Allegations by EU, U.S. and Japan over rare earth exports restrictions could force internal changes in China.
Just more than a month ago (on March 13), the EU, U.S. and Japan “formally requested dispute settlement consultations with China in the World Trade Organization (WTO),” over export restrictions on rare earths, tungsten and molybdenum.
The first time the U.S. knew about it was when President Barack Obama made his announcement from the White House Rose Garden that Tuesday. (Interestingly, however, at that time, Obama mentioned just the rare earths; only subsequently did we learn that both tungsten and molybdenum were also included in the referral to the WTO.)
Dr. Gareth Hatch of Technology Metals Research has done an excellent job in his piece “The WTO Rare Earths Trade Dispute: An Initial Analysis.” However, I believe that some further observations may be helpful, particularly when it comes to the background of this referral. And while Dr. Hatch has looked carefully at the possible Chinese responses and potential outcomes of the dispute, a quick look at what it could mean if either side wins may also be helpful.
US Domestic Politics
It is important to remember that this is an election year in the U.S. With the referral to the WTO, Obama has provided himself quite conveniently with a means to address at least two current issues in domestic U.S. politics. One of the consistent themes of the Republican presidential contenders has been the need to get tough with China. The referral demonstrates the president’s concern for domestic union workers as well as U.S. businesses, important constituencies in the coming months. Obama’s words were: “When it is necessary, I will take action if our workers and our businesses are being subjected to unfair practices.”
Some observers may have been surprised not to have heard the word “defense” in any of the statements regarding this matter. I fully concur with Dr. Hatch that this was probably for good reason, not least because it deprived the Chinese the use, in its defense, of that part of Article XXI dealing with “the protection of its essential security interests.” (And indeed, it would be interesting to know just how many politicians have been cognizant of this aspect of the article in their rhetoric about the WTO issue.)
Chinese Domestic Politicking
Although the timing of the case might have a bit to do with U.S. domestic politics, the Chinese leadership is also currently nearing a time of transition, and one that, with all that is going on with Bo Xilai and his “family,” is proving to be somewhat challenging both to the current leadership and the Communist Party.
Whatever the actual strength of China’s case for the defense may be, there is every possibility that it will come out of its corner battling very hard. Not least so that, to the Chinese population it too is being seen to be tough on those who may wish to contest what it believes to be its sovereign rights.
And with the loss of its appeal to the WTO earlier this year in the other materials case, China has had the benefit of the experience of fighting what appears to have been a similar case for the last several years.
Molybdenum And Tungsten Too?
It is important to note that the WTO referral also includes molybdenum and tungsten, of which few mentions have been made in the press. Why these two also? The most important reason is probably steel.
Both molybdenum and tungsten are important in the production of certain steels.