The United States, European Union, and Japan have formally asked that the World Trade Organization act as arbiter in a dispute with China over Beijing’s limits on exports of raw materials, including rare earths used in high-tech products.
China produces about 97 percent of the world’s rare earths, which are used in everything from Boeing (NYSE:BA) helicopter blades to Toyota (NYSE:TM) hybrid cars to Apple’s (NASDAQ:AAPL) iPhone. However, the government has curbed output and exports since 2009 to conserve mining resources and protect the environment, removing from the market materials critical to major industries.
The dispute settlement request in the first step before filing a full trade case. “China’s restrictions on rare earths and other products violate international trade rules and must be removed,” said Karel De Gucht, the EU’s trade chief. “These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications.”
Japan has been worried about its supply of rare earth metals since a territorial dispute with China last year. An EU decision to make all airlines flying into European airports pay for carbon emissions has brought threats of retaliation from China. President Barack Obama recently created a new interagency trade enforcement center whose primary focus is to make sure China honors WTO rules.
The U.S. is expected to argue that China’s curtailment of rare earth exports has given Chinese companies an unfair advantage by increasing production costs for American firms that use the materials. However, China’s policy regarding rare earths complies with WTO rules, said Chinese Foreign Ministry spokesman Liu Weiman. Given the environmental damage that results from mining the metals, China’s production levels aren’t sustainable, said Liu.
And yet, “despite such huge environmental pressure, China has been taking measures to maintain rare earth exports,” Liu added. “China will continue to supply rare earths to the international market.”
According to WTO procedures, China will have 10 days to respond and must hold talks with the United States, European Union and Japan within 60 days. A formal WTO panel could be requested to dig deeper into Chinese practices if an agreement is not reached within that time frame.
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