Rare Earth “No-Show” or Showdown at the WTO?
By Clint Cox
Is the West just bluffing or is the rare earth industry headed for a bitter showdown? It’s a bit melodramatic, but let’s examine the facts:
First, there was the lead-up. The rare earth industry has known for some time that China has supplied the majority of Rare Earth Elements (REE) to the world. Projections have shown that this will likely remain the case for the foreseeable future. China also consumes an increasing amount of their own REEs. China has export quotas and tariffs on rare earths. The West needs these resources, but has very few options outside of China. The tension is getting more palpable. A few weeks ago the opening gambit was played — it was announced that the US and the EU were preparing to launch a formal complaint with the World Trade Organization (WTO):
According to the EUbusiness article:
“The materials include tungsten, copper, bauxite, antimony, yellow phosporous, magnesium carbonate, molybdenum, rare earths and indium.”
According to the above Reuters story published at Yahoo Finance India™:
“The materials expected to be covered by the case include yellow phosphorous, antimony, bauxite, coke, fluorspar, indium, magnesium carbonate, molybdenum, rare earths, silicon, talc, tin, tungsten and zinc.
In a move that may have been an attempt to forestall U.S. and European action, Beijing said on Monday it was cutting export taxes on a range of materials, including some used to make steel.”
It is interesting that Beijing is already responding to the WTO threat. It is also interesting that the US and EU went ahead with the formal complaint:
The Chinese are not happy with the complaint, and Mei Xinyu called it “ridiculous and unacceptable.” Interesting! The article also states:
The US and the EU have “staged such kind of shows” several times before, Mei added.
But US Trade Representative Ron Kirk said in Washington yesterday that “China’s measures appear to be part of a troubling industrial policy aimed at providing substantial competitive advantages for the Chinese industries using these inputs.”
“We are going to the WTO today to enforce our rights, so we can provide American manufacturers with a fair competitive environment and put more American workers back on the job,” Kirk told AFP.
A little back and forth. Bloomberg reported China’s counterpunch (although, for some reason, they failed to mention the rare earths!):
Today, China called for a WTO probe of U.S. restrictions on poultry imports and the trade body’s former chief, Mike Moore, warned that the world is in “dangerous waters” as protectionism increases.
Yikes. The dreaded “P” word. The industry will be watching this rather closely. Here comes the really fascinating part for Rare Earth fans — if you take a gander at The Office of the United States Trade Representative announcement regarding the WTO case you find the following raw materials included:
The dispute filed today addresses various unprocessed and processed forms of nine inputs of key interest to a wide range of U.S. industries: bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.
Where are the Rare Earths? I don’t have an answer right now, but it looks like they are not there! Are they included in the complaint? The WTO doesn’t have the complaint listed yet, but I will keep checking. Is this much ado about nothing? That is quite possible.
The US and EU are obviously upset about raw materials, but what about Japan? They are a substantial consumer of REEs from China. Will they be joining the fray? According to a story at www.steelguru.com (as sourced from www.platts.com):
Although Japan appears unmoved yet by the US and the EU moves, the Japanese government nevertheless has voiced concerns over China’s production and export restrictions on rare earth. The Japanese trade ministry continues to seek talks on a bilateral basis, as it was more important for Japan to understand the ultimate aim behind China’s export restrictions, possibly leading to a joint solution.
It appears that Japan will continue to dialogue with China. Indeed, the title of the article is “Japan unlikely to follow US and EU in WTO filing against China”.
More on China’s response can be found at the English version of People’s Daily Online entitled “Absurd double standards on China’s resources”. I think the title says it all. They are not happy.
What does all of this mean to the market? Not much, at this point — we’re not even sure that rare earths are included in the complaint! There is lots of posturing, but the market continues to function. There will be increased dialogue while the WTO encourages all concerned parties to work out their differences. This process can take several years, and the entire sector may look different by the time the powers that be have concluded their arguments.
We will continue to track the story and see if REEs will be a “No-Show” or smack in the middle of a nasty WTO Showdown.