Obama says China rare-earths case is warning for WTO violators

March 13 (Bloomberg) -- President Barack Obama said his decision to challenge China’s export limits on rare-earth minerals at the World Trade Organization is part of his quest to make the U.S. more competitive in the global economy.

“Being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing,” Obama said in the White House Rose Garden this morning. “Our competitors should be on notice: You will not get away with skirting the rules.”

The U.S., EU and Japan requested consultations with China, a step that will lead the governments to ask WTO judges to rule should negotiations fail to resolve the issue. China produces at least 90% of the world’s rare earths, 17 chemically similar metallic elements used in Boeing Co. helicopter blades, Nokia Oyj cell phones, Toyota Motor Corp. hybrid cars and wind turbines. China says it curbed output and exports to conserve resources and protect the environment.

In a similar case, the WTO found in July that Chinese limits on raw-materials exports broke global rules and gave domestic companies an unfair advantage. WTO appellate judges in January upheld the ruling, which supported a complaint by the U.S., the EU and Mexico. U.S. Trade Representative Ron Kirk called that report a “tremendous victory.”

Economic Pressure

Facing pressure to lower the nation’s 8.3% unemployment rate heading into November’s election, Obama is leaning harder on China. He signed an executive order two weeks ago creating a panel to probe unfair trade practices by nations including China, and the U.S. has urged the Asian nation to allow its undervalued currency to appreciate.

The U.S.-China trade deficit widened to $295 billion last year and the imbalance is a main source of friction between the two countries.

China’s policy goal is to protect resources and the environment, not to distort markets, the Ministry of Commerce said in statement on website.

Under WTO rules, the four governments must hold talks for at least two months in a bid to resolve the dispute. If the talks fail, the complaining governments can ask a WTO panel to intervene.

Rare earths became a political and legislative issue in July 2010 when China moved to limit domestic output and slash export quotas by 40%, souring ties with major users including the U.S. and Japan, where buyers cut usage after prices soared in the first half of 2011. China said on Dec. 28 it was leaving the 2012 overseas sales caps virtually unchanged.

International Trade Rules

“China’s restrictions on rare earths and other products violate international trade rules and must be removed,” EU Trade Commissioner Karel De Gucht said today in an e-mailed statement. “These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications.”

The U.S. Energy Department said in January that limited supplies of five rare-earth minerals -- dysprosium, terbium, europium, neodymium and yttrium -- pose a threat to increasing use of clean-energy technologies such as wind turbines and solar panels. While prices of rare earths fell in the second half of 2011, they remain volatile, leading some companies to search for ways to consider reducing reliance on the minerals, the Energy Department said.

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