In a picture taken on September 5, 2010 a man driving a front loader shifts soil containing rare earth minerals to be loaded at a port in Lianyungang, east China's Jiangsu province, for export .

Story highlights

The EU has demanded that China loosen its policy on sales of rare earth materials

Comes after the WTO upheld a ruling that China's trade policy violates rules

Financial Times  — 

The EU has demanded that China loosen its policy on sales of rare earth materials after the World Trade Organisation upheld a ruling that Beijing’s policies to limit raw material exports violated international trade rules.

The case, brought in 2009 by the EU, US and Mexico, touches on one of the biggest sources of tension in the world trading system: the use of export restrictions to hoard raw materials for the use of domestic manufacturers.

The WTO’s appellate body issued its decision on Monday, endorsing a previous finding that export duties, quotas and other policies enacted by Beijing to limit the foreign sale of nine raw materials were not justified on environmental or self-sufficiency grounds.

The EU, US and Mexico argued that the higher prices their manufacturers were forced to pay for goods such as bauxite, coke and zinc put them at a disadvantage across a wide swath of industries – from steel to batteries, chemicals and ceramics.

The case highlights the global scramble to secure supplies of raw materials after huge swings in commodity prices over the past few years. It also represents an example of the US and the EU joining forces to confront China on trade matters – a strategy that both Washington and Brussels believe will help maintain leverage over the world’s second-largest economy.

The WTO case has acquired even greater importance amid Beijing’s moves to impose similar restrictions on the export of a rare earths, a category of 17 elements that are found in an array of high-tech products, including solar panels, wind turbines and mobile phones. Such goods are themselves becoming an increasingly important battleground for trade conflicts, with the US having launched a wide-ranging investigation against China’s support for its renewable energy industry. Solar power companies in America have recently sought emergency anti-subsidy tariffs against imports of Chinese solar cells.

China accounts for more than 90 per cent of global production of rare earth materials. That dominance has unnerved its trading partners – particularly since Beijing has moved repeatedly over the past four years to tighten its supplies.

The EU and the US have so far refrained from filing WTO complaints against China over rare earths, hoping that their victory in the raw materials case would convince Beijing to revise its policies.

In a statement issued shortly after the ruling, Karel De Gucht, the EU trade commissioner, urged China to take action.

“China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime – including for rare earths – in line with WTO rules,” Mr De Gucht said.

Ron Kirk, the US trade representative, called the ruling “a tremendous victory” that “ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field”.

The Chinese mission in Geneva said expressed regret over the ruling but said that Beijing would respect the decision.

China agreed to cut export quotas and taxes when it joined the WTO in 2001.

The issue has been particularly sensitive for the EU because its manufacturers are so reliant on imported raw materials for production.

The commission estimated that the bloc’s annual imports of the materials cited in the case, which also include fluorspar, magnesium, manganese, silicon carbide, silicon metal and yellow phosphorous, exceeded €1bn.

In order to obtain such materials at competitive prices, European companies have been forced to relocate manufacturing operations to China, the commission said.