Beijing/Sydney - Tackling pollution, not freeing up trade,
is regarded as the solution to a global shortage of rare earths, the metals
that are the building blocks of the 21st century.
The United States, Europe and Japan have lodged a formal
trade complaint against China, the world's monopoly supplier of rare earths,
accusing it of choking exports of the metals, used in advanced technologies
from computer screens to hybrid cars.
Industry experts say the West and Japan have a strong case
to argue before the World Trade Organisation (WTO), but the same experts and
environmental groups argue that mere victory on a trade complaint will not be
enough to break China's grip.
Instead, they say the key to ending China's monopoly is for
other nations to help clean up one of mining's dirtiest industries - an
industry the United States, once the world's largest supplier, allowed to
wither many years ago.
China's rare earths refineries, which secured their monopoly
by turning out metals at extremely low prices for more than a decade, have
poisoned rivers with acid and piled up radioactive waste - an environmental
cost that aroused little controversy in developed, consuming nations when metal
prices were low.
Now that China has squeezed exports and driven up
international prices over the past three years - a move it says is needed to
clean up its industry and conserve a dwindling resource - the West and Japan
have finally cried foul.
"The rest of the world basically gave up on rare earths
10 years ago," said Ian Chalmers, managing director of budding Australian
rare earths miner Alkane Resources, one of a band of firms trying to redevelop
the industry outside China.
He said the turning point came when US rare earths miner
Molycorp mothballed its Mountain Pass mine in California in 2002, having four
years earlier shut down its separation plant due to problems disposing of waste
water. The mine had once accounted for 40% of global supplies of rare earths.
"The rest of the world was seemingly asleep as China
grew to become a goliath in the rare earth industry," according to a 2010
paper prepared for a US energy security thinktank, the Institute for the
Analysis of Global Security.
The rest of the world, though, is now waking up, thanks to
soaring world prices, with some of the more prized rare earths trading at more
than six times their 2009 prices and more than double domestic Chinese prices,
data published by another budding Australian miner, Lynas Corp, shows.
In 2007, Molycorp restarted Mountain Pass where it has
kicked off a modernisation and expansion plan, while budding Australian miners
Alkane Resources and Lynas have found investors are once again eager to fund
new mines and refineries - provided environmental issues are resolved.
"Environmental standards and technology have improved
greatly. The industry is capable of operating in a much more environmentally
responsible manner now," said Chalmers of Alkane Resources, which has run
a pilot processing plant in Australia since 2008 as it prepares to mine its own
lode of rare earths by the middle of the decade.
That environmental assurance by the industry, however, has
stirred scepticism, despite advances in processing technology and pollution
controls since the West ceded control to China.
"There is solid evidence from China, the United States
and even Malaysia, that the processing of rare earths contaminates the
environment and endangers health," said Ronald McCoy, president of Malaysian
Physicians for Social Responsibility.
His group has been campaigning to stop Lynas Corp opening a
rare earths plant under construction in east Malaysia. Lynas says the plant,
which will process ore mined in Australia, will use state-of-the-art technology
and meet strict environmental rules, but this has not satisfied protesters.
Malaysian protesters blame an earlier rare earths plant,
shut by Japan's Mitsubishi Chemicals in 1992, for birth defects and a high
number of leukaemia cases.
The price of control
China's message has been consistent: it deserves to profit
more from its dominant role in the supply of the 17 vital elements used in a
wide range of advanced electronics, and should no longer be expected to pay the
full environmental costs of providing more than 90% of global supplies.
Environmental campaigners point to studies done in both New
Jersey and China showing that thorium radiation emitted during the refining
process and by plant waste can cause cancer, leukaemia, birth defects and
chronic lung diseases.
The government said the whole sector has been producing more
than 20 million tonnes of poisonous waste water a year. In the major Chinese
production regions of Inner Mongolia in the northeast and Jiangxi in the east, mining
has created bubbling streams of toxic tailings that contaminate water supplies
and render farmland worthless for decades.
