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WTO rules against China on “rare earth export restrictions”

China reduced its rare earth export quota by 40% in 2014, causing supply shortage in the global market. It also resulted into multi fold increase into prices of rare earth in the market. Japan, European Union (EU) and US lodged a case to WTO in this regard. They argued that China was unfairly restricting exports and allowing its domestic industries to take advantage.

Rare Earth metal covers 17 differential elements such as Neodymium, Lanthanum, Cerium, Praseodymium – highly used in the production of smart phones, cameras, hybrid cars batteries, steel and low-energy light bulbs. China accounts for 95% of global production of rare earth metals.

WTO policies always strive to offer level playing field to all member countries. However, WTO panel rules that China’s export duties and quota restrictions on rare earth metal to achieve industrial policy goals have breached its WTO obligations. This ruling may invite trade sanction from US, EU and Japan. China has been given 60 days to appeal against WTO panel’s decision.

Following point were mentioned in the complaint against China to the Dispute Settlement Body (DSB), WTO:

Export Duties:

Complaint: US alleged that China imposes export duties on various forms of Rare earth, Tungsten, Molybdenum, elements used as raw material in production of electronic goods. US argued that these are inconsistent with the China’s WTO obligation as included in her Accession Protocol. (Accession protocol is the document accepted by the country on becoming the WTO member, and includes various trade related obligations given by WTO). As per the Accession Protocol, China can impose export duties on the items listed in Annex 6. However, except Tungsten Ore, Rare Earths and Molybdenum are not listed in the Annex 6 and hence could not have export duties on them.

China’s Counter Argument: China justified imposition of export duties on above items based on the “General Exception” provision in Article XX of the GATT,1994. Article XX(b) allows WTO Members to maintain such measures (export duties in the above case) that would otherwise be inconsistent with the GATT 1994 if the measures are necessary to protect human, animal or plant life or health. China argued that mining of Rare Earth was causing Pollution endangering human, animal and plant life. Hence she opted for export duties imposition.

DSB Panel’s Decision: Rejecting China’s argument, panel argued that export duties are not necessary to protect human, animal or plant life and health. Thus export duties imposed by China amount to breach of WTO obligations.

Export Quotas:

Complaint: China also imposes the quantitative limits (quota) on the export of above mentioned items. US argued that such restrictions are inconsistent with the GATT, 1994 provisions.

China’s Counter Argument: China justified her export quota restriction under the exception provided in ‘General exception’, Article XX(g) of the GATT 1994, since they relate to the conservation of an exhaustible natural resource. China argued that every country has sovereign right over its natural resource and can take relevant Preservation measures for such exhaustible natural resource.

DSB Panel’s Decision: Panel argued that Conservation measure taken up by the country, does not allow her to control the availability of that natural resource in the international market. Additionally, panel found that China did not restrict her domestic uses. Part 2 of Article XX(g), talks about restricting domestic use too. Hence export quotas are not valid and breaches China’s WTO obligation.

Right of Trade:

Complaint: China imposes certain restrictions on the right of enterprises to export Rare Earths and Molybdenum. This restriction is violation of WTO obligation as provided in China’s Accession protocol, Part 5(1). Under this China has committed, that all enterprises in the country shall have the right to trade in all goods, (except for those goods listed in Annex 2A which continue to be subject to state trading in accordance with this Protocol).

China’s Counter Argument: Trade Right restrictions are also in line with Article XX(g), conservation of exhaustible natural resource.

DSB Panel’s Decision: Panel concluded that China’s above argument is not satisfactory and hence trade right restrictions too violated her WTO obligations.

 Rare Earth Metals:

The rare earth elements are composed of the Scandium (Sc), Yttrium (Y) and lanthanide series element. Most of the elements in the actinide series are called trans-uranium, which means synthetic or man-made. All of the rare earth metals are found in Group 3 of the Periodic table, and the 6th and 7th periods.

