ISSUE ON RARE EARTHS

Political Perspective

China is known to hold up to 97 percent of rare earth elements (REE) around the
globe (Dobransky, 2012). Being a monopoly of such commodity did not only hold the
country for technological advancement but also for geopolitical advantage especially on
the locations where China extracts these REEs (Klare, 2012). In lieu of this situation, it
became alarming for the United States, in part of their national security, where its source
of REEs is only on one country. The worry of the United States intensified as it got affected
when China and Japan had a diplomatic tussle regarding REEs (Dobransky, 2012).

REEs, in the political perspective lies on the aspects of military and legislation in
both countries. Both China and the United States utilize rare earths not only for
commercial and industrial uses but also for military technology. In 2011, the United States’
Department of National Defense reported to the Congress that the department consumes
less than 10 percent of domestic REEs (Grasso, 2011). However, these REEs are vital
for many advanced military equipment and weapons systems. As the United States
project a more innovative and powerful weapons equipped with REEs, it seems that the
expansion and development of military warfare is more favored to China as the country
continues to monopolize these materials (Dobransky, 2012). In the U.S. Congress, a
number of bills had been filed to promote and fund researches on promoting domestic
earths however, only some of those legislated turned into a law. Dobransky (2012) said
that the reason being lies on factors such as concerns in funds and the scare of worsening
the conflict with China in terms of trade by which, when escalated, might drastically affect
the technological industries of the United States, its economy, and its standing as a
“superpower”.

In 2010, the dispute between China and Japan worried the United States when
China blocked its REE shipments bound to Japan as the latter captured a Chinese ship
captain whose ship was the Japanese territory of the disputed waters of Diaoyu or
Senkaku (Klare, 2012). In about a week, the House of Congress of the United States
passed a bill establishing a Rare Earth Policy Task force to develop a plan for a
sustainable supply of REEs in the country (Rare Earth Policy Task Force and Materials
Act, 2011). The United States had also brought forth the case of China’s violation in the
export restriction of REEs, to the World Trade Organization (WTO). Although the WTO’s
ruling took the side of the United States and led them to raise capital, China dropped the
tariff rates, quotas, and the prices of REE which led to the bankruptcy of a U.S.-owned
mining company (Brickley, 2017).

The issue of REEs weren’t much brought up to the interests of the general public
when it is in fact one of the sources that the United States rely heavily on to produce
commercial and military technologies. If China continues to hold the monopoly of REEs
in the world, the United States is doomed to its decline in economy, security, and power.
Adding fuel to the fire is the latter putting the issue of REEs further behind its political
concerns.

Economic Perspective

Before gearing towards the end of the 1980s, the United States was known to be
the top producer of REE (Dobransky, 2012). These REEs played a role in the
development of the country’s technology. However, right towards the end of the decade,
China was increasingly producing REE at a high rate, which then toppled over the United
States from its top spot.

According to the U.S. Geological Survey (USGS), REE reserves throughout the
world are estimated at 110 million tons. 36 million tons of the reserves are found in China,
and 13 million tons in the United States (OECD, 2015). However, in 2011, Japan had
discovered that there are about 80 to 100 billion tons of REE reserves (Stratfor, 2011). If
this was proven, it would lead Japan into becoming a major supplier. However, currently,
it is China who holds 97 percent of these REEs, where 60 percent of these are used by
its domestic industries including multinational corporations in the country (Dobransky,
2012).
 The Chinese government had done such indirect actions of knowingly to
encourage, but mostly coerce, manufacturers abroad to relocate their manufacturing
plants to China. In doing so, the Chinese government imposes high export tariffs that
reach as high as 25 percent, and on top of that are the value added taxes in which the
rates would go as high as 17 percent (Dobransky, 2012). In addition, China also had
lessened its exports as it reasoned out that it was an environmental concern, which is the
only reason to be accepted by the WTO for a country to cut back its exports (Klare, 2012).

Many didn’t buy the Chinese government’s excuse for cutting its exports. Some
alleged China of being a protectionist since the country has an increasing domestic use
of REE while having a relatively low price domestically (Dobransky, 2012). This prompted
the United States, Japan, and the European Union (EU) to join up and consult their case
with China regarding the REE to the World Trade Organization (WTO). This dispute was
brought up due to the restriction of China in exporting REEs. Knowing that China had
joined the WTO in 2001, it should be abiding by the treaty of the organization, specifically
on the rule of removing tariff rates and quotas, which China has violated (China —
Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum, 2014).
In China’s rebuttal, the WTO should allow them for the reason of conserving the
environment. However, the WTO Dispute Settlement Panel had its ruling against China
and ordered the country to remove their tariff rates and quotas (China — Measures
Related to the Exportation of Rare Earths, Tungsten and Molybdenum, 2014). However,
as the Chinese government removed the tariff rates and quota for export, it lowered the
price of REEs more, costing the United States and Europe of its investors and the
Molycorp (Dobransky, 2012). This Mountain Pass mining company got bankrupt as a
result and was then sold in auction to MP Mine Operations LLC, where Shenghe
Resources Holding Co., a Chinese company, is a shareholder (Brickley, 2017).

In 2010, the U.S. Department of Energy reported, through the 2010 DOE Critical
Materials Strategy that without the REEs, the economy of the United States can plummet
at a fast rate (Dobransky, 2012). In addition, without the ample and stable source of REEs,
the United States’ national security will be in a serious threat.
References
Brickley, P. (2017, June 23). Mountain Pass Mine Approved for Sale to JHL, QVT,
Shenghe. Retrieved from Wall Street Journal:
https://www.wsj.com/articles/mountain-pass-mine-approved-for-sale-to-jhl-qvt-
shenghe-1498255593/

China — Measures Related to the Exportation of Rare Earths, Tungsten and

Molybdenum, DS431 (World Trade Organization Appellate Body August 7,
2014).

Dobransky, S. (2012). Rare Earth Elements and U.S. Foreign Policy: The Critical
Ascension of REEs in Global Politics and U.S. National Security. APSA 2012
Annual Meeting Paper,
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2106716. Retrieved from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2106716

Grasso, V. B. (2011). CRS Report for Congress, R41744: Rare Earth Elements in
National Defense: Background, Oversight Issues, and Options for Congress
[September 15, 2011] . Monterey: Library of Congress. Congressional Research
Service.

Klare, M. T. (2012). The Race for What is Left. New York: Henry and Holt Company.

OECD. (2015). OECD Green Growth Studies Material Resources, Productivity and the
Environment. Paris: OECD Publishing.

Rare Earth Policy Task Force and Materials Act, H.R.2184 (112th Congress of the
United States of America June 22, 2011).

Stratfor, R. (2011, July 4). Japan: Rare Earth Reserves Discovered. Retrieved from
Stratfor.com: stratfor.com