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Mineral Dispute Keeps Factories in China

A move by three parties to curb quotas on rare earth elements (REEs) may have an unintended consequence: It could force foreign factories into China.

On Tuesday, the US, Japan, and the EU filed a complaint with the World Trade Organization (WTO) in an effort to force China to export more REEs, which are used in the development of green electronics. Though the amount in any electronics product is minuscule, China controls an estimated 90 percent of the world's viable REE mines. The consulting firm Design Chain Associates says REEs aren't actually rare — they are just very expensive to mine, and China has subsidized many of the mining operations. (See: The Truth About Rare Earths, Part 1 and The Truth About Rare Earths, Part 2.)

The New York Times reports that many foreign companies have established operations in China, so they can source low-cost REEs locally.

In addition to imposing quotes on REE exports, China has made exporting the minerals more difficult. For example, according to the NYT, it has begun requiring its rare earth exporters to obtain a certificate of environmental compliance before making any shipments. That could strengthen China’s claim that its quotas are an environmental necessity. The mining and processing of rare earths certainly have many toxic and even radioactive byproducts. That is one reason the West and Japan were reluctant to produce them for decades.

China denies claims by Western officials that Beijing has waved the environmental flag to disguise another motive: forcing Western and Japanese factories to move to China to gain access to an uninterrupted supply of low-cost rare earths.

There has already been a backlash in the US about the loss of manufacturing jobs. The Obama administration has pledged to revitalize US manufacturing, in part through the development of renewable energy technologies. If factories are forced to source REEs in China, it will have a dampening effect on onshoring efforts. (See: Why Minerals & Metals Matter to Midterm Elections.)

There are commercially viable REE sources in the US, but the mining operations are costly and time-consuming to ramp up. In the meantime, China has pledged to defend its quotas, in part because of environmental concerns.

As my colleague Bolaji Ojo points out, this is largely a problem of our own making. (See: Don’t Blame China for Rare Earth Crisis.) Experts such as DCA raised the REE red flag more than a year ago. Challenging China through the WTO is unlikely to help. It's more likely China will dig its heels in. Foreign companies will yell “Unfair!” and wonder how they lost yet another competitive advantage.

6 comments on “Mineral Dispute Keeps Factories in China

  1. stochastic excursion
    March 15, 2012

    Limiting the production of processed rare earths is one card that globalization has dealt the Chinese.  Using environmental concerns as an excuse may win it a reprieve in the court of public opinion.  The WTO though is notorious in discounting local environmental statutes when they are restrictive of exports though.

    The competitive advantage in materials may result in raising the standard of living in China.  This might be good news for other areas of the world that are looking to attract industry.

  2. Barbara Jorgensen
    March 16, 2012

    I read this morning that the US DOD, at least, doesn't think REE quotas is a problem. They believe there is enough available domestically. Not helpful to the Obama administration's case before the WTO. Ouch!

  3. elctrnx_lyf
    March 17, 2012

    China becomes more and more powerful in these matters. So how US, EU and Japan are going to tackle this problem? Isn't there any other countries who can supply REE's.

  4. ITempire
    March 18, 2012

    Its disappointing to see earth's resources being controlled by a single country. Its time that all countries start considering to extract from their lands or finding alternatives for manufacturing as it is unlikely that China or even anyone who holds such control in the future, will listen to WTO agreement or pressure from other countries.

    However, in the short-run, all the other affected countries should take actions to convince China or else threaten to impose restrictions on export of its products. An unbiased involvement from UN would be ideal thing to have.

  5. Daniel
    March 19, 2012

    WaqasAltaf, its dam sure that China may come up with some business models from it. In first sight, they won’t allow any other countries to do any sort of expeditions in their soil. They may work out for it with a better business model by attracting foreign companies, who can generate revenue for China.

  6. ITempire
    March 19, 2012

    @ Jacob

    Yes Jacob, thanks for the point. That is what I meant. If its difficult to force China to export the REEs to other countries, its impossible that China allows other countries to carry out extraction procedures on its land. The ideal effort from all the affected countries would be to dig out their own land or make collaborations with other friendly countries so that they dont need to remain dependant on the Chinese production.

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