The confusingly named substances known as “rare earths” – blame, ultimately, the Sicilian Greek philosopher Empedocles and his theory of the four elements – are a good subject for a World Trade Organization lawsuit. On Tuesday, the United States, the European Union and Japan commenced an action about a Chinese export restriction, though the prices of rare earths are currently falling. China ought to be held to its obligations to comply with the international trading system, and the rare-earths action is the proper way to make that point.
The market has been working to counteract China’s rare-earths export quota. China had obtained its dominant position mostly by low prices, not by any monopoly of rare-earth deposits. In due course, the high prices of Chinese rare-earths exports have lowered demand for them, and encouraged non-Chinese firms to look for, produce and sell more of these commodities themselves – a process in which Canadian companies – Avalon Rare Metals Inc., Great Western Minerals Group Ltd., Neo Material Technologies Inc., Quest Rare Minerals Ltd., among others – are taking an active part.
But China’s rare-earths quota is a direct contradiction of a WTO rule that, as Lawrence Herman of Cassels Brock LLP points out, goes back to the postwar General Agreement on Tariffs and Trade of 1947; if a member-state imposes an export restriction, it must also limit its domestic supply – in China, in this case – so as not to discriminate. In fact, China is keeping its internal rare-earth prices low and its supply correspondingly high – a manifest preference for its own national market.
Since China joined the WTO in 2001, its government has not shown itself to be an arrant scoff-law. The proceeding by the U.S., the EU and Japan, still at a very early stage, may well achieve its salutary purpose.