[WSMDiscuss] China and the Geopolitics of Rare Earths

Sajai Jose zazai.reset at gmail.com
Sat Aug 28 05:00:30 CEST 2021

this is esp. relevant in the context of afghanisthan

On Sat, Aug 28, 2021 at 8:28 AM Sajai Jose <zazai.reset at gmail.com> wrote:

> https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5>
> also see
> https://www.project-syndicate.org/commentary/china-critical-minerals-new-geopolitics-by-sophia-kalantzakos-2020-10
> How China Came to Dominate the Rare Earth IndustrySophia Kalantzakos
> DOI:10.1093/oso/9780190670931.003.0005
> Abstract and Keywords
> Once a leader in the production and trading of rare earths, the United
> States relinquished the reins to China in the 1990s. The People’s Republic
> of China declared rare earths “protected and strategic materials” and
> proceeded to control production and processing, introduced export quotas,
> and sought to dominate the supply chain for crucial applications. It also
> made investments in mines worldwide. The 2010 crisis caused a parabolic
> rise in prices, leading the United States, the European Union, and Japan to
> file a complaint against China at the World Trade Organization, in 2012,
> and to launch trilateral cooperation workshops, starting in 2011, to
> promote recycling, substitution, and innovation. China lost its WTO appeal
> and removed the export quotas in May 2015. The market corrected itself, and
> it may seem today that China lost an initial battle; but closer examination
> indicates that it may not have lost the war.
> *Keywords:*   rare earths
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=rare%20earths>
> , WTO
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=WTO>,
> quotas
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=quotas>
> , trilateral workshops
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=trilateral%20workshops>
> , magnets
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=magnets>
> , recycling
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=recycling>
> , substitution
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=substitution>
> , innovation
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=innovation>
> , mines
> <https://www.universitypressscholarship.com/search?f_0=keywords&q_0=mines>
> Improve the development and application of rare earth, and change the
> resource advantage into economic superiority.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-413>
> The United States was initially the leader in producing and trading rare
> earths, and in finding ever advanced technological uses for them. The
> discovery of rare earths at Mountain Pass, California, in 1949, had been an
> important event for the US science community. Russia and the United States,
> the two world superpowers, were in the process of creating a balance of
> fear through the threat of nuclear weapons. To achieve this, however, both
> countries needed uranium. It was a radioactive signature associated with a
> mountain outcrop that led to the discovery of Mountain Pass. Prospectors
> thought they had “struck” uranium, and after analyzing the materials, laid
> claim to the deposit. The ore they had discovered was identified as
> flourocarbonate bastnaesite, and the radioactive material was thorium (in
> small amounts) with only very minor traces of uranium.2
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-414> By
> 1953, the mine had come to be owned by the Molybdenum Corporation of
> America, which had begun producing bastnaesite. It was initially designed
> for the separation of europium, which quickly became an important element
> in making color televisions.3
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-415> Molycorp,
> as it was known, also extracted lanthanum, cerium, neodymium, and
> praseodymium, and scientists quickly began to (p.118) discover new uses
> for these additional materials. The Molycorp mine dominated rare-earth
> production and exports for the next few decades, until China began to
> discover the full potential of its own resources.
> New applications that required rare earths led to a growth of demand. One
> such application was the use of rare earths in mischmetal (alloy of rare
> earths) used extensively for the Alaskan oil pipeline. In the late
> seventies, prices for the elements increased significantly in line with
> inflationary pressures in the United States. Double-digit inflation after
> 1978 in combination with high energy prices pushed rare-earth prices
> upward, in line with operational-cost increases that impacted the mining
> industry.
> Prices stabilized as a result of the US economic recovery. One curious
> exception at the time was the price of scandium, which was mainly produced
> in the Soviet Union. In 1984, the USSR ceased exports of scandium on
> account of “laser research.” Its price, according to a US Geological Survey
> report by James B. Hedrick, skyrocketed to $75,000 per kilogram.4
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-416> This
> anomaly ended when US production of scandium was brought online.
