao Wei, the minister for industry and information technology. The minister reiterated that the industry would be integrated in such a way that it is made up of two or three large-scale rare earth companies.

China is the world's largest producer of rare earths, which include 17 elements that are critical for the manufacture of high-tech products ranging from cell phones to missiles.

Though the nation accounts for just 36.4 percent of the nearly 100 million tons of global rare earths reserves, it has been supplying nearly 97 percent of the international requirements for many years.

Kim Van der Borght, professor of International Economic Law at the University of Brussels, said that the joint move planned by the EU, the US and Japan is strange as the WTO is all about market opportunities and the ability to sell goods or services in a particular market.

"The WTO treaties are not generally about forcing a country to sell something. The general rule in international law is that each country is free to trade or not to trade," he said.

Yao Xinchao, an arbitrator with the China International Economic and Trade Arbitration Commission, said with the economic situation in the EU and the US not exactly rosy, more trade spats with China are possible.

Last year, exporters from China were involved in 67 trade investigations, ranging from anti-dumping to safeguard measures, more than any other country.

Obama signed an executive order on Feb 28 to establish an Interagency Trade Enforcement Center to oversee the nation's major trading partners. According to analysts, the main focus of the new center will be to monitor China.

At the same time, China is a hot topic in the US presidential elections, with some Republican contenders using trade with China as a weapon to attract votes.

Zhao Zhansheng, director of the academic department with the Chinese Society of Rare Earths, said the WTO suit has more political connotations than a pure trade dispute.

Peter Ho, chair professor of Chinese Economy and Development and co-director of the Modern East Asia Research Center in the Netherlands, said China's plan to cap the exports of rare earths has come at an inopportune time, as the rest of the world is already concerned about China's economic growth and its implications for them.

Tu Xinquan, deputy dean with the China National Institute of WTO, said trade disputes between China and the US have shifted from a single product or industry to resources. Such actions are challenges to China's economic development model and industrial policies, and have been taken primarily to slow down exports and stifle competitiveness of Chinese products.

Premier Wen Jiabao said at a news conference on March 14 that China has always been a supporter of free trade and has always rallied against trade protectionism.

The Ministry of Foreign Affairs said on March 13 that China's mining, production and export of rare earths are fully in accordance with the WTO rules and there are no grounds to blame China.

"China has maintained a certain volume of rare earths for exports every year despite the huge environmental pressure," said Liu Weimin, spokesman for the Ministry of Foreign Affairs. "In the future also, China will continue to supply rare earths for the global market according to the WTO rules."

China will also join hands with other rare earths producing nations to develop substitutes and raise the utilization efficiency of rare earths, said Liu.

Countries such as the US, Russia, India, Australia and Canada all have rare earths resources, but China has been the biggest producer for several years.

Ho from the Modern East Asia Research Center in the Netherlands said that what is often overlooked is the environmental effect of rare earths being over-exploited.

"Due to environmental factors, the US has curtailed its own production to a minimum. The Colorado-based Molycorp Inc, the largest miner in the US, stopped operations in 2002 because of environmental concerns, coupled with low prices and the abundant reserves in China," he said.

"Up to 80 to 90 percent of Japan and the EU's rare earths are from China," said Chen Zhanheng, director of the academic department at the Chinese Society of Rare Earths. "Since most of the nations are heavily reliant on rare earth exports from China, things are not expected to change much in the long term."

Chen said the US has 13 million tons or 13 percent of the global rare earth reserves, but due to the high environmental and mining costs, it is reluctant to exploit its reserves.

Zhao from the Chinese Society of Rare Earths said the claim by other nations that China is restricting exports of rare earths is meaningless as only 49 percent of the export quota for last year was used.

Irregular mining and rampant competition in the previous years among rare earths miners and traders led to torrid times for the industry in China as prices crashed and companies took heed of environmental pollution.

Disputes over the export quota for rare earths started in 2008. In 2009, the US, EU and Mexico filed a case in the WTO against China's export caps on nine raw materials including zinc, coke and magnesium. In January the WTO declared that China had broken the WTO rules.

Kim Van der Borght from the University of Brussels said that the only way China can escape this obligation is to link the restrictions to environmental or sustainability issues or link the same to emergency situations or military reasons.

"If China loses the case, it will bring with it more problems related to management of industries and trigger intense competition among the domestic companies," Chen said. "China will have to supervise and manage the whole production chain better to ensure healthy and sustainable development."

The rare earth caps do not pose too many problems for overseas buyers, said Zhang Zhong, general manager of Baotou Steel Rare-Earth Hi-Tech Co, the world's largest rare earth producer.

"Presently, Chinese companies still have a price advantage. But if we lose the case, the situation will change," he said. "Rare earth exports have dropped not because of the quota policy, but rather due to market changes. It is a natural phenomenon."

With global development focusing on environmental protection and energy saving, the rising cost of rare earths exploitation is understandable, Zhang said.

Contact the writers at dujuan@chinadaily.com.cn and zhangchunyan@chinadaily.com.cn

(China Daily 03/16/2012 page3)