Lathanide Series Elements are: Lanthanum (La), Cerium (Ce), Praseodymium (Pr), Neodymium (Nd), Promethium (Pm), Samarium(Sm), Europium (Eu), Gadolinium(Gd), Terbium(Tb), Dysprosium(Dy), Holmium(Ho), Erbium (Er), Thulium(Tm), Yetterbium(Yb), Lutetium(Lu).

Rare Earths are not rare but are not concentrated enough to make them easily exploitable.
It is the essential physical and chemical property which facilitate the use of Rare-Earth metals in various high end technology applications. Rare Earths are characterized by high density, high melting point, high conductivity and high thermal conductance, Hence used in Clean Energy technology, defence and civilian applications.

Atomic Number Rare Earth Mineral Obtained from Uses
21 Scandium(Sc) By refining Uranium Aerospace components
39 Yttrium(Y) Monazite, Xenotime, Yttriac In Fibre Optics and Energy-Efficient Light bulbs, LEDs
57 Lanthanum (La) Monazite and bastnasite Camera lenses, batteries
58 Cerium (Ce) Monazite Heat Resistant alloy
59 Praseodymium(Pr) Salts Coloring glasses and ceramics, Magnets for wind turbines
60 Neodymium (Nd) Electrolysis of salts Coloring glasses and ceramics and infrared radiation filtering, Magnets for wind turbines, batteries
61 Promethium(Pm) Fission products of Uranium, Thorium and Plutonium Nuclear batteries
62 Samarium(Sm) Found with other rare metals Used in magnets, as an alloy with cobalt, in nuclear reactor
63 Europium(Eu) Man-made Used in color TV, Energy –Efficient light bulbs, LEDs, as a screen brighteners in cell phones.
64 Gadolinium(Gd) Gadolinite Mineral Used in Magnets
65 Terbium(Tb) With other Rare earth Used in color TV, Energy –Efficient light bulbs, LEDs.
66 Dysprosium(Dy) Obtained from Erbium, Holmium Used in nuclear reactor, magnets for wind turbines
67 Holmium(Ho) From Gadolinite Used in nuclear reactor
68 Erbium(Er) Heavy Rare earth metal Used in Ceramics
69 Thulium(Tm) Gadolinite, Euxenite, Xenotime Used in making Power supply for portable X’ray machines
70 Ytterbium(Yb) yttria, monazite, gadolinite, xenotime Used in metallurgical and chemical experiments
71 Lutetium(Lt) Xenotime, Gadolinite High Refracting index glasses.

 World Reserves of Rare Earth Minerals:

China:                       37% of World reserves

CIS countries:        19%

USA:                          13%

Australia:                  6%

India:                    3%

Other Countries:    22%

China holds the leading position in World production of Rare Earths too. However, restriction on Rare Earth export by China, has prompted other countries to take on exploration and increase production so as to develop alternative source for Rare Earths. Considering the increased demand for these minerals in complex, high end technologies, it is expected that by year 2015 world industries will use 185000 tonnes of Rare earth. In 2011, Japan discovered the underwater source of Rare Earth Metal across Pacific Ocean, around South and East Japan.

Rare Earth Metal deposits in India:

In India, Monazite is the principle source of the Rare Earth metals and Thorium. Monazite occurs with other heavy minerals like ilmenite, zircon, rutile and found in the beach sand and some inland deposits. Apart from Monazite sand Rare Earth Metals are also found in Hard rocks.

Indian Rare Earth Limited (IREL), a Public Sector Undertaking is the sole producer of the rare earths in the country. However, recovery of Rare Earths from Monazite has been stopped due to its Thorium and Uranium content.

Monazite Mineral is a Prescribed Substance under Atomic Energy act, 1962. And a licence from the Department of Atomic Energy (DAE) under the Atomic Energy (Working of the Mines, Minerals and Handling of Prescribed Substances) Rules, 1984 is necessary for exporting monazite.


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