There is an old Chinese saying that goes “without rice, even the cleverest housewife cannot cook.” A modern version of that proverb would go like “without rare earths, even Apple cannot make its iPads.” “Rare earths” refers to 17 minerals such as tungsten and molybdenum indispensable for the production of key industrial products such as smartphones, LED flat screens, hybrid cars and even a variety of defense equipment.

Now it is China that single-handedly covers the global demand of rare earths: the country accounts for 97 percent of the world’s rare-earth minerals being consumed at the moment. So, when China started restricting exports of these minerals to other countries through various measures citing several reasons, other countries reacted in shock.

The concern and criticism voiced by other countries over the tightening export restrictions of China have now evolved into yet another round of international litigation. Just two weeks ago, the United States, the European Union and Japan joined forces to file a complaint against China over this export restriction. The way the initiation of the litigation was announced is a testament to the sensitivity and urgency these countries are presently feeling.

On March 13, U.S. President Barack Obama announced his government’s decision to seek a legal recourse in person before the press corps. The unusual appearance by a head of state to publicly announce an initiation of a legal dispute with another country reflects the degree of importance the United States is attaching to the situation.

These three countries claim that the Chinese measure is in violation of Beijing’s obligations under the GATT, which prohibits member countries from adopting export restrictions unless carefully carved-out exceptions apply. The three complainants further allege that the Chinese measure is to meet the domestic demand first and control the prices of those minerals in the international market.

The fundamental question China has raised since this issue first came up a couple of years ago is emotional rather than legal. It basically asks why the other countries are not so eager to mine their own pockets of rare earths, if it is so important to them. In fact, while China possesses only 36 percent of the confirmed global rare-earth minerals, its global production is as high as 97 percent. According to statistics, countries such as Russia, the United States and Australia are countries with significant possession of these minerals.

The environmental degradation involved in the excavation of these minerals is commonly referred to as one of the main reasons for other countries’ lack of enthusiasm for domestic production.

Beijing is thus sending a message that it cannot let other countries take advantage of Chinese production while they are attempting to avoid the environmental impact on their own territories. On top of that, the growing demand for these minerals inside China has given Beijing another reason to limit their exportation. China apparently sees this confrontation as another form of “China-bashing.”

Judging by the jurisprudence of the GATT and the WTO, it is likely that the complainants will prevail at the end of the day, as the violation of the treaty provision seems to be apparent. Irrespective of the legal jargon and evaluation of the merits to be rendered in a prospective judgment, however, as long as China continues to harbor suspicion about “China-bashing,” an ultimate solution to the standoff does not seem to be in sight.

The reason this issue has ended up on the docket of the WTO is because it has been formulated as “export restriction” and “export quota.” Should China adopt a different mechanism to achieve the same objective, such as reduction or cancellation of excavation permits for domestic producers of these minerals, it could probably avoid implication for its obligations under the trade agreements, but still maintain its virtual dominance in the global market. An easy victory or clear-cut determination for a sensitive dispute like this hardly guarantees an ultimate resolution of the core problems.

If the international community has to be heavily dependent upon the production of these materials by China, it should find a reasonable way to incentivize such continued production, so that both China and other countries can benefit in the long run. Simply forcing one country to take the role of global provider of rare earths against its will may further complicate the problem. More so, if that one country turns out to be not so shy about flexing its muscles. That is why, in parallel with the international litigation, countries concerned should talk to build long-term consensus.

In the meantime, Korea’s reliance on Chinese export of rare earths is also significant. In the month of February, 65 percent of the rare-earth imports were of Chinese origin. Well, the upcoming negotiations for a Korea-China free trade agreement could be a useful forum to discuss a stable access to these key minerals from China.


Lee Jae-min

Lee Jae-min is a professor of law at the School of Law, Hanyang University, in Seoul. Formerly he practiced law as an associate attorney with Willkie Farr & Gallagher LLP. -- Ed.