EU, U.S., Japan seek WTO steps on China rare earths

BRUSSELS Thu Jun 28, 2012 2:20am IST

A labourer works at a site of a rare earth metals mine at Nancheng county, Jiangxi province March 14, 2012. REUTERS/Stringer

A labourer works at a site of a rare earth metals mine at Nancheng county, Jiangxi province March 14, 2012.

Credit: Reuters/Stringer

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BRUSSELS (Reuters) - The European Union, the United States and Japan on Wednesday requested a dispute settlement panel at the World Trade Organization (WTO) after failing to resolve a battle over China's export restrictions on rare earth minerals.

The move followed a complaint the three trade powers took to the WTO in March, the first they have launched jointly, and comes amid a series of clashes with China over economic issues, including the value of the Chinese currency.

"China's restrictions on rare earths and other products are violating its WTO commitments and continue to significantly distort global markets to the disadvantage of our companies," EU Trade Commissioner Karel De Gucht said in a statement. "We regret that we are left with no other choice but to solve this through litigation."

After the March complaint, the parties talked in April to try to find a solution. But De Gucht said the Chinese response had not been adequate.

"We had consultations with them, they didn't lead us anywhere," he said on the sidelines of a conference in Brussels. "The next step was to ask for a panel and we've just done that."

The case concerns the 17 rare earth metals, as well as tungsten and molybdenum, which are used in advanced technologies for the defense, electronics and renewable-energy industries. They go into products such as the iPhone, disk drives and wind turbines.

The damage done to European manufacturing runs into billions of euros because it is nearly impossible to diversify away from the Chinese supply, according to EU officials.

China accounts for about 97 percent of world output of the 17 rare earths and the three powers accuse Beijing of trying to hold down prices for its domestic manufacturers and pressure international companies into moving operations to China. The European Union and United States say this hurts their producers and consumers, as foreign companies pay up to twice as much as Chinese companies for rare earth metals.

"These materials are key inputs in a multitude of U.S. manufacturing sectors and American-made products, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum and chemicals," U.S. Trade Representative Ron Kirk said in a statement.

"It is vital that U.S. workers and manufacturers obtain the fair and equal access to raw materials like rare earths that China specifically agreed to when it joined the WTO," he said.

In March, China described the trade complaint as unfair, arguing that it only controlled 90 percent of global production because other countries, notably the United States, had long ago closed their own rare earths refineries due to pollution concerns.

Beijing also says its export curbs aim to both control environmental problems and preserve supplies of an exhaustible natural resource. Refining rare earths requires large amounts of acid and also produces low-level radioactive waste.

In a separate development, U.S. business groups held a news conference on Wednesday to urge Congress to pass the 30-year-old Law of the Sea Convention, which they argued would give U.S. companies the legal certainty they need to make huge investments to mine rare earths in the ocean seabed.

"We think the Law of the Sea treaty offers the best path to breaking China's dominance in the rare earth area," said Roger Ballantine, a board member of RARE, a U.S. rare earth association. "The current situation with China having a stranglehold in the area is not sustainable."

The groups hope the treaty, which has been blocked in the past by concerns over U.S. sovereignty, will finally be passed by the Senate after the November U.S. elections.

The EU directly imports 350 million euros worth of rare earths from China each year and also brings in products of far greater value containing rare earths from Japan and elsewhere.

Once appeals are lodged and heard, the WTO process could take as long as two years to complete.

The European Union, the United States and Mexico won a similar case against China in January concerning other raw materials.

"Despite the very clear WTO ruling earlier this year in the first raw materials case, Beijing has not taken steps to remove these export restrictions," De Gucht said in his statement.

(Additional reporting by Doug Palmer in Washington and Robin Emmott in Brussels; Editing by Susan Fenton)

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