WTO fails to back China's appeal over rare earths

The World Trade Organization ruled on Thursday against supporting China's appeal over restrictions on exports of rare earths, tungsten and molybdenum, forcing the country to improve its regulations on these raw materials.

"China has not demonstrated that the export quotas that China applies to various forms of rare earths, tungsten and molybdenum by virtue of the series of measures at issue are justified." the WTO said.

The Commerce Ministry said in a statement, "China will carefully evaluate the ruling and strengthen the regulation of resources with measures consistent with the WTO rules to boost resource protection and uphold fair competition."

China supplies more than 90 percent of the world's rare earths — key elements in defense industry components and modern technology ranging from iPhones to wind turbines.

Prices of rare earths soared after China, which holds 20 percent of the global reserves, imposed strict export quotas in 2010.

Li Chenggang, director of the Department of Treaty and Law at the ministry, said, "We aren't surprised by the ruling, as the panel held that China's export restrictions on these materials were inconsistent with WTO rules, but we insist that the purpose is to protect the environment and exhaustible natural resources.

"The ruling may not be a bad thing in the long term if it can help to increase effective global rules on exports of resources," Li said.

"We will use the ruling to examine whether other countries' regulatory measures on key resources are in line with the WTO rules, as China is a major importer of global resources."

In March 2012, the United States, the European Union and Japan asked for consultations with China on its restrictions on exports of the materials.

A panel was formed in September 2012 to look into the dispute, and a report on March 26 this year found that China's measures breached the WTO rules. The US appealed on technical grounds on April 8 and China appealed on April 17.

Feng Jun, an analyst at the Shanghai WTO Affairs Consultation Center, said, "The export restrictions on these materials should have been placed on production rather than exports.

"The ruling will help to remove barriers on trading of the materials and leave the market to play a decisive role in allocating the resources."

Chen Zhanheng, deputy secretary-general of the China Rare Earths Industry Association, said the ruling is "not optimistic" for the industry.

"The removal of export quotas, probably next year, will increase the environmental protection challenge. Production will also increase with global competition intensifying."