"Rare Earth War" China retreats

The Ministry of Commerce of the People's Republic of China recently released the "2015 Catalogue of Export License Management Goods" to clarify the implementation of export license management for rare earth exports. Only enterprises need to apply for export licenses for export contracts without providing approval. This means that the implementation of the 16-year rare earth quota was officially cancelled.

The most direct cause of this change is China’s defeat in the World Trade Organization (WTO) lawsuit.

China is the largest producer of rare earths, accounting for more than 90% of global supply. Although rare earth is an important component of the defense industry and modern technology, it is necessary for military products, computers, mobile phones, wind power plants, batteries and other technical products. Although China has a natural "monopoly" advantage, it is a pity that superior products are sold. The price of cabbage, and disorderly mining seriously damaged the environment.

In order to reduce the depletion of resources, China began to implement the export quota licensing system for rare earth products in 1998, including rare earth raw materials in the catalogue of prohibited commodities for processing trade, and in large-scale reduction of rare earth exports in 2010. International rare earth prices have soared.

This has also triggered an international uproar "Rare Earth War." The United States, Europe, Japan and other countries expressed strong dissatisfaction and believed that China's rare earth export control has made Chinese enterprises have obvious competitive advantages in products such as hybrid vehicle batteries, wind power generation and energy-saving lighting equipment.

The dispute eventually evolved into a lawsuit. The United States, Europe, and Japan jointly filed a WTO complaint against China for the export management measures of rare earth, tungsten, and molybdenum related products in violation of WTO regulations. After several rounds of struggle, in August 2014, the WTO finally ruled that China's implementation of rare earth export management measures did not comply with the relevant WTO rules and China's commitment to join the WTO, rejecting China's appeal.

Therefore, China must change the relevant rare earth export management model. The Ministry of Commerce said in a statement at the time: "China will seriously evaluate the WTO's ruling, strengthen the management of resource products, promote resource protection, maintain fair competition, and achieve sustainable development in a manner consistent with WTO rules."

The abolition of the rare earth export quota system that was implemented in 1998 is also expected in the market. In the next step, China will also cancel the export tariff of 25%-30%, and this change is expected to be implemented later in 2015.

It can also be seen from this case that although China believes that the quota and the restriction system are intended to protect the environment, in reality, this kind of rough management method violates the WTO rules, so it is difficult to gain the upper hand in international litigation. This is also the main reason why Western countries have repeatedly initiated litigation against Chinese trade rules and won.

Of course, the "rare earth war" has not completely ended. China's move also has the intention of retreating. After all, the quota system has had a greater impact on exports in the first few years, and has existed in name only in recent years because many quotas have not been used up. The data shows that the rare earth export quotas in the past three years are slightly higher than 30,000 tons, but in 2012, the actual exports were less than 20,000 tons, and it is impossible to break through 30,000 tons in 2013 and 2014.

However, if the export control of rare earths is simply eliminated, the inevitable result is the chaos of the rare earth export market, including the increase of Chinese exporters. The mutual price reduction behavior may rise again. The final result is that the domestic environment suffers, the value of resources is underestimated, and foreign countries Vendors benefit.

Therefore, while complying with the WTO ruling to revoke relevant export controls, China must improve its management system for resource products such as rare earths.

First of all, we must comply with market rules and international trade rules, do not have to make rigid provisions on the number of exports, avoid giving people a handle, and trigger new lawsuits that are likely to lose. Frankly speaking, the management system at that time did not undergo a serious and calm legal assessment. Although it won a certain time for China, the overall effect was not good.

Second, strengthen domestic supervision. The reason why the rare earth market is chaotic, many manufacturers are disorderly mining, seriously damaging the environment, and smuggling behavior is repeatedly prohibited. According to incomplete statistics, the overseas rare earth import statistics in 2011 is 1.2 times that of China's customs export statistics, which means that the smuggling volume is 120% of normal exports. The government can improve the mining threshold and integrate rare earth resources, including promoting rare earth resources. Corporate mergers and acquisitions, while cracking down on smuggling and environmental damage.

Again, the export tax is a resource tax. Export taxes have an immediate effect on limiting exports, but they are also easily criticized. The export tax was abolished, and as a result, the export price was lowered, but this created conditions for raising the resource tax rate. The state still has the initiative to export rare earths, and it is not because the rare earth cabbage price makes the good resources cheaper for foreign manufacturers.

Of course, for domestic rare earth users, the prices of rare earth inside and outside are close to each other, which increases the cost of their rare earth use, thus reducing the competitive advantage. But the market is following equal competition. Chinese manufacturers can't always rely on bottle bottles, and they can completely create new competitive advantages by tapping potential innovation.

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