July 24 (Bloomberg) -- World Trade Organization judges will probe China’s export quotas and tariffs on rare earths, tungsten and molybdenum following complaints by the U.S., the European Union and Japan that the curbs break global commerce rules.
China says the limits are designed to protect dwindling natural resources and the environment. China produces more than 90 percent of the world’s rare earths, 17 chemically similar metallic elements used in the defense, renewable-energy and electronics industries by companies such as Ford Motor Co.
Rare earths became a political issue after China cut domestic output and reduced export quotas in July 2010 by 40 percent, souring ties with major users including the U.S. and Japan, where buyers reduced usage after prices rose in the first half of 2011.
“China will continue with its efforts to regulate the rare-earth industry by cracking down on illegal mining, consolidating producers and other measures,” said Wei Chishan, a Shanghai-based analyst at SMM Information & Technology Co., a data provider.
Three calls to the news office of China’s Ministry of Commerce seeking comments went unanswered.
The average Chinese export price of rare-earth oxides, a subset of rare earths, soared 537 percent in 2011 from 2010 and was 10 percent higher in the first five months of 2012 than a year earlier, according to data reported by Global Trade Information Services Inc. and compiled by Bloomberg Government. Chinese exports of rare-earth oxides fell 56 percent in the first five months of this year, Bloomberg Government data show.
In a similar case, the Geneva-based WTO concluded in July 2011 that Chinese export duties and quotas on eight raw materials used in the steel, aluminum and chemicals industries broke global rules. WTO appellate judges upheld the ruling, which supported a complaint by the U.S., the EU and Mexico.
While China has yet to change its policies on raw materials to comply with that ruling, there has been speculation that it will scrap the tariffs and instead impose domestic taxes on mining.
In what may have been an effort to buttress its argument, the Chinese government issued its first white paper on rare-earth industry policies on June 20, describing how a lack of proper regulations has led to excessive mining and environmental degradation in China. The government promised an extensive cleanup and a crackdown on illegal mines.
As in the raw-materials case, the three complaining governments say the curbs on rare earths violate paragraph 11.3 of China’s accession protocol requiring the country to scrap all taxes and charges on exports unless specifically provided for in Annex 6. While Annex 6 allows China to impose export duties on 84 tariff lines up to a specified limit, none of the rare earths or metals at issue are included on that list.
The U.S. Energy Department said in January that limited supplies of five rare-earth minerals -- dysprosium, terbium, europium, neodymium and yttrium -- pose a threat to increasing use of clean-energy technologies such as wind turbines and solar panels.
Once the WTO panel is established, judges have six months to issue their report, which all parties can then appeal.
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