Rare Earths Tungsten and Molybdenum Lindsey Constantino Mayada

Rare Earths, Tungsten and Molybdenum Lindsey Constantino, Mayada Al Turki, Yichun Chen Global Trade Relations October 17, 2017

“The Middle East has oil, China has rare earths” - Deng Xiaoping, January 1992 Deng Xiaoping, 1978 -1997

What are rare earths and why are they important? ◈ Modern life depends on rare earth metals. ◈ Toyota Prius contains 25 pounds of rare earths. ◈ i. Phone 6 contains. 01 ounces of rare earths. ◈ The United States used to produce it’s own rare earth metals, but environmental restrictions and health concerns ended production. ◈ September 2010, Japan and China had a maritime border dispute and China responded by stopping all rare earth metal shipments to Japan.

Industries Affected ◈ U. S. ◈ Rare Earths- $300 billion ◈ Advanced electronics, hybrid car batteries, flat-panel displays, mobile phones, disk drives, wind turbines, energy-efficient lighting, steel, medical imaging equipment, automobiles, petroleum and chemicals. ◈ Tungsten and molybdenum - $75 million ◈ Steel industry ◈ E. U. ◈ Rare earths ◈ More than 50% of cost for wind turbine components and 50% to 60% for an LCD display.

China’s Production of Rare Earths ◈ China's share of global production grew from 27% in 1990, to 97% in 2012. ◈ The high concentration of these raw materials in China creates a situation of dependence for global manufacturers outside of China ◈ The rare earth industry was identified as a strategic sector for China's economic development that would be carefully protected and fostered under state control and planning. As a result, all foreign investment was prohibited in the mining of rare earths.

The Black Market ◈ The rare earth black market is a open dirty secret. ◈ In 2009, as a result of a cut in exports, the price of rare earths increased and stimulated the black market to grow. ◈ In 2011, overseas rare-earth import statistics were 1. 2 times that of China's customs export statistics.

History March 13, 2012 - U. S. requests consultations with China regarding rare earths. July 23, 2012 - Establishment of Panel March 26, 2014 - Circulation of Panel Report August 7, 2014 - Circulation of AB Report August 29, 2014 - Adoption White House Rose Garden Announcement, March 2012 Pictured left to right: Secretary of Commerce John Bryson, President Obama, United States Trade Representative Ron Kirk. New York Times.

Previous Actions ◈ 2009: EU, U. S. , and Mexico launched first formal complaint in the WTO against China's export restrictions on nine raw materials. ◈ The WTO Dispute Settlement Body ruled against China in its July 2011 judgement. ◈ Following an appeal by China, the WTO Appellate Body confirmed the judgement in January 2012. ◈ China has made no attempt to remove its other export restrictions. ◈ This left no choice to the EU but to challenge China's export regime again to ensure fair access for European businesses to these materials.

China’s Justification Issue Justification Export Duties Article XX of GATT “General Exceptions” Quotas Article XX(g) of GATT 1994

U. S. , EU, and Japan Justification Country Justification United States Export restraints give China the ability to affect global supply and pricing on key inputs in the production of products such as wind turbines, advanced electronics, and cars. Inconsistent with GATT 1994 and China’s Protocol of Accession European Union Export restrictions distort market and create competitive advantage for Chinese manufacturing industry Japan China’s export restriction have caused a short supply of materials in the international market

GATT 1994 Article Summary of Article VII Valuation for Customs Purposes - How to determine the customs value in cases where it cannot be determined under the provisions of any of the preceding Articles. Article VIII Fees and Formalities connected with Importation and Exportation Fees imposed by contracting parties in connection with importation or exportation shall be limited in amount to the approximate cost of services. Article X Publication and Administration of Trade Regulations - Laws and regulations need to be published promptly to enable governments to become acquainted with them. Article XI General Elimination of Quantitative Restrictions - No prohibitions other than duties, taxes shall be instituted or maintained by any contracting party on the importation of any product.

