WTO Panel Sides With U.S. in Dispute Over China Minerals

The World Trade Organization backed the U.S. in a dispute with China, agreeing that limits on exports of rare-earth elements used in hybrid-car batteries and wind turbines violate trade rules. A Chinese industry group said it regrets the ruling against China.

A dispute-settlement panel at the Geneva-based trade arbiter yesterday determined that China, the world’s largest producer of the minerals, didn’t adequately justify imposing export duties and quotas on the goods, as well as the elements tungsten and molybdenum.

China’s export limits “have been putting American manufacturers at a disadvantage and preventing full and fair competition,” U.S. Trade Representative Michael Froman told reporters yesterday on a conference call.

The case is the latest in a trade rift between China and the U.S., the world’s largest economies. During President Barack Obama’s administration, the nations have have sparred over trade in goods and services including autos, poultry, clean-energy manufacturing, tires and credit-card payments.

“We deeply regret the ruling,” Chen Zhanheng, a deputy general secretary at the Association of China Rare Earth Industry, said today in a text message. The association will study details of the WTO report and evaluate its impact on the nation’s rare earth industry, he said.

Photographer: Nelson Ching/Bloomberg

Neodymium, a rare-earth element, is displayed at the Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. factory in Baotou, Inner Mongolia, China. Close

Neodymium, a rare-earth element, is displayed at the Inner Mongolia Baotou Steel... Read More

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Photographer: Nelson Ching/Bloomberg

Neodymium, a rare-earth element, is displayed at the Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. factory in Baotou, Inner Mongolia, China.

Lynas Rises

Lynas Corp. (LYC), the Australian producer which operates one of the world’s largest rare earths processing plants in Malaysia, rose the most in more than 18 months in Sydney, advancing 25 percent to 22.5 Australian cents. The country’s benchmark index gained 0.2 percent.

“The news is a good story for producers outside China, and Lynas will also get a kick as it’s now meeting its guidance,” Evan Lucas, a Melbourne-based markets strategist at IG Ltd. said by phone.

Lynas expects to meet a target production rate of 11,000 metric tons of rare earth oxide products per year in the June quarter, Chairman Nick Curtis said today in a statement.

U.S. steel producers applauded the WTO’s decision.

“These metals include critical raw materials for steelmaking, and the export restrictions clearly favor Chinese producers already dealing with a massive overcapacity in steelmaking,” Thomas Gibson, president of the American Iron and Steel Institute, said in a statement. The Washington-based group’s members include United States Steel Corp. (X) of Pittsburgh, Nucor Corp. (NUE) of Charlotte, North Carolina, and the U.S. unit of Luxembourg’s ArcelorMittal SA. (MT)

Conserve Resources

China, which produces more than 90 percent of the world’s rare-earth minerals, has 60 days to adopt the decision or appeal under WTO rules. The nation “is currently assessing the panel report and will follow the WTO dispute settlement procedures to settle this dispute,” according to an e-mailed statement from its Ministry of Commerce.

The head of the ministry’s treaty and law department said that in the face of increasing pressure to conserve resources and protect the environment, China has been bolstering its regulation of natural resources, and will continue in a way that complies with trade rules, according to the statement.

China will probably appeal against the ruling, but may fail again. It will have to abandon the quota system in the end,” Wei Chishan, a Shanghai-based analyst with SMM Information & Technology Co. said, “Still, China has managed to restructure its rare earth industry over the past few years by consolidating the resources into larger companies and established a trading platform.”

U.S. Backed

The WTO decision follows a 2011 ruling in which the trade arbiter sided with the U.S. in determining that China’s export limits on raw materials for steel and chemical production, such as bauxite, magnesium and zinc, broke trade law.

The U.S., the 28-nation EU and Japan in 2012 filed complaints with the WTO, saying that China’s restrictions on exports of rare-earth minerals -- a group of 17 chemically similar elements used in electronics, autos, helicopter blades and other goods -- disrupted trade flows and caused global prices to jump, in some cases as much as three times as much as what Chinese companies pay.

U.S. users of the elements are responsible for about $300 billion in annual economic output, according to U.S. trade officials.

The action “is a step in the right direction,” Scott Paul, president of the Alliance for American Manufacturing, a Washington-based nonprofit partnership of producers and the United Steelworkers union, said in a statement.

National Security

China’s restrictions “have also raised important national security concerns about a reliance on foreign suppliers for our military supply chain” since rare-earth minerals are used in missile and aircraft systems, Paul said.

Other mineral users include W.R. Grace & Co. (GRA) of Columbia, Maryland, to make oil-refining catalysts. Molycorp Inc. (MCP) uses the minerals to make magnets for the auto industry and water treatment products.

Private investment in recent years has helped diversify the sources for the minerals, said Jim Sims, a spokesman for Molycorp, which is based in Greenwood Village, Colorado, and owns the largest rare-earth deposit outside China.

“Rare-earth market pricing is greatly reduced from previous highs and is much more stable and predictable,” he said in an e-mailed statement.

Molycorp closed down 3.6 percent to $4.76 yesterday in New York. The shares have declined 13 percent in the past 12 months.

Illegal Production

China in January said it would promote six companies including Aluminum Corp. of China, Baogang Group and China Minmetals Corp. to lead acquisitions in the rare earth sector. The government is trying to discourage illegal production and consolidate the industry.

In the WTO case, China said duties on the goods were legal, since they were necessary to combat pollution caused by the mining. The Beijing government also said its export quotas and other trading restrictions were needed to conserve natural resources.

The WTO panel didn’t agree with those justifications.

“It found that China’s export quotas were designed to achieve industrial policy goals rather than conservation,” according to a summary of the findings posted yesterday on the WTO’s website.

To contact the reporters on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net; Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net

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