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Rare Earth Elements in National Defense

In July 2012, a WTO panel was convened. Some estimates were that the panel of judges will have about six months to complete their inquiry and then issue a final report. The WTO joint dispute resolution panel estimated that a final report would be issued in November 2013.11 However, as of December 2013 no final report has been issued.

2013 Annual Industrial Capabilities Report to Congress

In October 2013, DOD released its Annual Industrial Capabilities Report to Congress. The reported stated that, for a variety of reasons, the overall supply chain issues regarding the availability of rare earth materials first raised in 2010 and 2011 have improved, as discussed here.

Rare earth elements constitute a group of materials with numerous commercial as well as defense applications. These materials gained considerable attention in 2011 as prices increased drastically and concerns rose over their availability especially due to one nation, China, being the source of over 95 percent of the global supply. However, global market forces are leading to positive changes in rare earth supply chains and a sufficient supply of most of these materials likely will be available to the defense industrial base. In fact, there has been a significant reversal in the situation in 2012 from the prevailing market conditions in 2011. Overall demand for rare earth materials has decreased considerably from the previous year. A leading global expert forecast in August 2012 that 2012 global demand is expected to be 20 percent less than forecast in early 2011. Similarly, this expert believes that demand in 2016 will be 20 percent less than forecast in 2011. One factor contributing to reduced demand is the substitution of other materials for rare earth materials. There has also been reduced rare earth usage in individual applications and a drawdown in inventories accumulated the previous year. In conjunction with these factors, there has been an increase in supply of material from outside of China. As a result, prices for most rare earth oxides and metals have declined approximately 60 percent from their peaks in the summer of 2011.

A strengthening and diversification of the supply chain for rare earth materials, including in the U.S., is anticipated in the coming year. The private sector’s reaction to market forces has been to increase exploration for rare earth materials and development of downstream processing capabilities. According to one industry expert, there are over 400 rare earth projects under review globally, approximately four dozen of which may be considered in advanced stages of development in over a dozen countries worldwide. Two new projects in particular should have a significant impact on markets in 2013. Rare earth oxide production that has commenced in the U.S. and Malaysia based on mined material from the U.S. and Australia, respectively, will add approximately 40,000 tons of oxide production capacity to global supply in 2013, close to one-third of forecasted demand. Furthermore, the facility in the U.S. will have the capability to increase its capacity by an additional 20,000 tons in 2013. 12

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Statement of Ron Kirk, U.S. Trade Representative, March 13, 2012, http://www.ustr.gov/about-us/press-office/press- releases/2012/march/united-states-challenges-china’s-export-restraints-r.

11 Friedman, Jennifer. WTO To Investigate China Curbs on Rare Earth Exports. Bloomberg.com, July 24, 2012. Accessed online at http://www.bloomberg.com/news/2012-07-23/wto-to-investigate-chinese-curbs-on-rare-earth- exports.html. Also, see Gillespie, Clara and Pfeiffer, Stephanie. The Debate over Rare Earths: Recent Developments in the WTO Case. The National Bureau of Asian Research, July 11, 2012. Accessed online at http://www.nbr.org/ research/activity.aspx?id=261. Also, see http://www.ustr.gov/trade-topics/enforcement/dispute-settlement-proceedings/ wto-dispute-settlement/pending-wto-disputes-1.

12 U.S. Department of Defense. Office of the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy. Annual Industrial Capabilities Report to Congress, October 2013, p. 25. Accessed online at (continued...)

Congressional Research Service

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