Obama cites China on rare-metals policy

March 13, 2012

The Obama administration filed a trade complaint Tuesday asking China to loosen its restrictions on exports of rare-earth minerals, risking new economic tensions with the country over a potentially potent election-year issue.

Rare earths are essential to the manufacturing of a wide range of products, from missiles and computers to car batteries, cellphones and a variety of magnets. The United States alleges that China’s virtual monopoly on the minerals is used to benefit local companies and drive up prices for others.

In an appearance at the White House Rose Garden, President Obama said the United States had asked the World Trade Organization to oversee talks with China over its limits on rare-earth exports in a case filed jointly with Japan and the European Union.

“If China would simply let the market work on its own, we’d have no objection,” Obama said during his remarks. “But their policies currently are preventing that from happening. And they go against the very rules that China agreed to follow” when it joined the WTO.

The administration is mounting an election-year push to bolster its enforcement of trading rules, with a particular emphasis on China. Although U.S. exports to the country have grown rapidly, the U.S. trade deficit with China remains large, and businesses complain that it remains a difficult place to navigate. As the new WTO complaint was announced, Obama signed into law new rules allowing the United States to impose duties against “non-market economies” — including China — that improperly subsidize their exports.

Chinese leaders may prove equally heated and unyielding on the issue, as they are in the middle of a leadership transition of their own. Officials in Beijing said Tuesday they will vigorously defend their right to control rare-earth exports. The official state-run news agency, Xinhua, warned that any U.S. move to lodge a trade complaint over the issue would “backfire.”

In a foreign ministry briefing, spokesman Liu Weimin defended China’s rare-earths exports limits.

“We believe such measures comply with WTO rules,” he said. He described as “groundless” the accusation that China was using its position to control a valuable commodity and benefit Chinese firms.

“Despite such huge environmental pressure, China has been taking measures to maintain rare-earth exports,” Liu said.“China will continue to supply rare earths to the international market.”

The United States stands a good chance of succeeding in the case, according to analysts familiar with the issue. A consortium of nations, including the United States, recently won a similar case against Chinese export restrictions on other raw materials. While markets may help solve the problem faster than the WTO — prices for rare earths have been falling recently, and a once-closed mine in California is ramping up domestic U.S. production — China’s dominance in the industry remains a global concern.

China has shown in recent years that it is not afraid to use rare earths as a cudgel. In 2010, during a territorial dispute with Japan, the Chinese government halted the shipment of anything containing the minerals to Japan, causing a temporary panic among electronics manufacturers.

China has only about 30 percent of the world’s known rare-earths deposits. But other countries, including the United States, Canada and Australia, stopped mining more than a decade ago because the price of the Chinese-produced rare earths was cheaper.

Global buyers were rattled in 2009 when the Beijing government announced it was setting a quota on rare-earths exports, ostensibly to protect the environment and stop over-mining.

Export duties on some of the materials are now as much as 25 percent, according to the U.S. Geologic Survey. In material released Tuesday the European Union estimated that China’s policies mean foreign buyers pay perhaps twice as much for rare-earth materials as domestic ones.

The action against China comes amid a U.S. election year in which Obama’s potential Republican opponents are lodging pointed accusations of unfair trade practices by China.

In his remarks, Obama noted that his administration, which recently created a new trade enforcement unit, has brought twice the number of trade cases against China as George W. Bush’s administration.

“We’ve got a constructive economic relationship with China, and whenever possible, we are committed to working with them to addressing our concerns,” Obama said. “But when it is necessary, I will take action if our workers and our businesses are being subjected to unfair practices.”

Analysts said pursuing the case is a relatively easy call for the administration — both because of the substance of the issue and the politics of battling Chinese trade practices at a time of high U.S. unemployment.

“For the last 20 years, every presidential challenger has run against every incumbent by accusing him of being soft on China,” said Bill Reinsch, president of the National Foreign Trade Council. “Any intelligent, prepared administration will do its best to inoculate itself, and this administration has chosen to do that by launching much more aggressive enforcement.”

Last summer the WTO ruled that China’s export policies for an array of raw materials including magnesium, zinc and bauxite violated WTO rules — a decision recently upheld by a WTO appeals panel. In that case, the WTO rejected some of the same arguments China has pressed in regard to its control of rare earths. The WTO, for example, said it saw no evidence the country’s export policies would reduce pollution, and that the controls seemed to favor domestic companies.

The complaint on rare earths “is long overdue,” said Nicholas Lardy, a China expert at the Peterson Institute for International Economics.

It is less clear, however, whether the case will have a meaningful effect.

World prices have been dropping, and in the United States, Molycorp has restarted production at the shuttered Mountain Pass mine in California. The company expects to produce about 10,000 metric tons of rare-earths materials this year — more than 10 percent of China’s annual production quota — and more in the future.

Washington Post staff writers Keith Richburg in Beijing and William Wan contributed to this report.

David Nakamura covers the White House. He has previously covered sports, education and city government and reported from Afghanistan, Pakistan and Japan.
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