China says to tighten regulation of rare earths despite WTO probe

BEIJING (Reuters) - China will abide by the outcome of an ongoing World Trade Organisation (WTO) investigation into its policies for the rare earths sector, but will continue to tighten regulation of the industry, an industry ministry spokesman said on Wednesday.

The WTO confirmed on Monday that it would establish a panel to look into complaints made by Europe, Japan and the United States over China's curbs on exports of rare earths, a group of 17 elements used in advanced technologies for the defense, electronics and renewable-energy industries.

Zhu Hongren of the Ministry of Industry and Information Technology said at a briefing on Wednesday that China would abide by any decision made by the WTO, but the country must continue to tighten regulation in the sector.

"Whatever it (the WTO) says, the Chinese government must be able to reasonably conserve its rare earth resources, and must ensure that these scarce rare earth materials make a greater contribution to humanity under the framework of environmental protection and sustainable development," he said.

He added that Beijing would continue to crack down on illegal production, the use of outdated technology, and consolidate production under big state-owned companies.

China accounts for more than 90 percent of global output of the 17 rare earths. The three powers have accused Beijing of trying to hold down prices for 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.

Zhu said a number of foreign countries, many of which had significant rare earth deposits of their own, had repeatedly failed to acknowledge the environmental damage caused by rare earth production and had "groundlessly condemned" China's policies.

China has repeatedly said that it should not be expected to produce more than 90 percent of total global output with just a quarter of global rare earth reserves. However, critics say its export cap has given domestic companies an unfair competitive advantage and thus violates WTO rules.

"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 late last month. "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."

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 because of pollution concerns.

China issued 30,184 metric tons (33,272) of export quotas last year, and has said the allocation was more than ample, with actual exports reaching just 18,600 metric tons over the year. It has issued 21,226 metric tons in quotas so far this year, and said the full-year allocation would remain about the same as last year.

(Reporting by David Stanway; Editing by Chris Lewis)