March 29, 2014 – A World Trade Organization (WTO) dispute panel recently declared Chinese export restrictions on rare earths, tungsten and molybdenum violated the General Agreement on Tariffs and Trade, and China’s accession agreement to the WTO.

While rare earth elements are widely distributed in the earth’s crust, not all deposits are economically accessible, explained National Electrical Manufacturers Association (NEMA). The combination of these elements together with other minerals in a given location, the economics of extraction (including environmental regulation), and processing skills and capacity vary widely, making some locations more economically favourable for mining than others. In recent decades, extraction of rare earth elements has shifted almost exclusively to China, which has accounted for 97% of the world’s supply in recent years, added NEMA.

China argued the restrictions are related to the conservation of its exhaustible natural resources, and necessary to reduce pollution caused by mining. The complainants disagreed, arguing that the restrictions are designed to provide Chinese industries that produce downstream goods with protected access to the subject materials. (The complainants included Japan, the European Union and the United States [Canada was among the Third Parties in this dispute]).

NEMA explained that, according to the report, China had “not demonstrated that its 2012 export quota on rare earths was not applied in a manner that constitutes arbitrary or unjustifiable discrimination or a disguised restriction on international trade”. Similar conclusions were reached with respect to tungsten and molybdenum.

“NEMA understands China’s national interest in protection of its environment, but trade measures such as export quotas and export tariffs do not appear to be particularly suited to protecting the environment, while such measures do tend to support economic protectionism,” said NEMA president and CEO Evan R. Gaddis.

Rare earth elements are used in a variety of electrical equipment, consumer electronics, information technology products, pollution control equipment, glass and optical products, aviation and automotive components, wind energy generating equipment, and chemical processing, NEMA elaborated. In the electrical sector, rare earth elements are used in products such as permanent magnet motors, and fluorescent, HID and LED lighting.

“We need to see the supply of rare earth elements and the processing of rare earth elements more widely distributed around the world,” said Gaddis. “China has indicated that it does not expect to continue to produce rare earth elements to meet the same share of global demand in the coming decades. Policymakers, as well as industry, in the United States and around the world need to ensure that these critical materials, abundant in the earth’s crust, are no less abundant in the marketplace.”