Rare earth minerals in China
Rare earth minerals in China are crucial for industries in China
Rare earth minerals or rare earth elements (REE) are a group of 17 minerals that share similar chemical features in the periodic table plus yttrium and scandium and are used to make multiple high-tech commercial products like hybrid electric motors and hybrid batteries, computer hard drives, mobile phones and camera lenses, portable x-ray units, stadium lights, flat-screen TVs, energy-efficient light bulbs, fiber optics, glass additives etc. It is rare not in that there is not plentiful supply of them in the earth’s crust, but rather in that to extract, refine and process them require tremendous effort and investment. There is estimated around 30 percent deposit of rare earth minerals in China among global total volume and China accounts for more than 90 percent of mined output. Not only being the top producer in the world, China is also the top user, roughly 70% of global mined production is consumed by China’s downstream industry. For instance, about 75 percent of global production of neodymium-iron-boron permanent magnets is demanded by domestic industries. Furthermore, China has a strong position in REE-using intermediate industries such as glass, phosphors, catalysts for oil refining, batteries and catalytic converters.
Imposed limits on exports of Rare earth minerals in China lifted
China started to impose limits in 2009 on exports of rare earth minerals in an effort 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. The restrictive export quotas on rare earth minerals in China made global technology producers concerned about insufficient supplies, and tried to reopen or develop new mines in the United States and other regions and by Japan and some other countries to recycle rare earths. In addition, in 2012, the United States joined by the European Union, Japan and other countries initiated a complaint to WTOwith respect to restrictions on the export of various forms of rare earth minerals in China, challenging its export quota policy. The USA, Europe and Mexico won a WTO case in 2011 against China disputing China’s use of export quotas on a variety of industrial raw materials,setting the stage for the challenge against its rare earths policy by claiming that China had violated its free-trade commitments by limiting access to raw materials and aimed at increasing global prices of these minerals as well as favored domestic industry, rather than for the natural resource conservation goals. Chinese government argued that they needed to conserve a dwindling resource and limit environmental damage from mining. Ruled by A WTO dispute settlement panel based on the accession protocol that China had agreed in joining the WTO in 2001,Panel finds export quotas unjustified and there was no basis for justifying the use of export duties under Article XX of the General Agreement on Tariffs and Trade (GATT).Article XX establishes a number of justifications for otherwise illegal measures on the grounds that they are needed to fulfill greater public policy objectives, such as resource conservation or public health. The verdict judged that restrictions on rare earth minerals in China was in violation of trade rules and deemed them to be an attempt to “secure preferential use” for domestic firms and to attract foreign investment. Since China is a member of WTO, it has to execute the ruling and has started to scrap its export quotas for rare earths minerals used in mobile phones and other high-tech products. The Ministry of Commerce has released new guidelines for 2015 under which changes was made such as an export license is required when exporting rare earth minerals in China but the amount that can be sold abroad will no longer be covered by a quota.
Impact after export quota removal
After losing the case and appeal being rejected by WTO, Chinese government has started to remove export quota restrictions and declared to strengthen regulations on resources in line with WTO rules. However, lifting quota limits doesn’t seem to have an impact on prices in the global market because since 2005 export volume has not exceeded the limited maximum and frequently fell short of maximum levels under the quota systemand over the past three years quotas were more than 20,000 tons above actual exports, partially due to less global reliance on rare earth minerals in China whose share in global rare earth mineral market has fallen from around 93% to 86%. According to data from Chinese customs, China exported 24,866 metric tons of rare earths in the first 11 months in 2013, right below its 2014 quota of 30,611 tons.Exports totaled 22,493 tons in 2013, sharply lower than the Commerce ministry’s 30,996-ton quota.
The possible impact may happen when export taxes on rare earth minerals are removed. Currently 15% to 20% is levied by General Administration of Customs of China, scrapping them means foreign producers will reduce FOB rare earth mineral price to somehow the same level with domestic Chinese prices which would affect Chinese producers. However, it is still uncertain since new tighter control of production and increasing costs will cause an increase on both FOB and Chinese domestic prices. Chinese government has introduced a policy to consolidate and integrate producers of rare earth mineral in China in the hope of reducing competition and making output control easier.The consolidation of the industry will further increase the prevalence of captive supply.