SUMMARIZE IN 200/300 WORDS China Limits Exports of Rare Earth Metals Rare earth
ID: 394222 • Letter: S
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SUMMARIZE IN 200/300 WORDS
China Limits Exports of Rare Earth Metals
Rare earth metals are a set of 17 chemical elements in the periodic table and include scandium, yttrium, cerium, and lanthanum. Small concentrations of these metals are a crucial ingredient in the manufacture of a wide range of high-technology products, including wind turbines, iPhones, industrial magnets, and the batteries used in hybrid cars. Extracting rare earth metals can be a dirty process due to the toxic acids that are used during the refining process. As a consequence, strict environmental regulations have made it extremely expensive to extract and refine rare earth metals in many countries.
Environmental restrictions in countries such as Australia, Canada, and the United States have opened the way for China to become the world’s leading producer and exporter of rare earth metals. In 1990, China accounted for 27 percent of global rare earth production. By 2010, this figure had surged to 97 percent. In 2010, China sent shock waves through the high-tech manufacturing community when it imposed tight quotas on the exports of rare earths. In 2009, it exported around 50,000 tons of rare earths. The 2010 quota limited exports to 30,000 tons. The quota remained in effect for 2011 and was increased marginally to around 31,000 tons in 2012 and 2013.
The reason offered by China for imposing the export quota is that several of its own mining companies didn’t meet environmental standards and had to be shut down. The effect, however, was to dramatically increase prices for rare earth metals outside China, putting foreign manufacturers at a cost disadvantage. Many observers quickly concluded that the imposition of export quotas was an attempt by China to give its domestic manufacturers a cost advantage and to encourage foreign manufacturers to move more production to China so that they could get access to lower cost supplies of rare earths. As news magazine The Economist concluded, “Slashing their exports of rare earth metals has little to do with dwindling supplies or environmental concerns. It’s all about moving Chinese manufacturers up the supply chain, so they can sell valuable finished goods to the world rather than lowly raw materials.” In other words, China may have been using trade policy to support its industrial policy.
Developed countries cried foul, claiming that the export quotas violate China’s obligations under World Trade Organization rules. In July 2012 the WTO responded by launching its own investigation. Commenting on the investigation, a U.S. administration official said that the export quotas were part of a “deeply rooted industrial policy aimed at providing substantial competitive advantages for Chinese manufacturers at the expense of non-Chinese manufacturers.”
A worker in China stokes pots containing the rare earth metal Lanthanum.Source: © David Gray/REUTERS/Alamy Stock Photo
In the meantime, the world is not sitting still. In response to the high prices for rare earth metals, many companies have been redesigning their products to use substitute materials. Toyota, Renault, and Tesla, for example—all major automotive consumers of rare earth products—have stated that they plan to stop using parts that have rare earth elements in their cars. Governments have also tried to encourage private mining companies to expand their production of rare earth metals. By 2012, there were some 350 rare earth mine projects under development outside China and India. An example, Molycorp, a U.S. mining company, is quickly boosting its rare earth production at a California mine. As a consequence of such actions, by early 2014 China’s share of rare earth output had slipped to 80 percent. This did not stop China from announcing quota limits in 2014 that seemed to be in line with those of 2013.
Explanation / Answer
Small concentrations of rare earth metals such as lanthanum, scandium, yttrium etc. are used as a crucial ingredient in the manufacture of high-technology products including wind turbines, iPhones, industrial magnets and the batteries used in hybrid cars.
However, due to the toxic acids used in refining process, there are many environmental regulations in many countries. This is the reason why China has become world’s leading producer and exporter of rare earth metals. From 1990 to 2010, the global rare earth production of China has increased by 70 percentage points from 27% to 97%. China has imposed tight quotas on export from 50,000 tons to 30,000 tons in 2010 which has marginally increased to 31,000 in 2012 and 2013. This happened because of shut down of many mining companies which did not meet the environmental guidelines, but the Economist had slashed this reason saying it was solely to sell the expensive finished goods instead of just the raw materials.
This led to increased manufacturing prices outside China and observers thought this might be a strategy to move the production to China. World Trade Organization responded to the cries of developed countries that these export quotas are a violation of China’s obligations under WTO rules through its own investigation.
A US administration official commented on the investigation stating that the export quotas were to give substantial competitive advantage to Chinese manufacturers over non- Chinese ones. Many companies have started to look for substitutes of rare earth metals and all major automotive consumers of rare earth metals are planning to stop use of parts that use rare earth metal. Due to Governmental encouragement, there were 350 rare earth mine projects under development outside China and India resulting in 80% slippage of China’s output. China still announced export quota limits in 2014.
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