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Rare Earth Elements in National Defense

minerals critical to United States manufacturing, agricultural competitiveness, economic and national security.

President Obama’s Announcement on the Joint World Trade Organization Dispute Resolution Case on China7

On March 13, 2012, President Obama made an announcement that the United States “had asked the World Trade Organization to facilitate formal consultations with China over its limits on rare- earth exports, in a case filed jointly with Japan and the European Union (EU).”8 In announcing the case against China, the United States believes that China is illegally limiting exports of rare earths and pressuring foreign companies to move to China to take advantage of lower prices for domestic rare earth customers. In its defense, China claims that reducing the size of exports will help alleviate environmental hazards resulting from rare earth mining. 9

The U.S. Trade Representative issued the following statement:

America’s workers and manufacturers are being hurt in both established and budding industrial sectors by these policies. China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace,” said Ambassador Kirk. “The launch of this case against China today, along with the President’s creation of the Interagency Trade Enforcement Center, reflects the Obama Administration’s commitment to make all of our trading partners play by the rules. We will continue fighting for a level playing field for American workers and manufacturers in order to grow our economy, and ensure open markets for products made in America.”

The United States recently won a WTO challenge against China’s export restraints on nine other industrial inputs. China’s export restraint measures on rare earths, tungsten, and molybdenum appear to be part of the same troubling industrial policy aimed at providing substantial competitive advantages for Chinese manufacturers.

China imposes several different types of unfair export restraints on the materials at issue in today’s consultations request, including export duties, export quotas, export pricing requirements as well as related export procedures and requirements. Because China is a top global producer for these key inputs, its harmful policies artificially increase prices for the inputs outside of China while lowering prices in China. This price dynamic creates significant advantages for China’s producers when competing against U.S. producers – both in China’s market and in other markets around the world. The improper export restraints also contribute to creating substantial pressure on U.S. and other non-Chinese downstream producers to move their operations, jobs, and technologies to China. 10

7 For further discussion on the WTO dispute resolution case against China, see CRS Report R42510, China’s Rare Earth Industry and Export Regime: Economic and Trade Implications for the United States, by Wayne M. Morrison and Rachel Y. Tang.

8 Wan, William, Richburg, Keith B., and Nakamura, David. U.S. Challenges China’s Curbs on Mineral Exports; China Vows to Strike Back. Washington Post, updated March 13, 2012; and Obama Announces WTO Case Against China Over Rare Earths. CNN Online, March 13, 2012, http://www.cnn.com/2012/03/13/world/asia/china-rare-earths-case/ index.html.

9 China Sets Up Rare Earth Body to Shake Up Industry. Scientific American, April 10, 2012, http://www.reuters.com/

article/2012/04/10/us-china-rareearth-idUSBRE83707G20120410. Office of the U.S. Trade Representative. United States Challenges China’s Export Restraints on Rare Earths. (continued...) 10

Congressional Research Service

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