By: Travis Van Ort, Staff Member
China’s Ministry of Land and Resources announced last week that it would be tightening controls on rare earth metals by cracking down on unauthorized exploration and production of these elements.[1] China has also indicated that “it is restricting exports of [these metals] to conserve scarce supplies and curb environmental damage caused by mining,” but foreign governments have complained that similar limits have not been placed on domestic consumers of rare earths.[2]
Rare earth metals are a group of 17 elements that are key components for high tech and clean tech goods. These elements are used in flat screen TVs, cell phones, wind turbines, electric car batteries,[3] and even military technology, such as missiles.[1][4] China currently produces approximately 97 percent of the world’s supply of these metals, but has only around 30 percent of the world’s reserves.[5] The U.S., Australia, Canada,[6] and Russia[7] also have varying amounts of reserves of these metals. These elements are vital to the modern high tech economy, and China’s actions during its reign as essentially a monopoly producer require quick policy responses from the U.S. government. China’s largest rare earths producing company has indicated that the short supply of rare earths is an irreversible trend, that China does not want to remain the world’s major supplier of rare earths, and will slowly shift its focus to supplying domestic demand.[8] China has reduced exports in recent years, cutting the export quota significantly last year,[9] as it has tried to build up its own industry, which has caused the U.S. and Europe to pressure China to treat all buyers equally.[10]
There are three possible policies the U.S. can pursue to address Chinese actions on rare earths: bring a case in the World Trade Organization, direct government assistance, such as loan guarantees and subsidies, to growing domestic production capacity for rare earths, and encourage research into alternative technologies or materials that lessen the need for rare earths. Action in the WTO is probably the least desirable option. While the U.S. may be able to make out a case under certain provisions of the WTO agreements, depending on the specifics of the regulations and how they are implemented, China would likely have an arguable defense.[11] Since a WTO case takes time to resolve and would not change China’s status of monopoly producer of rare earths, U.S. government action to encourage rare earth production or the creation of alternatives is preferable. The U.S. could encourage domestic production by offering subsidies or loan guarantees to assist in financing mining projects and in implementing the necessary environmental protections, and could also help expedite the licensing process, since it takes seven to ten years to get a permit to open a new mine.[12] Congress introduced bills in both houses last year to help on some of these issues,[13] but more can and should be done. Investment in new mines is needed sooner rather than later because it can take three to five years for a mine to reach full production.[14] The government can also encourage research into alternatives to rare earths for their high tech and clean tech applications. The Department of Energy has encouraged this by offering $30 million to fund such research,[15] but as the demand for both clean tech and high tech increases, more research will be necessary to provide alternatives for all of the current and future applications that use rare earths. These alternatives could be even more necessary since some estimates indicate that there may be shortages of at least two of the rare earth metals in the next five to ten years.[16]
A U.S. policy response that both incentivizes domestic production and encourages research into rare earth alternatives is necessary to allow the high tech and clean tech uses of rare earths to expand without facing shortages or even greater price increases with these materials.
[1] Elaine Kurtenbach, China Orders Tighter Controls on Rare Earths, Associated Press, Sept. 26, 2011,http://news.yahoo.com/china-orders-tighter-controls-rare-earths-030235815.html.
[2] Id.
[3] Id.
[4] China Steps Up Regulation of Rare Earth Industry, China Daily, Sept. 27, 2011,http://www.chinadaily.com.cn/usa/business/2011-09/27/content_13801484.htm.
[5] Kurtenbach, supra note 1.
[6] Id.
[7] Maria Gallucci, $30 Million in DOE Grants for Green Technologies Free of Rare Earth Elements, Reuters, April 29, 2011, http://www.reuters.com/article/2011/04/29/idUS86627191420110429.
[8] Zhou Yan, Limited Rare Earths the New Norm, China Daily, Sept. 16, 2011,http://www.chinadaily.com.cn/usa/2011-09/16/content_13716809.htm.
[9] Keith Bradsher, China Said to Widen Its Embargo of Minerals, N.Y. Times, Oct. 19, 2010,http://www.nytimes.com/2010/10/20/business/global/20rare.html?src=mv&ref=homepage.
[10] Kurtenbach, supra note 1.
[11] General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 (Articles III and X I are provisions under which the action could be brought and Article XX offers general exceptions to GATT’s applicability).
[12] Gallucci, supra note 7.
[13] James T. Areddy, U.S. Congress Spurs Rare Earth Race, Wall St. J., Oct. 1, 2010,http://blogs.wsj.com/chinarealtime/2010/10/01/us-congress-spurs-rare-earth-race.
[14] Bradsher, supra note 9.
[15] Gallucci, supra note 7.
[16] Id.