China is said to be planning to get rid of strict export quotas and duties on certain rare earth elements, media reports indicated late last week. The rumoured move comes shortly after a March 2014 ruling by a WTO dispute panel, which deemed these measures to be in violation of global trade rules and Beijing’s accession commitments.

The 17 rare earths in question, as well as tungsten and molybdenum, are used in high-tech and green energy products like wind turbines and engines used in electric and hybrid vehicles. They are also featured in goods used in the defence sector and in medical equipment.

China has long dominated the rare earths industry, being responsible for 90 percent of global production, according to the US Geological Survey, while holding just under a quarter of the world’s supply of these minerals.

Beijing imposed the controversial quotas and duties in 2010 as part of a broader effort to regulate the sector, which is rife with illicit production and has seen serious environmental impacts resulting from the extraction and production processes.

The dispute against the export quotas and duties on rare earth minerals was first lodged at the WTO in early 2012, when the US, EU, and Japan submitted nearly identical complaints against China claiming that the measures were geared toward increasing global prices and favouring domestic industry.

This past March, a WTO dispute panel ultimately found these measures to be in violation of international trade rules, deeming that there was “no basis” in China’s accession protocol for justifying the use of export duties until Article XX of the General Agreement on Tariffs and Trade (GATT). Furthermore, the panel found, the export quotas appeared to be geared more toward meeting industrial goals than the conservation objectives that Beijing had claimed. 

“China has every right to charge whatever the market will bear for rare earths but they should not use them to advantage their own end-product producers or extort foreign companies into manufacturing in their nation,” said Michael Silver, chief of American Elements, in comments reported by Reuters.

In the weeks following the dispute panel ruling, the US filed a conditional appeal, in anticipation of a submission from China. The US’ conditional appeal focused primarily on procedural concerns regarding the panel’s review of evidence and less so on the substance of the ruling.  

Beijing subsequently lodged its own appeal, requesting the Appellate Body – the WTO’s highest court – to review certain facts of law and legal interpretation in the panel ruling, such as how China’s accession protocol ties into the WTO Agreements overall.

The Asian economy has also asked WTO judges to reverse the panel’s findings that the export quotas were not sufficiently linked to conservation. 

Domestic measures

Aside from the export duties and quotas, China is also reportedly looking at alternative means of regulating the industry at home. According to a 21 May article in China Daily, China’s official English-language newspaper, these measures may include imposing a value tax on natural resource producers or requiring a valid environmental compliance certificate in order to be eligible for export.

“What they need to do in the long-term is to take what was once an export tariff and turn it into a resource tax so the net result is positive,” said Ryan Castilloux, founding director of Adams Intelligence, a leading mining and metals consulting firm.

“The tools of the day are now taxes, exchanges, and regulations to consolidate companies into a few champions,” said David Abraham, an independent resource analyst.

Alternative supply sources?

Beijing’s plans to increase its regulation of the rare earths industry at the domestic level could spur rare earths production abroad, experts say.

“Higher prices may spur the development of overseas rare earths’ mining projects,” said Chen Huan, a rare earth analyst with Beijing Antaike Information Development Co, in comments reported by Bloomberg. This association estimates that prices could rise by one-fifth of their current levels as a result of the new rules. 

At least 18 companies are reportedly planning to begin production outside of China by the end of this decade, the news agency said. Greenland, Australia, Namibia, and Malaysia are among some of the development sites.