The rare earths trade dispute, between China on one side and several countries (led chiefly by the US) on the other, was over China's export restrictions on rare earth elements as well as tungsten and molybdenum. Rare earth metals are used to make lithium ion (li-on) batteries, top of the line neodymium magnets, defense products and many electronics.
The US, EU and Japan argued that the restrictions were a violation of the WTO trade regulations, while China stated that the restrictions are aimed at resource conservation and environmental protection . In 2012, the Obama administration filed a case with the Dispute Settlement Body of the WTO . In 2014, the WTO ruled against China, which led China to drop the export quotas in 2015 .
The 2010 episode generated increased investment in rare earth developments outside China.
Products at issue
There are 17 rare earth metals, and their production is a complex multi-stage process. Exports may be in the form of ores or goods at any stage including mined rare earth ores (all containing a tiny mix of rare earths), refined ore concentrates, refined highly pure metals, or products incorporating refined metals (car li-on batteries, magnets or magnet incorporating windmill generators). Figures given for the various stages are widely undefined as to what level export is being addressed and figures may often be misquoted due to the complexity of the topic. Trade disputes can address country interests over costs, competitive industry positions, or strategic supplies, which all have different relevant export levels and time horizons to consider.
Known reserves of rare earths ores are 120 million tones, with China possessing about one-third of these.
The first stage, the mining process yields rare earth ores. More than 60% of rare earth metals (as of 2019) are mined by China and through controlled entities predominantly in Africa. The second stage is the refining process where ores are separated into some pure metals and some concentrates of light rare earths or heavy rare earth metals. The refining process is highly specific to the nature of the ore and target metals, with concentrates produced intended for other refineries to conduct further refining. China refines 85% refines of the global market share. It refines 68% of nickel globally, 40% of copper, 59% of lithium, and 73% of cobalt.
Production of parts and goods is yet another industrial step performed by many different companies. China produces a large share of these goods and accounts for the majority of the worlds exports, especially lithium ion batteries and neodymium magnets. It accounts for most of the global production of mineral-rich components for battery cells, including 70% of cathodes, 85% of anodes, 66% of separators, and 62% of electrolytes China holds 78% of the world’s cell manufacturing capacity for EV batteries, which are then assembled into modules that are used to form a battery pack. The country also hosts roughly 75% of the world’s lithium-ion battery megafactories. This makes China the largest consumer of the minerals it refines.
The rare earth elements (or rare earths) are 17 elements that have magnetic and conductive properties. They are used extensively in electronic gadgets such as cellphones, and in national defense equipment. Despite their name, the elements are not so rare, as they can be found widely. However, they are not often found in economically exploitable concentrations. Their mining is also environmentally hazardous. The rare earths were discovered and first put to industrial use in the United States. But lower labor costs and less strict environmental regulations in China have now enabled the country to be the world's predominant supplier of rare earths.
History of the dispute
China had levied duties and implemented quotas on exporting rare earth elements since 2006 . Dispute arose when the Chinese government reduced its export quotas by 40% in 2010, sending the rare earths prices in the markets outside China soaring . The government argued that the quotas were necessary to protect the environment . Critics charged, however, that the move was protectionism in disguise . The difference in prices inside and outside China gave unfair advantage to Chinese firms .
The American news program 60 Minutes broadcast a segment on the dispute in which the news anchor said that, due to the ubiquity of the use of the rare earths, especially in weaponry, the Chinese restrictions posed a national security threat to the US.