> Other exogenous factors also impacted the rare-earth market. New
> environmental legislation that reduced the lead content in gasoline
> dampened the demand for the elements in petroleum fluid-cracking catalysts,
> where rare earths were used extensively. The result was a sharp decline in
> prices. Production in the United States was cut to offset the price
> decline, which resulted in supply shortages and caused prices to rebound.
> Overall, rare-earth prices were volatile in the 1980s and 1990s. They
> became dependent on the type of rare-earth element that was in demand.
> High-purity products, such as neodymium and dysprosium, began to see price
> increases because there was a growing demand for neodymium iron boron
> magnets in which the two elements were used.5
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-417> The
> next impact on rare-earth prices was caused by China’s dynamic entry into
> the market.
> China Realizes the Importance of Its Rare Earth Resources
> Ding Daoheng, a well-known Chinese geologist, discovered a wealth of
> rare-earth deposits in Bayan Obo, in inner Mongolia, in 1927.6
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-418> A
> few years (p.119) later, it was confirmed that the deposits contained
> bastnaesite and monazite. The Chinese built a mine in the 1950s and began
> recovering rare earths in the process of producing iron and steel.7
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-419> In
> the 1960s, China also discovered bastnaesite deposits in Weishan County,
> Shandon, and in the 1980s, more basnaesite in Mianning County, Sichuan. The
> recovery of rare earths, especially from Bayan Obo, became a major priority
> for the Chinese, and they hired technical personnel to help develop and
> advance their methods of recovery. They invested heavily in the research
> and development of rare-earth technologies. Production levels increased
> with growing demand. Between 1978 and 1989, China averaged an increase of
> 40 percent annual production, thus becoming one of the world’s largest
> producers.8
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-420> During
> the 1990s, its exports grew rapidly, causing prices to plummet, a strategy
> that either put competing companies out of business or drove them to
> greatly curtail operations.
> Bayan Obo is the world’s largest REE resource.9
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-421> It
> is estimated that the total reserve of iron in that region stands at 1.5
> billion metric tons, with an average grade of 35 percent. The same deposit
> is estimated to include 48 million tons of rare-earth oxides, with an
> average grade of 6 percent. It contains close to one million tons of
> niobium, with an average grade of .13 percent. Considered the most valuable
> rare-earth production site in the world, in 2005, it accounted for 47
> percent of the total rare-earth production of China, and 45 percent of that
> of the world. In addition, the rare earths in Bayan Obo occur primarily in
> monazite and bastnaesite, and contain very high REE content (6%) and
> extremely high LREE to HREE ratios.10
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-422>
> In 1990, the Chinese government declared rare earths a “protected and
> strategic mineral.”11
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-423> This
> was clearly a strategic move on the part of a state that had begun to
> understand the potential that the rare-earth industry had for China. Since
> then, China has sought effective ways to increase centralized control over
> the industry, create a higher market value for the elements, build supply
> chains inside China, develop technical knowhow, and attract high-tech
> companies using rare earths to manufacture final products inside the PRC.