China’s Protocol of Accession Paragraph Summary Paragraph 1. 2 General Provisions - The WTO Agreement to which China accedes shall be the WTO Agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of accession. Paragraph 2(A)2 Administration of the Trade Regime - China shall administer in a uniform, impartial and reasonable manner, all its laws, pertaining to or affecting trade in goods, services, trade-related aspects of intellectual property rights ("TRIPS") or the control of foreign exchange. Paragraph 2(C)1 Administration of the Trade Regime - China undertakes that laws and regulations pertaining to or affecting trade in goods, services, TRIPS or the control of foreign exchange that are published and available to WTO Members.

China’s Protocol of Accession Paragraph Summary Paragraph 5. 1 Right to Trade - Within 3 years, all enterprises have the right to trade. All goods shall be accorded national treatment under Article III of the GATT 1994 Paragraph 5. 2 Right to trade - All foreign individuals and enterprises shall be given treatment no less favourable than that to enterprises in China. Paragraph 7. 2 Non-tariff measures - In accordance with Articles III and XI of GATT 1994 and the Agreement on Agriculture, China shall eliminate and shall not introduce non-tariff measures that cannot be justified under the provisions of the WTO Agreement.

China’s Protocol of Accession Paragraph Summary Paragraph 8. 2 Import and Export Licensing - Foreign individuals and enterprises and foreign-funded enterprises shall be accorded treatment no less favorable than that accorded to other individuals and enterprises. Paragraph 11. 3 Taxes and Charges Levied on Imports and Exports China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994.

Panel Decision ◈ Panel found that the challenged export quotas do not work together with measures restricting domestic Chinese use of rare earths, tungsten, and molybdenum, as required by the second part of Article XX(g). ◈ The overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers. ◈ The Panel concluded that the “even-handedness” required by the Appellate Body under Article XX(g)had not been met, and hence the quotas could not be justified under that provision

Implementation ◈ December 8, 2014: China and the United States agreed that the reasonable period of time for China to implement the DSB recommendations and rulings is 8 months and 3 days, or May 2 nd , 2015 ◈ May 20, 2015: China informed the DSB that, export duties and export quotas and the restriction on trading rights of enterprises exporting rare earths and molybdenum had been removed.

U. S. Trade Representative Michael Froman “China's decision to promote its own industry and discriminate against U. S. companies has caused U. S. manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths, ” Froman said. “WTO rules prohibit this kind of discriminatory export restraint and this win today, along with our win two years ago in an earlier case, demonstrates that clearly. ” “Both established and emerging sectors are touched by this decision, as is our current and future ability to grow our economy and create jobs, ” Froman added. “U. S. manufacturers have faced pressure to scale back their operations or relocate their facilities, their jobs and their technology to China. We will not allow that type of pressure, in breach of WTO rules, to go Froman hopes that the panel’s ruling “will discourage further unchallenged. ” breaches of WTO rules that hurt American manufacturers. ”

Rare Earth Industry in China Today ◈ ◈ Under the new guidelines, rare earth minerals will still require an export license in China but the amount that can be sold abroad will no longer be covered by a quota During 2015, the price of rare earths decreased by 5% to 25%. China published policies forcing State-Owned-Enterprises to put rare earths under state control after the removal of restrictions. It is too early to see how implementation effect rare earth industry.

References Gavin, B. (2013, August). China's growing conflict with the WTO: the case of export restrictions on rare earth resources. Retrieved from https: //archive. intereconomics. eu/year/2013/4/chinas-growing -conflict-with-the-wto-the-case-of- export-restrictions-on-rare-earth-resources/ Pruzin, D. (2014, March 28). WTO rules against china On rare earths export restrictions. Retrieved from https: //www. bna. com/wto-rules-against-n 17179889210/ Office of the US Trade Representative. (2014, March). United States wins victory in rare earths dispute with China: WTO report finds China’s export restraints breach WTO rules. Retrieved from https: //ustr. gov/about-us/policy-offices/press-office/pressreleases/2014/March/US-winsvictory-in-rare-earths-dispute-with. China

Further Reading: ◈ 60 Minutes Segment: https: //www. cbsnews. com/news/rare-earth-elements-chinamonopoly-60 -minutes-lesley-stahl-2/ ◈ New York Times, “China Tries to Clean Up Toxic Legacy of its Rare Earth Riches” http: //www. nytimes. com/2013/10/23/business/international/china-tries-to-cleanup-toxic-legacy-of-its-rare-earth-riches. html