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.
I like your analysis of the situation, Ann--not that I like the outcome. I don't know which is worse for the U.S., leaving the card game with its tail between its legs and being perceived as doing nothing or being aggressive and taking all the flax for trying to litigate a country into something it technically should have no real say in. Sort of a lose-lose situation, in my book.
Ann, china is controlling about 90% of the rare earth minerals and hence they always have a monopolistic nature. What I feel that rare earth minerals are like natural resources, where it has to be share among other countries for human-technological benefits. So I strongly believes that there should be some fair dealings from Chinese government, otherwise it may lead to monopolistic way of business and ends up in an unbalanced way.
The CBO projects an additional increase of $6 Trillion in the US Debt over the next 10 years. Forced Raw Materials from China or $6 Trillion in Loans from China. We can only pick one. The game is called Chess and the current administration does not play it well.
Greg's point is right on the mark: This does remind us that every nation doesn't have the same set of natural resources. It also reminds us how precarious the situation can be one when country, such as China, digs in its heels and tries to be difficult. Many batteries and motors need rare earth metals. Lithium (which is not a rare earth metal) could pose a similar problem one day, since a large portion of it comes from Chile and China (U.S. has virtually zero reserves of lithium). If you took away the rare earths and lithium, electric cars would really have a problem.
Will the WTO penalties and sanctions be strong enough to change China's policy should they continue to restrict trade of rare earth minerals? We already see how China handles IP and patent infringements and does not fully address this issue. Would the WTO have enough leverage in this case?
China wants to play games with exports of its natural resources? Let them. It's their choice. Consumers are under no obligation to do business with a seller that has unsavory practices. China has the lion's share of this particular commodity, but it does not have a complete monopoly.
The "shortage" is short term if other producers restart their mines.
Changing the rules of engagement is definitely a problem and it forces the US and others to take action that clouds the real issue, I suppose. What is the expectation of what will come from the WTO action?
Dave, I read the same DN article--about prices. This action is not about prices of rare earths, but about restraint of trade between trading partners, and also about unfair practices while administering the restriction of those substances, such as unnecessarily complex and Byzantine regulations administered by a bewildering array of governmental entities, as well as sometimes secret, unpublished rules. I read all three, nearly identical requests for consultation. They were quite enlightening and, of course, much too long to quote from in this post.
It's also more generally about reneging on the rules of engagement you previously agreed to, without formally requesting to either bow out of, or change, the rules. This breach of good faith and more, of a specific agreement you entered into, does not work on the international stage--or anywhere else.
Good article, Ann. China started its rationing of Rare Earth minerals on a rational basis. The government wanted to retain as certain portion of Rare Earh output to make sure its own manufacturers had an adequate supply. That seemed fair. But then they withheld shipments to Japan after a fishing dispute. So the rules morphed. Apparently now the rules are quite unclear.
Nancy, the oil/Middle East analogy is a good one in many ways, although much of that problem to begin with stems from historical mucking up by the British and the French at the close of WWI, by way of the Sykes-Picot agreement. Again, in this case China chose to participate in trade with these other countries under the WTO rules of engagement: and then decided not to on this particular item, but still wants to participate in the trade it wants to participate in. In other words, China wants to determine and change the rules of engagement to suit itself. That's not considered OK in the arena of international relations, and definitely not under the rules of engagement it agreed to with its membership in the WTO.
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