> From the moment China declared rare earths to be a “protected strategic
> material,” it meant that foreign investors could participate in rare-earth
> (p.120) smelting and separation only as part of a joint venture with
> Chinese firms. Foreign investors were also prohibited from mining rare
> earths. Smelting and separation projects similarly required Chinese state
> approval. Joint ventures, moreover, needed the approval of the Chinese
> State Development and Planning Commission as well as that of the Ministry
> of Commerce.12
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-424>
> China First Captures the Magnet Industry
> With regard to the supply chain, China sought first to capture the magnet
> market—as samarium became a key ingredient for supermagnets made of
> samarium cobalt. Today, magnetic technology is perhaps one of the most
> important uses of rare earths both commercially and militarily. Permanent
> magnets that utilize rare earths not only provide greater magnetic power,
> but they also can be much smaller in size. The issue of size is critical in
> applications like computers. The samarium cobalt (SmCo) magnet and the
> neodymium-iron-boron (NdFeB) magnet are the two leading REE magnets on the
> market. They are particularly useful for military applications such as
> missile-guided systems because of their thermo-stability.13
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-425>
> The neodymium-iron-boron (NdFeB) magnet was introduced in the 1980s. The
> story behind the NdFeB magnet is revealing of the Chinese modus operandi
> with respect to controlling the REE industry and an important indication
> that China attempted to corner the market for rare earths by design. When
> these magnets were created, two companies, General Motors and Hitachi,
> acquired patents. GM patented the “rapidly solidified” magnets, and Hitachi
> the “sintered” magnets. GM then proceeded to establish a company to produce
> the magnets for its vehicles. It was named Magnequench. In 1995, two
> Chinese groups14
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-426> joined
> forces with a US investment firm and attempted to acquire Magnequench. The
> US government approved the acquisition after a review, and the deal was
> allowed on condition that the Chinese agree to keep the company in the
> United States for at least five years. The day after the deal expired, the
> company shut down its US operations; employees were laid off, and the
> entire business was relocated to China.
> (p.121) The deal was a strategic mistake on the part of the United
> States, because when the business left, so did the technology. In 1998, 90
> percent of the world’s magnet production was in the United States, Europe,
> and Japan. Within a decade, the bulk of the magnet industry had moved to
> China. Today, China continues to try to corner the magnet industry. Chinese
> producers have turned their attention to Japanese companies, which hold the
> majority of the rare-earth magnet patents when China is in fact the
> producer of nearly 90 percent of the global supply. In 2014, for example,
> seven Chinese rare-earth companies took Hitachi Metals to court in the
> United States, claiming that after its patent expired Hitachi was creating
> unfair market barriers preventing them from exporting independently and had
> violated international patent law.15
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-427> This
> is another indication that China seeks to add value to its economy in line
> with the “Made in China 2025” targets that the government has set in motion
> to comprehensively upgrade Chinese industry. The plan as it has been
> described by the State Council aims to raise domestic content of core
> components and materials to 40 percent by 2020 and 70 percent by 2025. It
> calls for an emphasis on green development and the use of innovation,
> emphasizing quality over quantity.16
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-428>
> Seeking to Buy into Other Rare Earths outside China
> By the same token, China has consistently attempted to monopolize REE
> resources worldwide. It ventured to acquire Molycorp and the Mountain Pass
> Mine. From 1978 onward, the company was owned by Union Oil Company of
> California (UNOCAL), a major American petroleum explorer and marketer. In
> 2005, the China National Offshore Oil Corporation (CNOOC) submitted a bid
> of $18.5 billion cash to purchase UNOCAL. The Chinese company outbid
> Chevron by a half-billion dollars.
> The CNOOC bid raised concern in the United States about energy security
> and the deal did not go through.17
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-429> During
> the heated political debate over the issue, arguments for the need to
> defend national security (p.122) prevailed. James Woolsey, former
> director of the Central Intelligence Agency under President Clinton,
> weighed in at a hearing of the House Armed Services Committee stating
> emphatically, “This is a national security issue. China is pursuing a
> national strategy of domination of the energy markets and strategic
> dominance of the Western Pacific.”18
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-430> Little
> attention was paid to the fact that had the deal gone through, the Chinese
> would have acquired Mountain Pass as well, solidifying their monopoly over
> REEs worldwide.
> China also attempted, in 2009, to acquire a 51 percent stake in the Lynas
> Corporation, which is in possession of the Mount Weld mine in Western
> Australia, considered the richest deposit of rare earths outside China. The
> Chinese company attempting the purchase, China Nonferrous Metal Mining
> Company (CNMC), terminated its $505 million bid for a controlling stake in
> Lynas, citing the stringent demands of Australia’s Foreign Investment
> Review Board, which had stipulated that the CNMC reduce its ownership share
> to below 50 percent and hold a minority of seats on Lynas’s board.19
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-431> The
> Chinese did not welcome the decision. “For a long time, China has had an
> open policy when it comes to foreign companies investing here. We hope
> other governments can take the same position when it comes to Chinese
> firms,” Foreign Ministry spokeswoman Jiang Yu said in September 2009.20
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-432> Once
> again, had this deal materialized, the world’s dependence on China would
> have been nearly complete.
