End Game for Rare Earth Dispute?

The World Trade Organization (WTO) could soon take up a formal complaint that the U.S., Japan, and the European Union filed in mid-March against China’s near monopoly over the minerals used in a wide variety of high-tech gear, including wind turbines and electric vehicles. At the same time, the pending merger of mining giant Molycorp and Canada’s Neo Material Technologies marks a concentration in the industry that analysts suggest could undermine China’s market position.

But some skeptics wonder whether the move to take China to the WTO’s hortatory woodshed will actually do anything, or whether the action by the West is too little and too late. Others suggest it may be much high-profile ado about little of real substance.

In mid-March, after much rhetorical saber-rattling, the White House announced it would lead an international regulatory charge against China, which controls some 90% of the market for 17 not-so-rare rare earth elements (REEs) These elements —such as europium, lanthanum, and cerium—are important for green energy technologies as well as weapons systems such as smart missiles and bombs. China has long been the low-cost producer of REEs, though they can be found in many areas of the world, including North America and Australia (see sidebar).

To counter the Chinese monopoly, President Obama, in a Rose Garden meeting at the White House, said Washington, Brussels, and Tokyo were asking the WTO to remove the Chinese limits on exports of REEs. “If China would simply let the market work on its own,” said Obama, “we’d have no objections. But their policies currently are preventing that from happening. And they go against the very rules that China agreed to follow” when it lobbied to join the WTO.

An earlier WTO case the U.S. and Europe successfully brought against China on exports of coke, zinc, and bauxite convinced the administration that it has a good chance on the rare earths case, according to administration officials. 

In what long-time Beijing watchers say is a predictable response, China responded huffily to the White House pressure on rare earths. Foreign Ministry spokesman Liu Weimin told the state-owned Xinhua news agency that the U.S. action was “groundless” and that China’s export restrictions are designed to prevent environmental devastation from mining minerals to supply the technology boom. “Despite such huge environmental pressure,” Liu said, “China has been taking measures to maintain rare-earth exports.”

In a commentary, Xinhua rattled Chinese trade cutlery, warning of a “backlash.” “Past experiences have shown that policy makers in Washington should treat such issues with more prudence,” said Xinhua, “because maintaining sound China-U.S. trade relations is in the fundamental interests of both sides.” The official news agency said taking the dispute to the WTO “may hurt economic relations between the world’s largest and second-largest economies.”

Mining Giant Not Waiting for WTO

Meanwhile, as  the U.S., Japan, and Europe were moving against China, U.S.-based Molycorp (“We put the mobile in mobile computing”) announced it would buy Canada’s Neo Material Technologies for $1.3 billion. 

Molycorp, based in Colorado, is reopening and expanding a rare earth mine in Mountain Pass, Calif., which was shut because of the lower-cost competition from China. The acquisition is important because Neo Material of Toronto makes specialty chemicals from rare earths in factories in China and Thailand. As an article in the New York Times noted, “The narrowest bottleneck in the global rare earth supply chain lies in taking fairly pure rare earths from the mining companies and processing them into high-tech materials of extremely high purity for electronics manufacturers, defense contractors, oil refiners, and other companies.” 

Amid the continuing rare earths story, some contrary signs emerged. Shortly after the White House announcement, the Pentagon put out a message downplaying the importance of the minerals for defense industries. The Wall Street Journal reported, “The minerals, known as rare earths, are critical to military applications including smart bombs, laser guidance systems and night-vision equipment, but in a new report the Defense Department said such uses represent only a ‘small fraction’ of U.S. demand—and that military needs can largely be met domestically.”

Chinese Quota Not Fully Used

The same newspaper separately reported that the White House action “comes as cracks show in China’s hold on the production and the processing of the metals. Prices have been easing for months, though they remain historically high.” While China’s export quotas have drawn the international attention, the 2011 quota was not, in fact, fully subscribed. Major users such as Toyota Motor Corp. have reduced use of REEs in their cars, and other manufacturers are following suit, at a time when production is moving out of China. Molycorp’s California mine was once the world’s largest, with an estimated 20 million tons of easily mined ore, and the company has been increasing production. Consulting firm Technology Metals Research currently tracks more than 400 rare earth projects in 36 countries in its “TMR Advanced Rare-Earth Projects Index.”  

Writing in the Financial Times, columnist Alan Beattie noted that the action at the WTO “comes at an odd time given what is happening in the real world. Rare earth minerals prices have plummeted and supply is coming on stream from elsewhere—indeed, Molycorp, the big US producer, is gearing up to export to China.” Beattie concluded that the action won’t have much impact on current trade, but that pushing Beijing “to adhere to WTO rules and stop restricting the free flow of trade, however belatedly and weakly, is a Good Thing.”

Kennedy Maize is MANAGING POWER’s executive editor