U.S. to challenge China’s curbs on mineral exports; China says it will push back

March 13, 2012

The Obama administration filed a trade complaint on Tuesday asking China to loosen its restrictions on exports of rare-earth minerals — materials essential to the manufacture of a wide range of products, from missiles and computers to car batteries and cellphones.

In an appearance at the White House Rose Garden, President Obama announced that the United States has asked the World Trade Organization to facilitate formal consultations with China over its limits on rare-earth exports, in a case filed jointly with Japan and the European Union.

Officials in Beijing said Tuesday that China will vigorously defend its right to control the export of such materials. The official state-run news agency, Xinhua, warned that any U.S. move to lodge a trade complaint over the issue would “backfire.”

In choosing to make a stand, U.S. officials are highlighting an industry over which China has a near-monopoly. The country now produces more than 95 percent of the world’s rare-earth minerals, which are used in almost all advanced industrial products, from helicopter blades to solar panels to the batteries in electric cars to flat-screen televisions.

And China has shown in recent years that it is not afraid to use its dominance in the crucial market as a cudgel. In 2010, during a territorial dispute with Japan, the Chinese government halted the shipment of anything containing so-called “rare-earths” 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.

“If China would simply let the market work on its own, we’d have no objections,” 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.”

Obama added: “Being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing. We’ve got to take control of our energy future, and we can’t let that energy industry take root in some other country because they were allowed to break the rules.”

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.

Critics saw the move as an attempt by Beijing to flex its economic muscle, aiding Chinese companies that use rare earths while driving up the costs of the metals to the United States and other countries. Beijing has also stopped issuing any new licenses for mining of rare earths, closed some illegal mines and set production caps for the metals.

In recent years, China’s stance on trade of rare earths has prompted some countries to start ramping up their future production.

The Obama administration argues that China’s export restrictions give Chinese companies an unfair advantage. The action against China comes during a U.S. election year in which Obama’s potential Republican opponents are lodging pointed accusations of unfair trade practices by China. The president has vowed in recent weeks to level the economic playing field.

“America’s workers and manufacturers are being hurt in both established and budding industrial sectors by these policies,” U.S. Trade Representative Ron Kirk said in a statement. “China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace.”

But Chinese leaders may prove equally heated and unyielding on the issue, as they are in the middle of a leadership transition of their own.

In a Foreign Ministry briefing Tuesday, spokesman Liu Weimin defended China’s rare-earths exports limits.

“We believe such measures comply with WTO rules,” Liu 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.”

Miao Wei, the minister of industry and information technology, was quoted telling the Xinhua news agency, “We feel sorry for their decision to complain to the WTO.... We are actively preparing to defend ourselves and will explain the case if they bring the complaint against us.”

Xinhua also weighed in with an immediate commentary Tuesday — picked up verbatim by other Chinese news outlets such as China Daily — which warned that taking the case to the WTO could trigger a trade dispute. The swift reaction was rare since China usually waits until official action is taken — in this case, until the WTO case is actually filed — before making any comment.

“The U.S. decision to bring a lawsuit against China over its rare-earth export quotas is likely to hurt bilateral trade ties and trigger a backlash from China instead of settling the rift,” the Xinhua commentary said.

The commentary said China’s restrictions on exports, its production caps and its suspension of new mining licenses followed WTO rules allowing countries to protect a valuable resource and prevent excessive mining that could degrade the environment.

“It is rash and unfair for the United States to put forward a lawsuit against China before the WTO, which may hurt economic relations between the world’s largest and second-largest economies,” Xinhua said. “In the face of such unreasonable and unfair charges, China will make no hesitation in defending its legitimate rights in trade disputes.”

Richburg reported from Beijing.

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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