Beijing has shut hundreds of small private operators accused
of neglecting health and safety standards in the quest for quick profits - but
pollution from giant state-owned producers such as Baotou Rare Earth is just as
"We believe there are legitimate environmental concerns
in the issue of rare earth mining and many actions taken on the Chinese side,
like shutting down rogue mines, are based on such concerns," said Ma
Tianjie, a Beijing-based campaigner with Greenpeace.
"Big consumers of rare earths such as the United
States, the European Union and Japan should see this as a shared responsibility
and should refrain from just pointing fingers at China."
China's commerce ministry spokesperson Shen Danyang stressed
that China seeks to protect its resources and environment rather than restrict
free trade or promote domestic industry.
But foreign buyers claim China has been trying to do both.
Quite apart from restricting supply, it has created a de facto "two-tier
pricing system" that allows rare earths to be sold to domestic firms at a
"Using an environmental defence requires even-handedness
in the way China has imposed environmental restraints - it can't just be to
protect their own," said Chin Leng Lim, WTO expert and professor of law at
the University of Hong Kong.
For China, there is no contradiction. Pollution from rare
earths mining is just one manifestation of a wider problem that relates to its
global market role. Instead of stripping the earth bare to supply raw materials
to the world, Beijing wants to move up the value chain and dominate downstream
By letting domestic manufacturers buy rare earths at a
significant discount, it is seeking to attract foreign firms to relocate to
China and help China move up the value chain.
"There have been plenty of instances where companies
reliant on Chinese rare earths have had to send their manufacturing business
into China, which, from a Chinese economic perspective, is a strong
result,"” said David Nolan, chairperson of Hastings Rare Metals, an
Australian mining firm that is developing its own rare earth deposit.
"Beijing uses export controls and its monopolistic
position as producer... as the basis of a strategy to build world class
companies that create jobs," said David Abraham, an independent resource
analyst based in Jakarta.
"In a sense Beijing is modelling domestic firms after
companies like Hitachi, once a mining company but now a massive electronics and
infrastructure conglomerate," he said.
The term rare earths is something of a misnomer. The
elements themselves are not especially rare, but the ores are hard to refine.
China came to dominate the field partly because it developed the separation
capacity required to process the ores and the stomach required to put up with
It also had the cheap human resources required to scour
remote regions like Inner Mongolia for deposits, giving it a significant price
advantage, allowing it to flood the market and drive out competitors.
"There has been a clear, very aggressive policy from
China," said an EU official speaking on condition of anonymity. "It
has more than 90% of world production and there is a reason for that: it
results from very aggressive pricing over the last 20 years."
A commentary by state news agency Xinhua this week accused
Western countries of trying to have it both ways: China, normally criticised
for undercutting its foreign competitors, was now subject to WTO action for
charging too much.
But China's initial move to flood the market with cheap
supplies was tolerated because rare earths were used only in small quantities
and in relatively low-end technologies such as glass polishing and oil
"Previously the world worked quite well with the manner
in which China was allowing rare earths to be exported and satisfying the
demand from other countries," said Nolan of Hastings Rare Metals.
Chinese officials insist the country's dominance is no
longer anything to celebrate. Despite having only a third of global reserves,
it has damaged its environment in order to supply the bulk of the world's rare
They have said they are happy for other countries to
"share the burden" of production, and Beijing's supply restrictions
have already encouraged other sources to emerge.
Projects launched by the likes of Hastings Rare Metals,
Molycorp, Lynas and Arafura Resources could cut China's overall share of the
output of certain critical rare earth oxides from 98% in 2010 to as low as 41
to 46% in the next five years, according to a 2011 paper by Technology Metals
Beijing's strategy is no longer based on maintaining market
share, but on improving value. With global supplies expected to remain tight
over the next decade, China will see no reason to radically adjust its strategy
for the sector, regardless of any future WTO ruling.
"The world still faces a critical shortfall of certain
rare earth elements. That's not a China problem, that's a global one,"