Analysis: China unlikely to yield on rare earths despite WTO

Mon Jul 11, 2011 8:33am EDT
 

By Juliane von Reppert-Bismarck

BRUSSELS (Reuters) - China will probably not yield to demands to ease export restrictions on rare earths, unlike its flexibility in some previous trade disputes, even after the World Trade Organization ruled against it in a related case.

The WTO ruled last week that China breached trade law by curbing exports of eight raw materials including bauxite and zinc. Europe and the United States said the judgment meant China should also be forced to increase exports of 17 rare earths as the almost exclusive supplier of these minerals crucial to global electronics, defense and renewable energy industries.

EU negotiators head to China this Thursday to pressure Beijing into relenting on rare earths. The meeting will be watched keenly by governments and businesses concerned about an increasing trend among resource-rich countries to curb exports of scarce minerals and raw materials, which the WTO has warned could trigger shortages and price shocks.

Beijing has said it is willing to discuss rare earths with Europe. But while it has backed down on several high-profile rows since joining the WTO in 2002, China is expected to take a hard line in this dispute -- appealing last week's WTO ruling and standing up to pressure over rare earths.

China risks multiple similar challenges if it were to back down on this precedent-setting row, which the government says affects its power to control resources and protect the environment.

"We are obviously not satisfied with the ruling, with regards specifically to the rare earths," Song Zhe, China's ambassador to the European Union told Reuters.

"The fundamental purpose of our policy is to protect the environment because this resource is exhaustible."

Export controls also play a role in China's industrial policy by potentially attracting foreign high-tech goods producers to set up shop in the country to obtain access to key minerals. These companies would bring valuable know-how into joint ventures with domestic firms and boost Chinese ambitions to climb up the industrial value chain.   Continued...

 
<p>A worker drives a skip loader while working at the site of a rare earth metals mine at Nancheng county, Jiangxi province October 31, 2010. REUTERS/Stringer</p>