China produces 97 percent of the world’s supply of rare earth elements, minerals which are crucial to a wide range of vital industries, including advanced technology, renewable energy, electronics, and defense. Industries and workers in the U.S., Europe, and Japan have become increasingly alarmed at China’s tightening restrictions on the exportation of these minerals to the rest of the world, which have caused supply shortages and skyrocketing prices for the manufacturers that rely on these essential elements.
In a paper presented today to a colloquium of the Global Business Dialogue and the Trans-Atlantic Business Dialogue, Terence P. Stewart, Managing Partner of Stewart and Stewart, shared his insights into the latest developments in the rare earths industry. China has significantly tightened its restrictions on rare earth exports over the past year-and-a-half, Mr. Stewart explained. China slashed its export quotas for the materials by 37 percent in 2010 and again by 35 percent in the first half of 2011. China has also raised export duties on at least one new item singled out in its 2011 export duty schedule: ferro-alloys containing more than 10 percent rare earths by weight.
Mr. Stewart explained that these restrictions have resulted in severe supply shortages and steep price shocks for rare earths. The prices for many rare earth oxides are now multiples of what they were just a year ago, and some are as much as 30 to 40 times higher than just two years ago. Global supply shortages are projected to continue through this year and next. China’s export restrictions operate to increase supplies and lower prices within the country, while limiting supplies and inflating prices for end users outside of China, creating a powerful incentive to shift downstream processing to China. As a result, Mr. Stewart explained, China now dominates not only the mining of rare earths but also the processing of the materials into oxides, metals, alloys, and batteries.
Mr. Stewart’s paper reviewed mining projects slated to become operational in the U.S. and Australia in the near future, but noted that shortages would still persist in some elements, such as “heavy” rare earths, that are not found in significant concentrations in the new projects. Industry and policymakers are considering an array of options to address the crisis, including adopting of national strategies, intensifying development of substitute products and recycling operations, and facilitating the development of new mineral resources outside of China.
Mr. Stewart argued that swift enforcement action to challenge China’s export restrictions at the World Trade Organization also needs to be part of the policy mix. He explained that China’s export restrictions constitute clear violations of China’s WTO obligations, and he noted that similar restrictions have already been challenged at the WTO with an outcome that is reportedly favorable, though still not public.
On behalf of the United Steelworkers union, the Law Offices of Stewart and Stewart filed a petition with the U.S. Trade Representative in September of 2010 challenging a number of China’s policies in the renewable energy sector, including its export restrictions on rare earths. This week, the U.S. declared victory in the WTO case that resulted from the petition, announcing that China has agreed to terminate certain trade-distorting subsidies to its wind turbine manufacturers. Mr. Stewart concluded that the case against China’s rare earth policies is just as strong, and it has only become stronger since the filing of the petition. He argued that authorities in the U.S. and elsewhere should expeditiously pursue a WTO challenge to China’s restrictions, before industries and workers in the U.S. and elsewhere are forced to sustain even further harm.
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