For American jobs, China's cheating on rare earth trade must end

When China cheats, America loses jobs.

Members of the World Trade Organization, including the United States, are prohibited from using quotas on exports. When China joined the World Trade Organization it committed to follow these rules. At that time, China also agreed to avoid export taxes or duties. In flagrant disregard for the international trade rules it has agreed to, China is holding hostage rare earth elements and other essential raw materials needed for manufacturing.

With the growing use of electronics, rare earth elements have become essential to the production of everything from batteries and iPads to advanced weapons critical to our national defense. By hoarding these materials, China hurts American manufacturers. The U.S.-China Economic and Security Review Commission has long-warned these policies disadvantage U.S. producers of advanced electronics, batteries for hybrid cars, and precision-guided weapons.

How does China maintain its control over rare earth elements? For one thing, it controls production. The only mine currently producing rare earths is based in China. They also ensure that most of the supplies remain in China by deliberately limiting exports through strict quotas and stiff duties. These illegal measures operate to chill exports and drive global prices through the roof.

As a consequence, today American manufacturers struggle with ever-escalating costs of production, compromising the ability of American companies to compete and create jobs.

The situation facing manufacturers who use tungsten during production offers a good example of the impact of China’s policies. The world tungsten supply is dominated by Chinese production, with 85 percent of the world’s supply mined in China. In recent years, China has been steadily raising the prices on these products, which directly impact manufacturers’ costs of production. These companies can’t be expected to continue to compete on the current terrain.

So we must ask — what do we do for our manufacturers? These are the exact trade practices China committed to give up when they joined the World Trade Organization. We have to level the playing field. That is why I have encouraged swift action on multiple fronts to stop China’s cheating.

Following successful action on exports of raw materials for steel and chemical production, I am encouraged that the United States has filed another case with the World Trade Organization over China’s trade policies for the rare earth elements molybdenum and tungsten. The case is not breaking new legal ground. China’s export policies, including, licensing requirements, minimum price requirements, quotas and taxes on other raw materials have already been examined and condemned by the top WTO Appellate Body. On January 30th, 2012, that body agreed that China had 32 measures that broke commitments under general WTO rules as well as promises in its legally binding protocol for joining the WTO.

The recent ruling makes clear that the United States and others that play by the rules can and will prevail in the fight against China’s unfair practices. China should live up to its commitments and immediately agree to stop the hoarding and export manipulation of rare earths and all other raw materials and put them on the open and competitive market.

While I hope to see quick action from China, we can’t afford to wait. Spurring domestic production can decrease our reliance on China, enhance our national security, and potentially increase American exports. I am encouraged by recent stories indicating interest in reopening a long-shuttered California mine.  A domestic source of rare earth elements could ensure that these vital resources serve the domestic market.

With the reemergence of domestic production, it is essential that we put in place necessary safeguards to ensure that it is domestic manufacturers that benefit.

Today, China bans foreign investors from mining rare earths on its soil. It is time that we reciprocate this treatment. As Senator Schumer and I pointed out last year, for over 90 years, U.S. mining law has recognized that foreign investment in mineral exploration and purchase should be prohibited where a foreign country denies reciprocal privileges to U.S. companies. At that time, we urged the administration to enforce reciprocal prohibitions with respect to Chinese investment in the United States. Thus far, the administration has failed to take action. Forceful application of our laws is more critical now than ever given our reemerging rare earths production. Imagine if the Chinese take ownership of our domestic production so that they can continue to dictate the terms of global supply.  We cannot let that happen.

It is time for action. America’s workers and manufacturers have been resilient in the face of an onslaught of unfair practices and policies, but enough is enough. The United States must stop China’s cheating.

Senator Bob Casey (D-Pa.) serves on the Committee on Foreign Relations and is the Chairman of the Subcommittee on Near Eastern and South and Central Asian Affairs.

---