WTO probe ratchets up rare earth tensions with China

The World Trade Organization will investigate China's quotas and tariffs on rare earth minerals following prompting from the US, EU and Japan, who allege the export restrictions are in contravention of international trade regulations.

According to Bloomberg, the EU, US and Japan have requested that a dispute settlement panel be established to investigate export curbs on vital rare earth elements as well as tungsten and molybdenum.

China has responded to the request by expressing its regret at the decision, and asserts that its policies are "aimed at protecting natural resources," while denying any intention to unfairly impact trading patterns:

China's policies concerning the products at issue are aimed at protecting natural resources and achieving sustainable economic development, and China has no intention of protecting the domestic industry through means that would distort trade

China had previously rejected a request by the US, EU and Japan on June 10 for a panel to rule on their rare-earth export curbs last month, yet under WTO rules China is not permitted to reject a second request.

The dispute will hinge upon whether the purpose of China's rare earth quotas is protection of the environment or protection of domestic industries, the latter of which is considered a form of trade distortion.

Following the establishment of a WTO panel to probe the matter judges will have six months to draft a report, after which parties may then submit appeals.

China has recently undertaken broad efforts to reform and consolidate its rare earth mining industry, slashing the number of mining permits in half earlier this month.

This is not the first time that rare earths have been a source of contention for the leading economies. Tensions flared between China and the US and Japan in July 2010, when China cut domestic output and slashed export quotas for rare earths by 40%.

China currently produces 90% of the world's rare earths, which are key ingredients in defense, renewable energy and electronics.