Here we go: China’s the bad guy — again.
As if recent economic outlook reports for China’s domestic economy haven’t stirred the pot enough, now the country is dealing with the United States, the European Union and Japan banding together to bring WTO action against its restrictions on rare earth metal exports.
The rare earths exports news comes on the heels of another worrisome metals-related issue involving a faulty Chinese steel part used in mass transit here in the Midwest (which we’ll get into a little later).
Looks like Beijing can’t catch a break. But as far as breaks go — does it deserve one?
Rare = A Cool Red Center
The lead story from the Wall Street Journal yesterday outlined President Obama’s intent to announce a trade case specifically regarding rare earths being brought to the WTO against China. Clearly part of Obama’s renewed “Tough-On-China” approach — to compete with that of Mitt Romney’s and others’ — this move will hopefully kick-start immediate talks with Beijing on releasing export restrictions.
According to the WTO, the US-EU-Japan tripartite put through a request for “consultations” under the dispute settlement system, which means both sides can engage in talks to resolve the trade matter before any further litigation takes place. The consultations are specifically geared toward lifting restrictions on “various forms of” rare earths, tungsten and molybdenum. (Fuller details are as yet unavailable to the press.)
If the talks don’t go anywhere within 60 days, a formal WTO suit will likely be filed shortly thereafter.
China Not Happy
Chinese state-run media agency Xinhua ran a commentary about the issue, invoking the word “unfair” three times. Of course, they were claiming that “internationalizing” the dispute, rather than keeping talks between the interested parties behind closed doors, is what’s unfair, rather than the other way around — China’s purposely low exports of the REEs.
Xinhua spouts the party line, calling the export quotas reasonable. “To promote healthy development of the industry, besides imposing export quotas, China has also suspended the issuance of new licenses for prospecting and mining, adopted production caps and stringent environmental standards, and launched crackdowns on illegal mining activities,” their commentary reads.
“But China has never adopted discriminatory policies against foreign companies in terms of rare earth supplies, as policies and treatment for both domestic and foreign companies are the same.”
Folks in the non-Chinese arms of the industry say the request for talks is a good thing. “Raising the issue has great value,” Michael Silver, CEO of California-based American Elements Inc., told the WSJ. American Elements sources rare-earth materials in China and processes them in the U.S. and Mexico, according to the article, and Silver went on to say that regardless of the WTO outcome, “US action may lead to negotiations with China about how to narrow the pricing gap.”
This may be the crux of the issue: not how the countries’ governments tussle through the WTO, but how those governments (especially that of the US) create and enact an effective policy so that Western producers and processors can be set up with sustainable production models. As Jack Lifton notes on the Technology Metals Research blog, China’s domestic demand for the REEs is indeed rising just as fast or faster than the Western world’s, so perhaps continued dogging of China’s REE market is not a sound strategy.
To be continued in Part Two.