Chinese Government Abolishes Rare Earth Export Quotas

China has done away with its strict export quotas on 17 rare earths elements as well as tungsten and molybdenum, the country’s state media reported early in the new year, following a WTO ruling last August that such restrictions were largely inconsistent with the body’s trade rules.

The change was initially signalled in the Ministry of Commerce’s trade guidelines for 2015, released at the end of December, according to media reports. Chinese rare earth domestic producers exporting abroad will now require a license issued on the basis of an export contract but no restrictions will exist on volumes of rare earths sold abroad.

China is the world’s leading producer of rare earths minerals, which are primarily used in the manufacturing of high-tech products, including clean energy technology goods such as wind turbines and energy-efficient lighting.

Natural resource trade, domestic conservation?

The EU, Japan, and the US first brought a case to the global trade arbiter in 2012 following a series of quotas and duties imposed by Beijing a few years prior. The complainants suggested that the restrictions artificially propped up prices to the benefit of Chinese producers.

The ensuing legal battle was closely watched by those in the trade and environment communities due to its links between manufacturing, competitiveness, natural resource trade, and conservation measures.

Defending the design of its rare earth policies, China argued that the restrictions were necessary in order to help limit the domestic environmental impact caused by the extraction and production process, a result of pumping sulphates, ammonia, and other chemicals into the ground that can leak into surrounding water supply.

As part of its defence, Beijing cited the WTO’s General Agreement on Tariffs and Trade (GATT) Article XX(g) that affords the possibility of exceptions to the trade rules in relation to the conservation of exhaustible natural resources, assuming certain conditions are met.

The WTO’s Appellate Body, the global trade body’s highest court, nevertheless upheld last year an earlier ruling that China’s rare earths export quotas could not be framed as measures that relate to conservation because equivalent restrictions were not placed on domestic production or consumption.

These were therefore found to be in violation of international trade rules, as were the export duties on these minerals, albeit for different reasons.

“Without a licence, companies are banned from exporting,” analyst Simon Moores told reporters, referring to the Ministry of Commerce’s new rules. “Beijing still controls this vital bottleneck of the supply chain, therefore, whether it caps exports at the port or controls the number of export licenses issued, the result is the same; restricted supply of rare earths to the rest of the world.”

Others have suggested that the rare earths quotas had not been used up for the last few years due to widespread illegal minerals trade out of China. Some contend that the new policies may help to tackle the smuggling problems.

Japan has found nearly 100 billion tonnes of rare earths minerals in 78 locations on the Pacific seabed. Greenland has also been touted as a possible candidate with large known deposits in the south of the island. Snap elections in the Nordic island last November brought in the centre-left Siumut (Forward) party that has committed to creating a stable investment environment for resource extraction.