China warns of backlash if U.S. presses rare-earths case with WTO

By David Pierson

March 13, 2012 12 AM PT

Reporting from Beijing — China’s state media warned Tuesday that U.S. plans to press Beijing through the World Trade Organization over its control of special industrial minerals known as rare earths could trigger a backlash and sully bilateral relations.

The official New China News Agency said in a commentary that China’s export quotas were aimed at protecting its resources and environment in accordance with WTO rules.

“It is rash and unfair for the United States to put forward a lawsuit against China before the WTO, which may hurt economic relations between the world’s largest and second-largest economies,” the commentary said. “In [the] face of such unreasonable and unfair charges, China will make no hesitation in defending its legitimate rights in trade disputes.”

China controls 95% of the world’s supply of rare earths and has become increasingly adept at processing the minerals needed to manufacture myriad high-tech products such as cellphones, flat-screen panels and advanced weapons systems.

Beijing has restricted new mining and introduced limits to production -- moves other countries have criticized as a strategy to further dominate global supplies.

“Exports have been stable,” Foreign Ministry spokesman Liu Weimin said at a regular media briefing Tuesday, according to the Associated Press. “China will continue to export, and will manage rare earths based on WTO rules. China hopes other countries can shoulder responsibility for supplies and can find alternative resources.”

Miners of rare earths outside China, such as Colorado-based Molycorp Inc., have been racing to scale up operations to provide buyers with an alternative.

The Obama administration, along with Japan and the European Union, will reportedly ask the WTO on Tuesday to initiate talks with China over its exports of the valuable minerals.

The case underscores President Obama’s increasingly aggressive stance toward trade with China during an election year in which Republican candidates have pledged to get tough on the world’s second-largest economy if elected.

Obama unveiled a special task force in January designed to address unfair trade practices with China, such as intellectual property theft and currency manipulation.

Lawmakers in Washington are also pressuring the president to challenge China on unfair government subsidies.

The renewed trade tension comes at a time when Beijing’s primary concern has shifted from inflation to a potential sharp decline in growth.

China’s trade deficit of $31.5 billion in February was its biggest ever recorded -- largely because of a slowdown in export growth to Europe.

The threat to China’s exporters has significantly reduced the likelihood China will appreciate its currency as quickly as it did last year. After rising nearly 5% against the dollar in 2011, the yuan has fallen about 0.2% this year.

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