China Limits Exports of Rare Earth Materials Closing Case (Questions below artic

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China Limits Exports of Rare Earth Materials Closing Case (Questions below article)

Rare earth metals are a set of 17 chemical elements in the periodic table and include scandium, yttrium, cerium, and lanthanum. Small concentrations of these metals are a crucial ingredient in the manufacture of a wide range of high-technology products, including wind turbines, iPhones, industrial magnets, and the batteries used in hybrid cars. Extracting rare earth metals can be a dirty process due to the toxic acids that are used during the refining process. As a consequence, strict environmental regulations have made it extremely expensive to extract and refine rare earth metals in many countries.

Environmental restrictions in countries such as Australia, Canada, and the United States have opened the way for China to become the world's leading producer and exporter of rare earth metals. In 1990, China accounted for 27 percent of global rare earth production. By 2010, this figure had surged to 97 percent. In 2010, China sent shock waves through the high-tech manufacturing community when it imposed tight quotas on the exports of rare earths. In 2009, it exported around 50,000 tons of rare earths. The 2010 quota limited exports to 30,000 tons. The quota remained in effect for 2011 and was increased marginally to around 31,000 tons in 2012 and 2013.

The reason offered by China for imposing the export quota is that several of its own mining companies didn't meet environmental standards and had to be shut down. The effect, however, was to dramatically increase prices for rare earth metals outside of China, putting foreign manufacturers at a cost disadvantage. Many observers quickly concluded that the imposition of export quotas was an attempt by China to give its domestic manufacturers a cost advantage and to encourage foreign manufacturers to move more production to China so that they could get access to lower-cost supplies of rare earths. As news magazineThe Economistconcluded, "Slashing their exports of rare earth metals has little to do with dwindling supplies or environmental concerns. It's all about moving Chinese manufacturers up the supply chain, so they can sell valuable finished goods to the world rather than lowly raw materials." In other words, China may have been using trade policy to support its industrial policy.

Developed countries cried foul, claiming that the export quotas violate China's obligations under World Trade Organization rules. In July 2012, the WTO responded by launching its own investigation. Commenting on the investigation, a U.S. administration official said that the export quotas were part of a "deeply rooted industrial policy aimed at providing substantial competitive advantages for Chinese manufacturers at the expense of non-Chinese manufacturers."

In the meantime, the world is not sitting still. In response to the high prices for rare earth metals, many companies have been redesigning their products to use substitute materials. Toyota, Renault, and Tesla, for exampleall major automotive consumers of rare earth productshave stated that they plan to stop using parts that have rare earth elements in their cars. Governments have also tried to encourage private mining companies to expand their production of rare earth metals. By 2012, there were some 350 rare earth mine projects under development outside of China and India. An example, Molycorp, a U.S. mining company, is quickly boosting its rare earth production at a California mine. As a consequence of such actions, by early 2014, China's share of rare earth output had slipped to 80 percent. This did not stop China from announcing quota limits in 2014 that seemed to be in line with those of 2013.

Question: Given that 97 percent of rare earth metal production is now done in China, an increase from 27 percent to 97 percent between 1990 and 2010, do you think countries such as Australia, Canada, and United States should reconsider their environmental restrictions on products of such metals?

Explanation / Answer

China has scrapped its export quotas for rare earths, minerals used in mobile phones and other high-tech products, after losing a World Trade Organisation case brought by Washington and other trading partners over controls that alarmed global technology producers.

The change was included in the Ministry of Commerce’s trade guidelines for 2015 but there was no separate announcement. Under the new guidelines, rare earths will require an export license but the amount that can be sold abroad will no longer be covered by a quota.

China’s curbs imposed in 2009, prompted concern about supplies for global technology producers. They led to efforts to reopen or develop new mines in the US and elsewhere, and by Japan and some other countries to recycle rare earths.

China has about 30% of global deposits of rare earths but accounts for more than 90% of production. It imposed export limits while it tried to build up domestic manufacturers to capture more of the profits that go to western and Japanese producers of mobile phone batteries and other products.

Beijing cited the need to conserve a dwindling resource and limit environmental damage from mining but imposed no restrictions on production and use of rare earths by companies within China.

Chinese officials have expressed hope foreign manufacturers that use rare earths will shift production to China and give technology to local partners.

The US challenged the quotas in 2012 in a WTO complaint and later was joined by the EU, Japan and other governments. They said China violated its free trade commitments by limiting access to raw materials.

Rare earths are 17 minerals used to make goods including hybrid cars, weapons, flat-screen TVs, mobile phones, mercury-vapor lights and camera lenses.

tic sources until the late 1990s. Production ended after low-cost Chinese ores flooded global markets.

Beijing also tightened control over its rare earths industry by pushing companies to merge into state-owned groups and forcing smaller producers to close.

The export controls were especially sensitive at a time following the 2008 financial crisis when governments were trying to boost exports to reduce unemployment. The US and Europe want to increase sales of high-tech goods that include products made with rare earths.

China exported 22,493 tons of rare earths in 2013 and 22,224 tons in the first ten months of 2014, according to customs data reported by state media.

The Chinese restrictions prompted some foreign manufacturers to shift to alternative materials for making magnets, polishing camera lenses and other uses.

The market price of rare earths spiked in 2011 amid fears of shortages. Prices have declined since then but are above 2010 levels.

One of the minerals, dysprosium oxide, costs $265 (£173) per kg ($120.50 per lb), about one-quarter its 2011 level of $994.33 per kilogram ($452 per lb). But it still is about 50% above its 2010 level of $166.48 per kg ($75.67 per pound).

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