China Resumes Export of Rare Earth Metals Following Brief Halt

10/29/2010

On October 28, 2010, China resumed exporting raw rare earth minerals to the United States, Europe, and Japan after ending an unofficial embargo that had been in place for Japan since September 21^st and for the U.S. and Europe since October 18^th. Chinese Customs officials allowed shipments to resume shortly after Secretary of State Clinton announced plans to raise the issue at a meeting with Beijing’s State Councilor for Foreign Policy on Saturday.

Although Senior Chinese Commerce Ministry officials have stated that they did not issue any regulations halting rare earth shipments, the cessation of shipments has provided geopolitical benefits for China. The halt of shipments to Japan has been seen as one of a series of measures that China took against Japan after Japan detained a Chinese fishing Captain. The cessation of shipments to the U.S. and Europe shortly followed a Chinese energy official’s denunciation of the Obama administration’s decision to investigate China’s clean energy policies. On October 28, 2010, the spokesman for the Chinese Ministry of Industry and Technology, however, announced that China would not use its dominance over rare earth supplies as a bargaining instrument.

Controversy over China’s rare earth policies predates this unofficial embargo, as China has continuously reduced its export quotas of rare earths over the past five years. The EU has called on the Organization for Economic Cooperation and Development (OECD) to draw up rules securing raw materials trade, while the United States Trade Representative initiated a Section 302 Investigation into China’s acts, policies and practices affecting trade and investment in Green Technology. China also faces the potential for a challenge in the World Trade Organization (WTO) because in its accession agreement China pledged to only tax or limit exports from a list of specific raw materials.

   China produces approximately 95-97 percent of the world’s rare earths, which are used in clean energy technologies, computers, and electronics. By setting its export quotas below market demand, China contributed to a significant rise in prices of rare earths such as neodymium and lanthanum. Neodymium, which is used in lightweight, powerful magnets, sells for over twice as much abroad as in China. Lanthanum, sells abroad for up to ten times the Chinese price. While lower prices of rare earths in China have provided incentive for companies to move factories to China, the recent cessation of shipping has prompted some multinationals to diversify their investments to other countries. Secretary of State Clinton pointed out that Japan and the United States are likely to look for additional sources of supply outside of China.