New York Times (10.15.10)

Trade Officials Ponder China’s Rare Earth Stance

By KEITH BRADSHER

BEIJING — As a three-week-long Chinese suspension in exports of crucial minerals to Japan continues, American and Japanese trade officials have been considering whether to file cases against China at the World Trade Organization.

Trade lawyers say an embargo case could be brought to the W.T.O., although they said it might be a hard case to win because China has not acknowledged the halt in exports through any documents or public statements.

Coincidentally, Obama administration trade officials had been quietly meeting for months with executives and lawyers from a range of American industries that use rare earth elements, long before China halted shipments to Japan on Sept. 21, according to trade lawyers and Congressional and industry officials.

Many of those American industries are unhappy that China has been reducing its rare earth export quotas since 2006 and has imposed steep taxes on the exports, said Jeff Green, a Washington lobbyist for rare earth users. The export restrictions have given a competitive advantage to manufacturers in China that use rare earths to make their products, while putting foreign rivals at a disadvantage, according to a little-noticed W.T.O. study last June.

Spokeswomen at the Office of the United States Trade Representative declined repeated requests for comment on rare earths.

There are 17 rare earth elements, and they are used to make things like hybrid cars, mobile phones and the special television screens recently unveiled by Japanese companies that provide a 3-D appearance without the need for special glasses. China mines 95 percent of the world’s supply of rare earths.

Chen Deming, the commerce minister of China, said in a television interview on Sept. 26 that his country fully complied with W.T.O. rules.

Mr. Chen also denied then that his country had imposed an embargo on rare earth exports, suggesting that entrepreneurs in the industry had decided on their own to stop sending shipments to Japan because of their personal feelings toward Japan. He did not explain, though, why all 32 foreign-owned and domestic rare earth exporters in China stopped shipments to Japan on the same day.

Shortages could start to appear at some Japanese manufacturers at the end of this week, rare earth industry officials said.

Japanese officials have hinted that they might pursue their own W.T.O. case against China if shipments do not resume soon. But the way China has gone about the unannounced halt in exports — with Chinese customs officials blocking all shipments at ports but with no actual issuance of new regulations — makes the suspension hard to challenge at a W.T.O. dispute resolution panel in Geneva, trade lawyers said.

W.T.O. cases usually involve a country’s sending the text of another country’s offending regulation to Geneva for jurists to compare with W.T.O. rules for compliance.

“Dispute settlement panels do not lightly assume the existence of unwritten measures,” said Carolyn Gleason, a partner at the McDermott Will & Emery law firm in Washington who has specialized in W.T.O. cases for nearly 30 years. “They will hold complaining countries to a high evidentiary threshold before accepting that a measure exists.”

Akihiro Ohata, the Japanese minister for trade and industry, told reporters on Tuesday that if normal shipments did not resume by the end of the week he would consider dispatching his deputy to Beijing. “We will certainly take steps to address the situation, including possible direct negotiations with the Chinese,” he said. He did not refer to any steps to involve the W.T.O.

Despite their name, most rare earths are not particularly rare. But so far most of the rest of the world has left it to China to do the dirty work of mining them. New mines elsewhere are likely to take three to five years to reach full production, according to industry executives.

And despite their growing importance to technology manufacturers, rare earths have not been a particularly lucrative commodity. The world market for rare earths was only worth $1.5 billion last year, before the recent halt in Chinese shipments sent prices soaring. Only a fraction of an ounce of rare earths is needed for some applications, like the power steering motors in cars.

China’s longer-term restrictions on rare earth exports, involving quotas and taxes, came under criticism after the W.T.O. secretariat in Geneva issued its review of China’s trade policies in June. The W.T.O. reviews each member country’s policies once every two years.

“Whether intended or not, export restraints for whatever reason tend to reduce export volumes of the targeted products and divert supplies to the domestic market,” the report said.

The timing of any W.T.O. effort by the Obama administration could be driven by a statutory requirement to respond by Oct. 24 to a petition by the United Steelworkers union asking that the White House challenge China’s clean energy policies at the W.T.O.

The lead exhibits in the steelworkers’ petition criticize the rare earth export quotas as well as export taxes on rare earths for supposedly forcing manufacturers to move the production of clean energy technologies like wind turbine manufacturing to China.

W.T.O. rules bar export quotas and export taxes in most cases, and particularly prohibit the use of export restrictions to force other countries to buy more value-added products. But the rules have an exception for the conservation of scarce natural resources, and Premier Wen Jiabao suggested in Europe last week that this was China’s goal in restricting rare earth exports.

One complexity is that the United States, European Union and Mexico filed three similar W.T.O. cases against China nearly a year ago, accusing it of unfairly imposing export quotas and taxes on a half-dozen industrial minerals used in the aluminum, chemical and steel industries. Those cases do not cover rare earths but raise some of the same legal issues.

The Obama administration may wait for the initial W.T.O. panel decision on those cases, due in mid-February, so as to write a more persuasive legal case on rare earths, industry and Congressional officials said. The law under which the United Steelworkers filed their petition allows the White House to conduct an investigation for up to 90 days after the Oct. 24 deadline before contacting the Chinese government, and it can then ask for consultations with China under the W.T.O.’s auspices.

Only if those consultations are fruitless would the administration need to file a legal case on rare earths, which would be well after the initial decision on the other industrial materials in mid-February.