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Double Blows to China in Rare Earth Minerals Dispute

The rare earth minerals market is headed for a more normal supply condition following a World Trade Organization (WTO) ruling against Chinese export restrictions and the discovery by scientists of a large deposit of the raw materials used heavily in high-tech equipment manufacturing.

The WTO this week declared China was wrong to impose restrictions on rare earth metal exports and noted measures taken by the country in recent years have constrained supply and led to unwarranted price increases. Without saying so directly, the WTO indicated China was illegally manipulating the supply of minerals such as bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus, and zinc. The average price of these rare earth metals has shot up, and supply has been constrained since China, which supplies 90 percent of the world demand, began imposing export restrictions in the last year. (See: The Truth About Rare Earths, Part 1 and The Truth About Rare Earths, Part 2.)

The WTO did not outright say China's action was illegal; the agency does not use such terms. It merely said in a July 5 report that the country's “export duties were inconsistent with the commitments that China had agreed to in its Protocol of Ascension,” and that “certain aspects of China's export licensing regime, applicable to several of the products at issue, restrict the export of the raw materials and so are inconsistent with WTO rules.” (Click here for the summary of the WTO report.)

The WTO panel finding took two years and followed complaints by a group of countries, including the United States and a battery of interested third-party players. The US in June 2009 alleged that China had imposed various “restraints on the exports,” adding “there appear to be additional unpublished restrictive measures,” being carried out by Chinese vendors. Here's China's defense and the WTO's response, as outlined by the organization:

    China had argued in its defense that some of its export duties and quotas were justified because they related to the conservation of exhaustible natural resources for some of the raw materials. But China was not able to demonstrate that it imposed these restrictions in conjunction with restrictions on domestic production or consumption of the raw materials so as to conserve the raw materials.

    The Panel acknowledged, however, that China appears to be heading in the right direction in adopting a framework to justify its quotas under WTO rules, but that the framework is not yet WTO-consistent as it still has to be put into effect for domestic producers.

    As for other of the raw materials, China had claimed that its export quotas and duties were necessary for the protection of the health of its citizens. China was unable to demonstrate that its export duties and quotas would lead to a reduction of pollution in the short- or long-term and therefore contribute towards improving the health of its people.

So, what does the finding against China mean for the global electronics industry and the demand-supply condition in the rare earth market? First, the WTO did not specifically indicate what should follow on its finding, but I assume a verdict against China would mean the country has to roll back whatever restrictions it has on the export of the minerals. China has not responded to the ruling.

The verdict should be a relief also for Western electronics equipment vendors and component suppliers, many of which had become greatly concerned about their ability to source rare earth metals from China. But even greater relief is on the way, according to the Information Network, a market research and consulting firm. China's restrictions sparked frenzy for alternate sourcing for the minerals over the last year, and it appears the industry might be able to dramatically reduce its dependence on Chinese suppliers following a huge discovery.

Robert Castellano, president of The Information Network, noted in an email:

    In the past few days we have learned that vast deposits of rare earth minerals, crucial in making high-tech electronics products, have been found on the floor of the Pacific Ocean and can be readily extracted. Discovered by Japanese scientists, it is estimated that rare earths contained in the deposits amounted to 80 to 100 billion metric tons, compared to global reserves currently confirmed by the US Geological Survey of just 110 million tons that have been found mainly in China, Russia and other former Soviet countries, and the United States.

Before we start celebrating though, we must get answers to several questions. The Information Network did not disclose the exact location of the Pacific Ocean findings nor indicate whether they are within any particular country's maritime boundaries, within international or disputed water. Furthermore, the ease of mining and recovery was not discussed. We must not swap one set of problems for a nastier headache.

13 comments on “Double Blows to China in Rare Earth Minerals Dispute

  1. Ashu001
    July 7, 2011

    Bolaji,

    The Official reason given by the Chinese was that it was to prevent pollution(as most of the Rare Earth metals mining is done illegally today in China).

    But the unofficial reason(which is also doing the rounds of the blogosphere is like this)-The Chinese want to save these valuable metals for themselves and their industries.

    Instead of shipping the raw materials to Western manufacturers,they want to move up the manufacturing chain and export these high quality products themselves.

    This is obviously a very strong move(on China's part).We need to understand that Self-interest always takes priority over rulings from international organizations like the WTO.So China won't losen its chokehold over exports.

