February 1, 2012 / 4:55 PM / 8 years ago

China says ready to defend its rare earth policies

BEIJING (Reuters) - China’s Commerce Ministry said on Wednesday it was prepared to defend its rare earth export policies at the World Trade Organization, days after the global trade body ruled against its export restrictions on raw materials exports.

A WTO panel decided on Monday that China had violated global trading rules by curbing exports of raw materials such as bauxite, coke, magnesium, manganese and zinc, which inflated prices and gave domestic Chinese firms an unfair competitive advantage.

Rare earth metals were not part of the ruling, but users of the crucial group of 17 elements used in the renewable and high-tech sectors hope China will also scrap export limits on these commodities, leading to higher volume and lower prices.

A number of U.S. lawmakers have urged the United States to use the WTO decision to launch a new case to force China into lifting its rare earth export restrictions.

“Regarding WTO members’ possible similar actions over China’s rare earth policies, we’re ready to respond at any time in line with WTO rules and procedures,” Li Chenggang, the head of the ministry’s legal and treaty department, told China’s official Xinhua news agency.

Li said that the raw material case “might have some reference value” for a potential rare earth case, but that the country’s rare earths policy no longer solely relied on trade restrictions, and instead rested more on regulation of domestic production and consumption.

Monday’s raw materials ruling left open a loophole for export quotas if they were imposed for environmental reasons, so long as they were matched with restrictions over domestic production or consumption.

China produces about 95 percent of global rare earth supplies, but says that excessive production is depleting its reserves and damaging its environment.

Some analysts have said its policies are designed to give priority of supply to domestic consumers and encourage foreign consumers, mostly in high-tech strategic sectors, to move their operations to China.

China has rejected this, saying nationwide output caps - which comply with WTO rules - have also raised domestic prices and forced local users to scale back operations.

China capped production at 93,800 tonnes in 2011, up only 5 percent from the year before despite soaring demand, and began a nationwide inspection at the end of August to stop rare earth miners from breaking the cap.

Reporting by Michael Martina; editing by David Stamp

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