UPDATE 1-EU, U.S., Japan seek further WTO steps over China rare earths


(Adds details of WTO case)

By Sebastian Moffett

BRUSSELS, June 27 (Reuters) - The European Union, the United States and Japan on Wednesday requested a dispute settlement panel at the World Trade Organization (WTO) after failing to resolve a battle over China's export restrictions on rare earth minerals.

The move followed a complaint the three trade powers took to the WTO in March, the first they have launched jointly, and comes amid a series of clashes with China over economic issues, including the value of the Chinese currency.

"China's restrictions on rare earths and other products are violating its WTO commitments and continue to significantly distort global markets to the disadvantage of our companies," EU Trade Commissioner Karel De Gucht said in a statement. "We regret that we are left with no other choice but to solve this through litigation."

After the March complaint, the parties talked in April to try to find a solution. But De Gucht said the Chinese response had not been adequate.

"We had consultations with them, they didn't lead us anywhere," he said on the sidelines of a conference in B russels. "The next step was to ask for a panel and we've just done that."

The case concerns the 17 rare earth metals, as well as tungsten and molybdenum, which are used in advanced technologies for the defence, electronics and renewable-energy industries. They go into products such as the iPhone, disk drives and wind turbines.

The damage done to European manufacturing runs into billions of euros because it is nearly impossible to diversify away from Chinese supply, according to EU officials.

China accounts for about 97 percent of world output of the 17 rare earths, and the three powers accuse Beijing of trying to hold down prices for its domestic manufacturers and to pressure international firms to move operations to China. This, say the European Union and United States, hurts their producers and consumers, as foreign companies pay up to twice as much as Chinese firms for rare earth metals.

"These materials are key inputs in a multitude of U.S. manufacturing sectors and American-made products, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum and chemicals," U.S. Trade Representative Ron Kirk said in a statement.

"It is vital that U.S. workers and manufacturers obtain the fair and equal access to raw materials like rare earths that China specifically agreed to when it joined the WTO," he said.

In March, China described the trade complaint as unfair, arguing that it only controlled 90 percent of global production because other countries, notably the United States, had long ago closed their own rare earths refineries due to pollution concerns.

Beijing also says its export curbs aim to both control environmental problems and preserve supplies of an exhaustible natural resource. Refining rare earths requires large amounts of acid, and also produces low-level radioactive waste.

The EU directly imports 350 million euros worth of rare earths from China each year, and also brings in products of far greater value containing rare earths from Japan and elsewhere.

Once appeals are lodged and heard, the WTO process could take as long as two years to complete.

The European Union, the United States and Mexico won a similar case against China in January concerning other raw materials.

"Despite the very clear WTO ruling earlier this year in the first raw materials case, Beijing has not taken steps to remove these export restrictions," said De Gucht in his statement. (Additional reporting by Doug Palmer in Washington and Robin Emmott in Brussels; Editing by Susan Fenton)



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