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The United States, Europe and Japan joined forces on Tuesday against China's restrictions on exports of rare earth minerals that are critical to production of advanced technology and clean energy goods expected to provide the jobs of the future.
"We want our companies building those products right here in America. But to do that, American manufacturers need to have access to rare earth materials which China supplies," U.S. President Barack Obama said at the White House.
"Now, if China would simply let the market work on its own, we'd have no objections. But their policies currently are preventing that from happening and they go against the very rules that China agreed to follow," Obama said.
He cast the decision to take action with the European Union and Japan at the World Trade Organization as part of stepped-up U.S. effort to make sure countries play by global trade rules.
"Our competitors should be on notice. They will not get away with skirting the rules," Obama said.
Obama, a Democrat, has been toughening his stance on Chinese trade practices amid criticism from his Republican rivals that his administration has not been strict enough with Beijing, as he girds for his re-election fight for the White House this November.
He also on Tuesday signed a bipartisan bill that restores the U.S. ability to impose countervailing, or anti-subsidy, duties on goods from China and other "non-market economies" after a court ruling struck the practice down.
THREE AGAINST ONE
The rare earths dispute is one of several between Beijing and the other three economic powers, as Chinese industry remolds the world economic order. The dispute is the first to be jointly filed by the European Union, the United States and Japan.
Though dependent on the outside world for vast qualities of industrial inputs such as iron and coal, China accounts for about 97 percent of world output of the 17 rare earth metals.
They are crucial for the defense, electronics and renewable-energy industries and are used in a range of products such as mobile phones, disk drives, wind turbines and electric cars.
"China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace," U.S. Trade Representative Ron Kirk said.
The action over China's export curbs involving rare earths, as well as tungsten and molybdenum, begins a 60-day process for the two sides to try to resolve the dispute.
If unsuccessful, the next step would be for the United States, the European Union and Japan to ask the WTO to establish a dispute-settlement panel to decide the case, which with appeals could take as long as two years.
"China's restrictions on rare earths and other products violate international trade rules and must be removed," European Union Trade Commissioner Karel De Gucht said in a 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."
Beijing said the export curbs are necessary to control environmental problems caused by rare earth mining and to preserve supplies of an exhaustible natural resource.
"We regret their decision to complain to the WTO," China's Minister of Industry and Information Technology Miao Wei said, according to the official Xinhua news agency. "In the meantime, we are actively preparing to defend ourselves."
China's export quotas were not trade protectionism and did not target any specific country, he added.
The EU, the United States and Mexico won a similar case against China in January concerning other raw materials.
But a European official close to the case said despite this ruling, China had not removed wider export restrictions. In particular, the EU said in a statement, "the latest rare earth quota announcements are further tightening the restrictions and are a clear signal in the wrong direction."
Beijing has until the end of March to tell the United States, the EU and Mexico how it intends to comply with the January ruling, providing an opportunity for China to address both that case and the rare earth restrictions at the same time, a senior U.S. administration official said.
Foreign companies pay up to twice as much as Chinese firms for rare earth metals, the EU says.
"These restrictions... benefit Chinese industry," the official said. "Therefore they are against WTO rules."
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.
The damage done to European manufacturing runs into billions of euros, the official said because it was nearly impossible to diversify from Chinese supply.
China said its export policies stemmed from environmental concerns, but failed to prove its curbs helped conserve resources, cut pollution or improve public health in that case, the EU said.
Trade friction between the EU and China has been growing.
De Gucht said on a recent visit to Hong Kong that China needed to be sensitive to perceptions that its economy is a threat in Europe, even as EU-China trade has boomed to almost 400 billion euros in 2010.
EU complaints against Chinese dumping range from shoes to kitchenware, and De Gucht has previously complained that China subsidizes "nearly everything".
Meanwhile China, along with the United States and Russia, recently complained about an EU plan to levy a carbon emissions charge on all airlines using EU airports. China has said it would not buy aircraft from European maker Airbus because of the emissions scheme.
Japanese worries over supplies of rare earths heightened in 2010 when China held back shipments after a territorial dispute.
In the United States, Obama recently created a new inter-agency trade enforcement centre. It is expected to start work in the coming months with a focus on Chinese honouring of WTO rules.
The Obama administration is also considering a WTO complaint against anti-dumping and retaliatory duties on U.S. auto exports that China imposed late last year.