China 'ready" for rare earth challenges

China is preparing to address increasing foreign pressures on its export restrictions of rare earth following a failed appeal against a World Trade Organization (WTO) ruling on other raw materials, a Ministry of Commerce official said on Tuesday.

"We are ready for it," Yu Fang, deputy director of the department of treaty and law under the Ministry of Commerce told China Daily Tuesday.

Endorsing a previous finding, the WTO's appellate body declared on Monday that export limitations by China on nine raw materials, including zinc, coke and magnesium, through quotas and tariffs broke WTO rules.

Although rare earths, crucial ingredients in many high-tech products, were not part of Monday's ruling, a number of Washington lawmakers urged the US to use the decision to launch a case to force Beijing to lift rare earth export restrictions.

It is "regretful" that the ruling has been upheld, the ministry said in a statement on its website.

But "the result is better than we expected as the WTO still supports many of our arguments," Yu said.

Zhou Shijian, a senior expert with Tsinghua University, echoed this view.

"It only requested that China make some technical changes while the ruling actually rejected the majority of their (US and EU) appeals."

The US, EU and Mexico said in 2009 that China's export restrictions on raw materials discriminated against foreign manufacturers and gave an unfair advantage to Chinese producers.

A dispute settlement panel ruled in July that export duties and quotas on raw materials contradicted China's WTO commitments. China later lodged an appeal to the WTO appellate body.

"The decision of the appellate body is a huge victory for the US," Michael Silver, chief executive of American Elements, a US-based rare earths processor, was quoted as saying by Reuters. "It confirms the existence of the two-tiered price structure that has caused so much concern."

Responding to the WTO ruling, EU Trade Commissioner Karel De Gucht said that "China now must comply by removing these export restrictions swiftly and furthermore I expect China to bring its overall export regime - including for rare earths - in line with WTO rules".

The ruling is "a tremendous victory for the US - particularly its manufacturers and workers", US Trade Representative Ron Kirk said in a statement.

Yu expressed her concern that developed nations will now demand that China compromises on rare earth exports.

"They will probably request that China loosen export restrictions on rare earth in the coming months" and even present their case to the WTO, she said.

"But we don't fear this because we are fully prepared."

China is the largest producer of rare earths and controls 95 percent of global supplies. Rare earths are a group of 17 elements used in industries like hybrid cars. The government began to control output in recent years, citing resource depletion and environmental degradation.

The US and the EU have repeatedly asked China to loosen the restrictions on rare earth exports.

Export restrictions will now come under fire, Zhou said.

"They were flying a balloon with the case. They will be more aggressive after the ruling," Zhou said.

US President Barack Obama said in his State of the Union address last month that the US was setting up an enforcement unit to crack down on unfair trade practices.

After the rare earth export quota decreased slightly to 30,184 tons last year, the government said that the quota for this year will remain unchanged to maintain stability of supply.

The Ministry of Commerce statement reiterated that China has tightened administration of energy-consuming and polluting resources in recent years.

"The WTO should not only uphold free trade but also allow members to take necessary steps to protect the environment and natural resources," the statement said.

China will evaluate the WTO ruling and continue to enhance scientific administration of resource products based on WTO rules to realize sustainable development, it said.

"The raw material ruling will not come into effect until the end of this month, and China will decide how to implement the ruling then," Yu said.