Obama slams China in WTO action over rare earth metals

The three economic powers lodged a complaint with the World Trade Organization saying China -- which produces 97 per cent of the world's supply of rare earths like lutetium and scandium -- was unfairly benefiting its own industries by monopolizing global supply.

"If China would simply let the market work on its own we would 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.

The complaint argues Beijing places restrictions on the export of 17 rare elements as well as tungsten and molybdenum.

Used to make a range of high tech products, including powerful magnets, batteries, and LED lights, they find their way into electric cars, iPods, lasers, wind turbines and missiles.

"China's restrictions on rare earths and other products violate international trade rules and must be removed," EU Trade Commissioner Karel De Gucht said, adding Beijing had failed to make any changes after an early complaint.

"This leaves us no choice but to challenge China's export regime again to ensure fair access for our businesses to these materials," he added.

The complaint formally requests "dispute settlement consultations," the first step in any bid to settle WTO disputes.

Beijing said it would abide by the WTO's procedures.

But it argued its controls, which include export duties and quotas, are necessary to help conserve highly sought-after natural resources, limit environmental damage from excessive mining and meet domestic demand.

"Based on environmental protection and in order to achieve sustainable development, China carries out management policies over the export of rare earths," foreign ministry spokesman Liu Weimin said.

"We believe such measures comply with WTO rules."

A commentary from the official Xinhua news agency branded the filing "rash and unfair" and said it was "likely to hurt bilateral trade ties and trigger a backlash from China instead of settling the rift."

It is the newest complaint by industrial powers at the WTO over Chinese trade in raw materials. Earlier this year the Geneva-based body found China to have illegally restricted exports of raw materials like bauxite, zinc and magnesium.

"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," said US Trade Representative Ron Kirk.

"Because China is a top global producer for these key inputs, its harmful policies artificially increase prices for the inputs outside of China while lowering prices in China."

"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," Obama said Tuesday.

Obama's decision to publicly upbraid Beijing from the White House Rose Garden may reflect the intense political heat he is facing on China trade issues as his re-election campaign unfolds against a fragile economic recovery.

But it is also in line with the fundamentals of his China policy that seeks cooperation with Beijing to ensure its peaceful rise, while being committed to holding the country accountable to global "rules of the road" in world trade.

The White House last month set up a high-level interagency team under the USTR office to expedite trade complaints, with China the primary target.

But the announcement came just as China's Vice Foreign Minister Cui Tiankai was visiting Washington.

State Department spokeswoman Victoria Nuland said she did not know if US officials briefed Cui on the WTO action but said that Washington's concerns on rare earths should come as no surprise.

"We've had WTO cases with allied countries, let alone partner countries, that have been resolved successfully using those mechanisms," Nuland said.

"So our hope is that this can be resolved and can be resolved appropriately using WTO mechanisms," she said. "We have... obviously a lot of other business to do at the same time."