The World Trade Organization has ruled on a case lodged against China, saying the latter's restrictions of its rare earths exports violated global trade rules.
The complaint was lodged two years ago by the U.S. The European Union and Japan later joined in. All three economic superpowers asserted the unlawful exports restrictions artificially raised the prices of rare earths for other countries and gave preferable pricing to Chinese manufacturers.
Rare earths are 17 elements, including lanthanum, tungsten, neodymium and molybdenum, that are highly essential for the manufacture of high tech gadgets and armaments.
China's export restrictions on rare-earth metals, molybdenum and tungsten were inconsistent with its obligations in the organization, the WTO said.
China imposed three distinct types of restrictions on the export of rare earths, tungsten, and molybdenum, according to the WTO.
- it imposed duties (taxes) on the export of various forms of those materials
- it imposed an export quota on the amount of those materials that can be exported in a given period;
- it imposed certain limitations on the enterprises permitted to export the materials.
Moreover, China also imposed quantitative limits (quotas) on the amount of rare earths, tungsten, and molybdenum that can be exported in a given period.
But China argued the restrictions were necessary to preserve its exhaustible natural resources, as well as reduce pollution caused by mining.
A panel created by the WTO pursuant to the request of the U.S. in June 2012 had stated that it found China's export quotas were designed to achieve industrial policy goals rather than conservation.
"Conservation does not allow Members to adopt measures to control the international market for a natural resource, which is what the challenged export quotas were, in the view of the Panel, designed to do," the WTO report said.
The report also said it found that the challenged export quotas do not work together with measures restricting domestic Chinese use of rare earths, tungsten, and molybdenum.
"After examining the various domestic measures that China claimed restricted domestic access to rare earths, tungsten, and molybdenum, the Panel concluded that the overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers."
All three economic superpowers lauded the WTO report.
The EU, while saying it does not contests China's right to impose environmental and conservation policies, it did say that "the sovereign right of a country over its natural resources does not allow it to control international markets or the global distribution of raw materials."
The panel's report on China's export restraints may be adopted or appealed within 60 days.
"I think China will definitely appeal because the WTO ruling is unfair," an official at the Chinese Society for Rare Earths told Financial Times.