The US, the European Union (EU), and Japan have taken China to task for restricting the trade of rare earth minerals. In a statement on fair trade, President Obama said that the US was bringing a trade case against China, aided by Japan and the US's European allies.
Obama couched the action with the World Trade Organization (WTO) in terms of America's manufacturing robustness, or rather, in terms of its lack of robustness, because rare earth materials are needed by US manufacturers to produce a variety of technology-based products, such as batteries for cell phones and hybrid cars.
President Obama announces a World Trade Organization action to enforce U.S. trade rights with China regarding rare earths and other materials, March 13, 2012. (Source: Official White House photo by Pete Souza)
"We want our companies building those products right here in America," said Obama. "But to do that, American manufacturers need to have access to rare earth materials -- which China supplies. Now, if China would simply let the market work on its own, we’d have no objections. But their policies currently are preventing that from happening. And they go against the very rules that China agreed to follow. Being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing. We've got to take control of our energy future, and we can’t let that energy industry take root in some other country because they were allowed to break the rules."
The nearly identical requests for consultation from all three entities formally initiate a dispute within the WTO. The disputes are followed by consultations, which are discussions under the WTO's dispute settlement system. The expectation is that the parties will find a solution without having to resort to litigation. But if consultations fail to resolve the dispute after 60 days, the initiators of the complaint may request a panel's judgment.
Greg, that's a good point about each country having a different mix of natural resources. Which is one of the major reasons the WTO exists. As Obama said, China agreed to follow certain rules of engagement under the WTO, and then chose not to by formulating these policies governing rare earth mining.
"Slippery slope" is a great phrase to describe this issue. Thanks, Beth. "What a mess" is the one that first occurred to me when I read about this action. Not faulting the US, Japan and Europe, but because they basically have been forced--in the poker game of international relations--into dealing this last hand by China. This is not a situation of the US litigating another country into mining. This is a case of one trading partner, China, reneging on its agreements with several other trading partners, refusing to change its behavior after multiple requests and negotiation, and leaving those other partners with only two possibilities: put tail between legs and leave the card game, with some pretty severe consequences, or up the ante.
I learned in another Design News article that the increase in rare earth prices was caused by speculation and hoarding, not by Chinese export limits. The accompanying table was pretty persuasive; it showed that the restrictions have never actually come into play, since even the new, lower limits still exceed the total demand.
I also strongly oppose any effort to use "free trade" agreements to keep countries from deciding what to do with their own natural resources.
In my wife's town in El Salvador, a U.S. company operated a gold mine from 1968 until about 1999. The cyanide process which they used severly contaminated the river; it is now devoid of fish, contains ten times the level of cyanide permitted by the World Health Organization, and is about as acidic as Coca Cola. Many people in the area are suffering from kidney failure.
Owned by a wealthy Milwaukee family, the company's fortunes seem to have taken a turn for the worse when its founder died. His son seems not to have inherited his business acumen; the company's gold mining operations ended in 1999, and according to SEC filings, the company has had no earnings since 2002. In 2006, the company's mining permit was revoked as a result of its history of environmental problems.
In 2010, the company decided to sue the government of El Salvador for $100 million in "lost profits" under the U.S.-Central America Free Trade Agreement. You read that right; the company which was responsible for destroying the river decided to sue the country whose river they had destroyed. Never mind the fact that the company hadn't had any earnings for four years before their permit was revoked.
Fortunately, this "get rich quick" lawsuit was ultimately thrown out on a technicality. But the mess the company left is still there. And the idea that companies can challenge a nation's right to protect its own people and environment, and to decide how its own natural resources will be used, is still the law.
Sounds very similar to the ongoing politics about oil and the Middle East. No easy answers here...to what degree are countries obligated to participate in the world market regarding their own natural resources? What drives those decisions and what rights do other countries have as citizens of the world? The people holding the natural resources have a much different perspective from those who desire them...and at a price that is reasonable...who defines that? Very interesting article and it will be interesting to see how this moves forward.
Great article which also reminds us that each country does not have the same natural resources as its competitors. As other larger countries (such as China and India) become more and more industrialized and modernized, they will also compete for the same valuable, finite and rare resources on planet earth, which can cause these types of disputes to become more frequent (and more intense).
Hopefully, we can continue to work these issues out peacefully through third party organizations.
I think this whole rare earth issue goes down a slippery slope. While I applaud any efforts to invigorate American manufacturing, whether it's to provide an advantage or to simply level the playing field, there is definitely a case to be made that the United States has no business litigating any country into making decisions about what or what not to mine. That said, China does have a history of manipulating and restricting trade to its competitive advantage. The bottom line is these materials are critical to the future of American manufacturing and innovation--and most importantly, jobs--therefore we have to take some kind of aggressive stand to ensure access. Hopefully, as Ann says, this will happen without ligitation intervention from the WTO.
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