China's tight grip on the trade in rare earth minerals has angered other governments for years, and now that anger looks likely to develop into a full-on trade battle. Today the United States, the European Union, and Japan all filed a formal “request for consultations” with China at the World Trade Organization. If the matter isn't resolved in 60 days of consultations (and no one seems to expect such a neat resolution), the complaint will turn into a legal case that will be heard by the WTO dispute settlement panel. That could lead to tariffs and trade war.
The complaint deals with what it calls China's "unfair export restraints" on rare earth minerals, as well as the minerals tungsten and molybdenum. As you can see from the chart above (released by the U.S. Trade Representative), these minerals are crucial for a wide variety of high-tech applications. Over the past few years China has reduced its exports of these minerals, giving its domestic companies an edge and leaving foreign companies scrambling for alternatives. IEEE Spectrum recently covered an effort funded by the U.S. government to develop alternatives to rare earths in wind turbines, where they're typically used in powerful permanent magnets.
China currently produces more than 95 percent of the world's supply of rare earth minerals, although that may soon change. Despite their name, rare earth elements aren't particularly rare in the earth's crust, but it's an expensive and dirty process to mine them, to separate them from the radioactive elements they're often found with, and to deal with the waste. When prices for rare earths went up a few years ago, though, mining companies in places like Australia, Canada, and the U.S. began working on their own rare earth mines.
In the U.S., the rare earth mine in Mountain Pass, California (a patch of the Mojave Desert near the Nevada border) was closed in 2002 because of low prices and environmental concerns. But the mining company Molycorp is working to reopen it, and announced just last month that mining and processing operations at what it calls "Project Phoenix" are starting back up. Meanwhile, the Australian company Lynas is trying to open a mine in Australia and a processing facility in Malaysia, but Malaysian citizens have sued to stop the processing plant, citing health and safety concerns.
While those companies work to enter the market, the trade case at the WTO will wind along. But Graeme Irvine of RareMetalBlog says the case won't change anything in the near term, and questions the motivations for the complaint:
[With] any World Trade Organisation complaint taking up to two years to reach a resolution, it’s hard to see quite what is gained by pressing ahead with the filing. The cynic in me suggests it is timed to the upcoming US November election.
Of course there are politics at play in China too, where the Communist Party bigwigs will meet this fall to choose a new set of leaders for the next five years. In the middle of this delicate transition, it seems unlikely that the Chinese government will feel inclined to back down.
Image: United States Trade Representative