China Rare Earth Export Restrictions Found Unfair By WTO, China Objects And Says Rules Needed To Protect Environment

When the World Trade Organization ruled this week that China must again start exporting rare earth elements key to manufacturing high tech and defense products, traders and the markets that need the materials rejoiced. But less happy were the Chinese who claim complying will hurt the environment.

China produces more than 90 percent of the world’s rare earth metals, a group of 17 elements used in a wide variety of applications, including smartphones, wind turbines and industrial catalysts, Reuters reported.

Although rare earths are strategically important, mining for the precious resource poses an environmental hazard. Toxic tailings can take over ponds and soil can be rendered unfit for farming by concentrated acids used to leach ores. Each pound of rare earth mined results in outputs of hundreds or thousands of pounds of waste, experts claim.

Beijing leaders have said that export quotas for rare earth metals are needed because they help limit damage to the environment. Officials cut export quotas by 40 percent in 2010, spurring prices upward and angering foreign buyers.

The WTO ruled on Wednesday that Chinese pretenses about environmental protection obscured the real point of export quotas, taxes and bureaucratic rules and boosted China’s domestic industry. For years, the U.S. and Europe have broadly complained about Chinese trade tactics, targeting everything from cheap solar panels sent to the EU to steel imports flooding the U.S.

The WTO complaint was filed by the U.S. in 2012 and was joined by several countries, including Russia, Japan and the EU.

Experts who argued against China's policies said that the production of rare earths rather than their export pollutes the environment.

“The export of the products at issue is completely unrelated to environmental pollution,” Gene Grossman, professor of international economics at Princeton University, said last year in a study for the Office of the U.S. Trade Representative, which negotiates trade agreements. “It is the production of these products, not their export, that causes pollution.”

It’s unclear whether reduced Chinese exports cut mine production domestically, as China itself also consumes rare earths. Global demand for rare earth elements could exceed 200,000 tons annually in 2014, pushing the metals into a supply deficit of 75,000 tons, the U.S. Environmental Protection Agency found in 2012.

Water can be contaminated with heavy metals and radionuclides as a result of rare earth processing, the EPA claims. Mining damages surface water and ground water most significantly, from an environmental perspective, the agency said.

China Premier Li Keqiang earlier this month declared an ambitious “war on pollution” at an annual parliamentary meeting. That’s expected to affect industrial metals and mining, among other sectors.

China has argued that risks to human and animal health led to the shutdown of rare earth mining outside of its borders. U.S. congressmen have explored reestablishing domestic rare earth recycling. That legislation, which was first introduced in 2010 and again in 2011, would partly cut dependence on imports. Meantime, some corporations have also started looking for rare earths in Australia as well as in the U.S., according to a New York Times article.

U.S. Rare Earths Inc. (OTCBB:UREE) announced in early January the extraction of some rare earths in Montana. But the Plano, Texas, company said that it has yet to generate any revenue from rare earths.