U.S., EU, Japan take on China at WTO over rare earths

WASHINGTON/BRUSSELS Tue Mar 13, 2012 4:45pm EDT

1 of 5. U.S. President Barack Obama announces new efforts to enforce U.S. trade rights with China and 'level the playing field for America's businesses and workers,' at the White House in Washington March 13, 2012. Obama is flanked by U.S. Commerce Secretary John Bryson (L) and U.S. Trade Representative Ron Kirk (R).

Credit: Reuters/Kevin Lamarque

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WASHINGTON/BRUSSELS (Reuters) - The United States, Europe and Japan joined forces on Tuesday to challenge China's restrictions on exports of rare earth minerals critical to the manufacture of advanced technology.

In a formal complaint to the World Trade Organization, the three trade powers accused Beijing of trying to hold down prices for its domestic manufacturers and to pressure international firms to move operations to China.

"We want our companies building those products right here in America. But to do that, American manufacturers need to have access to rare earth materials which China supplies," President Barack Obama said at the White House.

Europe's trade chief said China's restrictions violated international trade rules and had to be removed.

"These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and 'green' business applications," said European Union Trade Commissioner Karel De Gucht.

Rare earths are crucial for the defense, electronics and renewable-energy industries and are used in a range of products such as the iPhone, disk drives and wind turbines.

"We invent solar panels, they end up in China. We're inventing electric cars, they end up in China. Why? Because they've got rare earths," said Michael Silver, chief executive of American Elements, a company that makes rare earth products for the aerospace, defense and automotive industries.

Beijing said the export curbs are necessary to control environmental problems caused by rare earth mining and to preserve supplies of an exhaustible natural resource.

"We regret their decision to complain to the WTO," said China's Minister of Industry and Information Technology Miao Wei, according to the official Xinhua news agency. "In the meantime, we are actively preparing to defend ourselves."

China's export quotas were not trade protectionism and did not target any specific country, he added.

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Chart on rare earth production link.reuters.com/tut96s

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Obama, who has faced criticism from Republican rivals for not being tough enough with Beijing, has hardened his stance on Chinese trade practices as he gears up for a re-election battle.

"Our competitors should be on notice. They will not get away with skirting the rules," Obama said.

The rare earths dispute, which has been building for years, comes as China undergoes a political transition, with Vice President Xi Jinping poised to become the leader of the world's second-largest economy by early 2013.

The United States and Europe have clashed regularly with China over a range of economic issues including the value of the Chinese currency. The United States is due to make a preliminary decision next week on whether to impose countervailing duties on Chinese-made solar panels, potentially adding to trade tensions.

The rare earths case is the first to be jointly filed by the European Union, the United States and Japan.

Though dependent on the outside world for vast qualities of industrial components such as iron and coal, China accounts for about 97 percent of world output of the 17 rare earth metals.

"China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace," said U.S. Trade Representative Ron Kirk.

DRAWN-OUT PROCESS

The action over China's export curbs involving rare earths, as well as tungsten and molybdenum, begins a 60-day process for the two sides to try to resolve the dispute.

The next step would be for the United States, the EU and Japan to ask the WTO to establish a dispute-settlement panel to decide the case. Once appeals are lodged and heard, the process could take as long as two years to complete.

The EU, the United States and Mexico won a similar case against China in January concerning other raw materials. A European official close to the case said China had not removed wider export restrictions since that ruling. In particular, the EU said in a statement, rare earth quota announcements "are further tightening the restrictions and are a clear signal in the wrong direction."

Beijing has until the end of March to tell the United States, the EU and Mexico how it intends to comply with the January ruling, providing an opportunity for China to address both that case and the rare earth restrictions at the same time, Kirk said in an interview.

"We are hopeful that because the WTO ruling in the raw materials case was so unequivocal that China will work with us," Kirk said.

Foreign companies pay up to twice as much as Chinese firms for rare earth metals, the EU said.

The EU directly imports 350 million euros worth of rare earths from China each year, and also brings in products of far greater value containing rare earths from Japan and elsewhere.

The damage done to European manufacturing runs into billions of euros, the official said, because it was nearly impossible to diversify away from Chinese supply.

(Additional reporting by Michael Martina and Ben Blanchard in Beijing, Julie Gordon in Toronto, Jeff Mason and Alister Bull in Washington; editing by Luke Baker, Rex Merrifield and Todd Eastham)

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