The EU and the WTO Brussels, 13 March 2012
EU challenges China’s rare earth export restrictions
The European Union today launched a second challenge of China’s export restrictions on raw materials including 17 rare earths, as well as tungsten and molybdenum. Together with the US and Japan, the EU formally requested dispute settlement consultations with China in the World Trade Organisation (WTO). This follows a successful EU challenge at the WTO on similar restrictions for other raw materials earlier this year.
"China's restrictions on rare earths and other products violate international trade rules and must be removed. These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and 'green' business applications" said EU Trade Commissioner Karel De Gucht. "Despite the clear ruling of the WTO in our first dispute on raw materials, China has made no attempt to remove the other export restrictions. This leaves us no choice but to challenge China's export regime again to ensure fair access for our businesses to these materials."
China imposes a set of export restrictions, including export quotas, export duties and additional requirements that limit access to these products for companies outside China. These measures significantly distort the market and favour Chinese industry at the expense of companies and consumers in the EU.
The EU considers that these restrictions are in violation of general WTO rules and also of China's specific commitments on export duties as part of its WTO Accession Protocol. Earlier this year, the WTO confirmed the EU's claim that China's export restrictions on a different set of raw materials were incompatible with WTO rules.
Despite this recent ruling, China has not sent any signals that it would remove its wider export restrictions. The latest rare earth quota announcements further tighten the restrictions. Therefore, the EU decided to launch a second challenge on rare earth elements, tungsten and molybdenum. The EU hopes that these WTO consultations will lead to a satisfactory solution with China.
The EU supports and encourages all countries to promote an environmentally friendly and sustainable production of raw materials. However, the EU believes that export restrictions do not contribute to this aim; there are more effective environmental protection measures that do not discriminate against foreign industries.
Raw materials covered by this case are various forms of rare earth elements (REE) plus molybdenum and tungsten. Rare earths, molybdenum and tungsten have a wide spectrum of applications - in hi-tech and green businesses, cars and machinery manufacturing, chemicals, steel and non-ferrous metal industries.
Rare earth elements are a set of 17 chemical elements in the periodic table, specifically 15 lanthanides (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium) as well as scandium and yttrium.
Rare earths feature unique magnetic, heat-resistance and phosphorescence properties. They are used to directly produce highly efficient magnets, metal alloys, phosphors, optical material, battery material, ceramics, special abrasive powders. These materials are key components of many downstream and consumer products such as: wind power turbines, catalysers (for car and oil cracking), energy-efficient bulbs, engines for electric and hybrid vehicles, flat screens and displays (LED, LCD, plasma), hard drives, car parts, camera lenses, glass applications, industrial batteries, medical equipment or water treatment - to name just a few.
While rare earths often constitute a small share of the finished product, they are most of the time non-substitutable (and even if so, with consequences in the form of redesigned and/or more costly final product). Their non-availability can lead to the disruption of whole value chains. China is a monopoly supplier of rare earths with a 97% share of world production.
Tungsten is a very hard metal that makes an important contribution, through its use in cemented carbide and high speed steel tools, to the achievement of high productivity levels in industries. It is used in lighting technology, electronics, power engineering, coating and joining technology, the automotive and aerospace industries and medical technology.
China is by far the largest tungsten producer in the world, accounting for 91% of total world production.
Molybdenum is a metallic element which is mainly used as alloying agent for making alloys stronger and more heat-resistant due to molybdenum's high melting temperature. The alloys are further used for filaments for light bulbs. The iron and steel industries account for more than 75% of molybdenum consumption.
China is the lead producer of molybdenum worldwide and accounts for 36% of the global production.
Restrictions on export
The export restrictions imposed by China on the rare earths, tungsten and molybdenum are mainly quotas, export duties, minimum export price system, as well as additional requirements and procedures for exporters.
A request for consultations is the first step in the WTO dispute settlement process.
The EU has raised the issue with China repeatedly over the past years without success, and now hopes to use the WTO consultation process to arrive at a mutually satisfactory solution with China. If no satisfactory solution is being found, the dispute can be transmitted to a WTO Panel for its ruling.
- On the EU's challenge on rare earths and other raw materials MEMO/12/182
- Overview of the economic importance of rare earths and other raw materials
- On the WTO's ruling on raw materials of 30 January 2012