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Wrong-Headed on Rare Earths

BRUSSELS – For more than two years, the world’s industrialized countries have been locking horns with China over the supply of rare earth elements, a critical component of many high-tech products. Now, these tensions may be reaching a breaking point, after the United States, the European Union, and Japan recently filed a complaint with the World Trade Organization against China’s export restrictions on a number of critical minerals, including rare earths. But a WTO case against, should it succeed, might be at best a Pyrrhic victory, and, at worst, a strategic blunder.

In fact, the US-EU-Japanese troika does have a case. China’s multitude of export taxes and duties has forced Western companies to pay almost twice as much as their Chinese counterparts, creating a powerful incentive for Western manufacturers to set up shop in the Middle Kingdom to gain cheaper access to these indispensable resources.

And, while China’s repeated reduction of export quotas for rare earths may not be contrary to WTO rules per se, particularly because the WTO recognizes environmental considerations as a basis for restricting supply (China’s own justification), it remains doubtful whether China’s export regime is really in line with the WTO accession protocol to which it agreed.

Nevertheless, the decision to lodge a complaint with the WTO must be questioned on three counts.