The U.S. will file a complaint at the World Trade Organization today over Chinese limits on exports of rare earths used in high-tech products, deepening a trade dispute between the world’s two largest economies.
President Barack Obama will personally announce the action to join Japan and the European Union in requesting consultations with China at the Geneva-based trade arbiter over rare-earths shipments, an administration official said yesterday in Washington, speaking on condition of anonymity ahead of the White House announcement.
The move adds to pressure the U.S. is piling on China in an election year, with Obama calling for efforts to help balance the trade deficit it has with the Asian nation and allow the Chinese currency to appreciate. China produces at least 90 percent of the world’s rare earths, used in Boeing Co. (BA) helicopter blades and Toyota Motor Corp. hybrid cars, and has curbed output and exports since 2009 to conserve mining resources and protect the environment.
“As China is a WTO member, it’s natural to find a resolution for any trade issue within the WTO,” said Tetsuo Yuhara, research director for natural resources, energy and environment at The Canon Institute for Global Studies in Tokyo. Still, “we need to think of China’s effort to protect the environment that has been deteriorated as well as to control illegal mining and smuggling.”
The U.S. will argue that China’s curtailment of the exports has given Chinese companies an unfair advantage by increasing production costs for American firms that use the materials, the administration official said.
China’s policy regarding rare earths comply with WTO rules, and allegations that it monopolizes the trade are “groundless,” Chinese Foreign Ministry spokesman Liu Weimin said at a briefing today. The fact that China has about a third of the world’s rare-earth resources and produces about 90 percent of supply isn’t sustainable given the environmental damage that results from mining the metals, Liu said.
“Despite such huge environmental pressure China has been taking measures to maintain rare earth exports,” Liu said. “China will continue to supply rare earths to the international market.”
Japanese Chief Cabinet Secretary Osamu Fujimura said the government is considering bringing China to the WTO. Fujimura, speaking to reporters today in Tokyo, said no decision has yet been made. An EU official confirmed the bloc will be part of the joint complaint.
While the rarest of the 17 chemically similar metallic elements are more common in the earth’s crust than gold and the most abundant are about as well-represented as copper and zinc, they only occur in concentrations that are economic to mine in a few places, according to the U.S. Geological Survey.
The U.S.-China trade deficit was $295 billion last year, $23 billion wider than a year earlier, and the imbalance is a main source of friction between the two countries.
Obama signed an executive order two weeks ago creating a panel to investigate unfair trade practices by nations including China. The administration’s 2013 budget proposal submitted to Congress last month asked for at least 50 people and $26 million in funding, and U.S. Trade Representative Ron Kirk called it the most significant allocation of resources since his office was created almost 50 years ago.
The administration has filed five WTO complaints against China since taking office three years ago, compared with seven George W. Bush filed from 2001, when China joined the Geneva- based trade arbiter, through the end of his term in early 2009.
WTO judges on Jan. 30 rejected China’s appeal of a ruling that found restrictions on exports of nine raw materials including coke, zinc and bauxite break global rules and give the country’s manufacturers an unfair edge over competitors.
The rare earth complaint comes amid leadership transitions in both countries. Obama faces a tough battle for re-election in November, after a New York Times/CBS News poll published March 12 found 40 percent of respondents approved his handling of foreign affairs, down from 50 percent a month ago.
Vice President Xi Jinping, expected to become China’s top leader in a handover of power within the Communist Party that begins later this year, visited the U.S. in February and called on the Obama administration to respect China’s interests and accommodate China’s economic priorities.
China’s official Xinhua News Agency ran a commentary today saying the “rash and unfair” U.S. move risks triggering a backlash from China and is likely to hurt trade ties. The commentary, signed by a writer identified as Yu Zhixiao, said China’s “excessive exploitation” of rare earths in the past resulted in environmental damage and its decision to implement quotas was reasonable.
Mitt Romney, leading the race to become the Republican nominee to challenge Obama in the November election, has faulted the president for not being tough enough on China.
“The time has come for a president that will stand up to China,” Romney said at a campaign appearance in Detroit Feb. 24. “I will declare them a currency manipulator and, if necessary, apply tariffs where I think that their practices -- unfair trade practices -- are killing American jobs.”
The administration’s plans to seek a WTO proceeding against China were reported earlier by the Associated Press.
Before taking other actions, WTO members must speak to each other to see if they can settle their differences. The organization’s rules require China to hold talks with the U.S., the EU and Japan within two months. The U.S. and its partners may ask for the appointment of a formal WTO panel should the consultations fail to resolve the issue.
Rare-earth prices soared in 2010 after China imposed a quota on exports. Prices began to tumble last year after customers sought lower-cost alternatives. China shipped only 60 percent of its export quota last year, Commerce Minister Chen Deming said March 7.
Demand for rare earths may rebound following a 25 percent slump in prices this year, benefiting producers of the metals such as Molycorp Inc., Morgan Stanley said March 5. Molycorp, of Greenwood Village, Colorado, is the owner of the largest rare- earth deposit outside of China, located near Mountain Pass, California.
China may keep 2012 overseas sales quotas virtually unchanged at 31,130 tons, according to Bloomberg News calculations. The Chinese government allocated 10,546 tons of first-round export quotas to nine companies, including China Minmetals Corp. and Sinosteel Corp., that met the government’s environmental protection standards, the Ministry of Commerce said Dec. 27.
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