WTO rules China violates 'rare earth' trade rules

GENEVA -- The World Trade Organization ruled Wednesday that China has violated international trade rules with its restrictions on the export of 17 "rare earths" and two other minerals that have key industrial and high-tech uses.

Responding to complaints filed by the United States, the European Union and Japan, the WTO dispute settlement panel found that China's restrictions "breach" its obligations to the world trade body because the country could not properly justify them.

"China's decision to promote its own industry and discriminate against U.S. companies has caused U.S. manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths," said U.S. Trade Rep. Michael Froman.

The case applies to 17 rare earth minerals which, despite their name, are for the most part relatively abundant, and are commonly used to make goods including hybrid cars, weapons, flat-screen TVs, mobile phones, mercury-vapor lights and camera lenses.

China accounts for more than 90 percent of production of rare earth minerals, though it has only about 30 percent of the deposits of rare earths in the Earth's crust. In 2009, it alarmed foreign companies by limiting exports of the rare earths in an attempt to boost its domestic manufacturing base. Chinese officials had also expressed the hope that foreign companies which use rare earths would shift production to China and give technology to local partners.

But the WTO panel decided that trade in a country's natural resources, once extracted from the ground and put onto the market for sale, is subject to WTO rules. The U.S., EU and Japan argued that the export restraints artificially increased world prices for the minerals, while artificially lowering prices for Chinese producers.

In a statement on the panel's ruling, the EU's mission to the WTO said the ruling affects minerals used as essential components by a wide range of European industries. And while no one contests China's right to impose environmental and conservation policies, EU officials said the panel's ruling affirms that "the sovereign right of a country over its natural resources does not allow it to control international markets or the global distribution of raw materials."

The panel's report on China's export restraints, which include export duties and quotas, may be adopted or appealed within 60 days. If adopted, the U.S., EU and Japan would be entitled to retaliate trade-wise if China did not comply with WTO rules.

China's WTO mission in Geneva did not immediately respond to a request for comment.