The Real Cost of China's Rare Earth Export Quotas on American Job Security

Author:Katherine Weatherford
Position:J.D. candidate, May 2012, at American University Washington College of Law
by Katherine Weatherford*
The populist appeal for job creation currently domi-
nating U.S. politics has spurred copious discus-
sion about whether regulatory policy is responsible
for the present economic condition.1 Although this debate cen-
ters primarily on domestic regulations, recent congressio-
nal action2 confirms reports that China’s economic policies,
particularly its export restraints and currency manipulation,
have not only increased the already significant trade deficit
between the U.S. and China, but have cost approximately 2.8
million U.S. jobs.3 Of specific concern are China’s export
quotas on Rare Earth Minerals (“REMs”).
REMs are used in the production of virtually all technological
goods—from cell phones to wind turbines.4 Thus, it is no surprise
that the demand for REMs has increased exponentially over the last
decade.5 Even though the U.S. has sufficient REM reserves to satisfy
demand, importing REMs from China costs less than producing them
domestically.6 And because many other nations also rely on China’s
low–cost REMs, China has dominated the global REM market, and
currently produces 97% of the world’s supply.7 Consequently, when
China set export quotas on REMs, it resulted in uncertainty about
future availability accompanied by a drastic price increase.8
The implications of export quotas on rare earths, especially in
light of the current economic downturn, make it evident that the U.S.
must begin to consider feasible solutions to the REM access con-
flict.9 One option is to continue accepting REMs from China subject
to its export quotas. Yet, choosing this option will undoubtedly force
U.S. taxpayers to continue financing China’s REM stockpiles at the
expense of American jobs.10 This is because product manufactur-
ers located in China can purchase REMs without the added costs
associated with export quotas. This incents foreign manufacturers,
including U.S.based companies, to relocate to China in pursuit of
these cheaper REMs, and ultimately, to take U.S. manufacturing
jobs overseas as well.11
A second option is for the United States to file a complaint
with the World Trade Organization (“WTO”), as it did in 2009 in
collaboration with the European Union and Mexico.12 This 2009
complaint asserted that China’s export quotas on raw minerals vio-
lated Article XI:1 of the General Agreement on Tariffs and Trade
(“GATT”),13 and various provisions of China’s Accession Protocol
and China’s Working Party Report.14 China invoked GATT Article
XX exceptions, framing its export restraints as a means to “protect
the environment and [its] limited resources” and arguing that its
actions advance “the sustainable development of the global econ-
om y.”15 Nevertheless, the WTO panel rejected China’s defense,16
prompting China to file an appeal, which is currently pending.17
In both the 2009 complaint and the current conflict over REMs,
China disguises its economic motives by implying that export
quotas will result in reduced production, which will help protect
natural resources. But this is not the case if China merely supple-
ments wouldbe exports with domestic production. If China actually
intended to protect its environment, it should have regulated its
mining operations rather than its exports.18 Regardless of China’s
intention, it seems futile for the United States to pursue a resolution
through the WTO process given the failure of the 2009 consulta-
tions to produce an effective outcome thus far.
A third option is for the U.S. to produce REMs domestically.19
While this is technically feasible, the U.S. closed its only remaining
rare earth mining operation in 2002 as a result of environmental
damage and intense global competition.20 Plans are in motion to
reopen the Molycorp, Inc. facility in Mountain Pass, California by
2012;21 however, building new facilities will require a large invest-
ment.22 Even with domestic production, the U.S. will still need to
send the REMs to China for alloying and manufacturing, at least
until the technology needed to safely and economically perform
these processes is developed.23 Although domestic production is
likely the most sustainable mechanism to stimulate longterm job
growth, the United States must take other steps in the interim to
respond to China’s REM export quotas.24
One intermediate step is to enact legislation modeled after
the Conflict Minerals provision in § 1502 of the Dodd–Frank Wall
Street Reform and Consumer Protection Act.25 That provision
instructs the Securities and Exchange Commission to promulgate a
rule requiring any producer who uses conflict minerals “to disclose
in . . . its annual report whether its conflict minerals originated in
the Democratic Republic of the Congo or an adjoining country.26
Just as the § 1502 reporting requirement will help to prevent human
rights abuses in the Congo, a similar rule requiring disclosure of
REMs originating in China would assist in combating China’s pro-
tectionist policies and lax environmental regulations.27
Ultimately, the United States must begin evaluating legitimate
solutions to the REM access conflict. In doing so, the U.S. must
not act hastily, as an illconsidered solution will likely fail to focus
on longterm sustainable development. Most importantly, in choos-
ing whether and how to pursue domestic REM production the U.S.
must be especially attentive not to neglect environmental protection
in favor of economic stability.28 Only by considering both domestic
action and international diplomacy can the United States resolve the
REM access conflict.
* Katherine Weatherford is a J.D. candidate, May 2012, at American University
Washington College of Law.
Endnotes: The Real Cost of China’s Rare Earth Export Quotas
on American Job Security on page 55