    But the more important question is Why have'nt alternatives surface?Its been over 2 years that China is behaving like this now.

    Is Capital today so scare that it can't be used to fund such projects???

    Regards

    Ashish.

  2. DataCrunch
    July 7, 2011

    The discovery of vast rare earth minerals on the ocean floor somewhere in the Pacific ocean could prove to be a significant find, but aren’t there issues of extraction and how to handle the radioactive waste caused by rare-earth mineral mining?  This could prove to be a long process due to the environmental implications.

  3. Houngbo_Hospice
    July 7, 2011

    Of course, there are many challenges to overcome in order for the extraction to be economically viable. But this could be a long-term project that could be achieved in a decade or two. My concern though is whether the extraction won't cause an irreversible ecological impact to the sea-floor. 

  4. Anand
    July 8, 2011

    The rare earth minerals market is headed for a more normal supply condition following a World Trade Organization (WTO) ruling against Chinese export restrictions and the discovery by scientists of a large deposit of the raw materials used heavily in high-tech equipment manufacturing.

    Bolaji,

     I agree with you that there has been lot of “rare mineral” discovery worldwide. Infact one of Indian company Varun Industries claimed that it has found mining blocks covering an area of 62.5 sq. km. at Belay and Anosy in Madagascar, Africa. Looks like rare earth mineral is not so rare as we imagined before.

  5. mfbertozzi
    July 8, 2011

    Well, one of the most important topics still not outlined clearly (in my personal opinion) is a worldwide rule to classify what is “rare” and the way to manage row materials as per that rank. WTO provides rules to manage commercial inter-exchange, but in addition it could be important to avoid critical resources such as “rare materials” will be owned only by a few players (I mean Gov) which adopts strategy to satisfy alone policy. Is a case countries major “rares” owner are also Internet growing protagonist in terms of users' penetration trend?

  6. Jay_Bond
    July 8, 2011

    This looks like a good outcome for electronic manufacturers along with other businesses that use these minerals. I know of a few companies that were looking at making alternative materials to use due to the global restrictions in place. Finding a new large reserve under the ocean is a great find, but could be costly not only to extract the minerals but to the environment also. It will be interesting to see the proposals for mining this material and what safe guards will be in place.

  7. FLYINGSCOT
    July 8, 2011

    I wonder how efficient we are at recycling electronic waste to recover these rare earth elements and thus reduce our dependence on new sources?  Deep sea mining sounds awfully expensive.

  8. Ms. Daisy
    July 9, 2011

    Exactly! Who defined rare? It should have been called 'China controlled'

  9. Colorado Native
    July 10, 2011

    The Western Slope of Colorado has huge deposits of nearly all of the main rare earth minerals which have been known of for years but there has been no interest in them.  They are located in the same area as the vast urainium deposits which have been mined before for years.  A new urainium mine is in the process of opening after a 25 year hiatus.  These vast deposits are located in Mesa and Montrose counties and should not be difficult to mine.  The Colorado Dept. of Geological Surveys has the information which has been known about for many years.

    Since the Chinese manipulated the markets and shut down competition, I think it is high time that the US gets into action and start utilizing its own resources and stop depending on unreliable sources.  Unfortunately, under the current conditions it can take years to get a new mine into production, I think we should put this on a fast track.  There are huge deposits in California and possibly another one in Nevada as well.  This can be done with minimal impact to the enviroment.  We know how to handle radioactive materials and have improved methods available now.

    Since these materials are used in critical military systems, this should be of some national concern.  Cut the red tape and get it going!

  10. garyk
    July 12, 2011

    Who do think buys the re-claim electronics? CHINA of course.

  11. Himanshugupta
    July 14, 2011

    I heard that the discovey in Pacific Ocean does not come to anyone's territory. Which means that we can see a fight for the control. But this might reduce the dependency on a set of countries (ofcourse depending on the ease of extraction and economic viability).

  12. Kunmi
    July 22, 2011

    Discovering rare earth minerals on the ocean floor (WHOA!!!) is a great and a significant find. Scientists have always discover something useful and rewarding for the benefit of mankind. I think, this is another great opportunity for us to explore and utilize what mother nature had in stock for us. As a country, we can begin to see how we can make the best use of them. There are resources in colorado, california, nevada and other places especially when it comes to technological advancement. I believe this is our time to explore and get creative. It is a long term project but its duable.

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