> The minutes from the review board meeting, on September 23, 2009, gave
> voice to these strategic concerns. The sale of a controlling stake in Lynas
> was considered to be against Australian national interest.21
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-433> “We
> have concluded that they would not be able to exclude the possibility that
> Lynas’s production could be controlled to the detriment of non-Chinese end
> users,” the minutes show. That would have been “inconsistent with the
> government’s policy of maintaining Australia’s position as a reliable
> supplier to all our trading partners and hence potentially contrary to
> national interest.”22
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-434> The
> Jiangsu Eastern China Non-Ferrous Metals Investment Holding Co., however,
> did acquire a 25 percent stake in Arafura Resources, which owns the Nolans
> Bore mine in Northern Australia.23
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-435>
> (p.123) Nonetheless, China continued to consolidate and strengthen its
> dominance over the rare-earth industry, a strategy that progressively led
> to the production of permanent magnets, oxides, and alloys moving there as
> well. This relocation of production to China resulted in the United States
> giving up its position as the leading researcher in the field of REEs.24
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-436> The
> erosion of technical expertise is viewed as even more serious than the
> question of resumption of production in the United States, because China
> dominates all the rest of the steps in the rare-earth supply chain.
> Though China made efforts to strategically control its power over the REEs
> and their applications, it thought that prices were too low and failed to
> reflect the scarcity of the resources and the damage their extraction and
> processing caused to the environment. Furthermore, in the first decade of
> the twenty-first century, the PRC emphasized the goal of developing
> downstream industries within the country and also promoted the goal of
> high-tech manufacturing by the Chinese. These targets were reflected in the
> twelfth five-year plan. Announced in May 2011, the list included such
> downstream industries as magnets, phosphors, hydrogen storage materials,
> and abrasive polishing materials. This twelfth five-year plan contained
> ambitious targets for not only improving energy efficiency and reducing
> carbon emissions, but also for investing and transforming China into the
> leading producer of renewable energy. Given the Chinese decision to
> diversify the country’s energy mix by including vast amounts of renewables,
> rare earths have now become a key ingredient for the success of their
> green-energy applications. “Rare earths are the vitamins of modern industry
> and they are China’s 21st century treasure trove of new materials,”25
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-437> Wang
> Min, vice minister at the Ministry of Land and Resources said in 2011.
> Even now, after the rare-earth crisis, the most recent thirteenth
> five-year plan continued to build on these priorities—that is,
> conservation, environmental governance, protection and restoration of
> ecosystems, emissions control, the accelerated shift to renewable energy,
> and a further emphasis on an innovation economy.26
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-438> According
> to the 2017 REN21 (Renewable Energy Policy Network for the 21st Century)
> report, China was already the global leader for new wind power
> installations in 2016. (p.124) Asia overall represented about half of the
> added wind capacity. Moreover, while wind power installation expanded to
> new markets globally, Europe and North America accounted for most of the
> rest of installed capacity in 2016.27
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-439> Already,
> China is the global leader in the solar sector.28
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-440> In
> fact, it also now boasts the top capacity of power generation from wind as
> well.29
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-441> An
> earlier report by the Chinese Renewable Energy Industries Association
> (CREIA), the Chinese Wind Energy Association (CWEA), and the Global Wind
> Energy Council (GWEC), clearly indicated the rapid growth of wind power
> installation over the last several years in China.
> The Chinese wind industry installed 16,089 MW in 2013, an increase of
> 3,130 MW over 2012, for annual market growth of 24%. At the end of 2013,
> the cumulative installed capacity in China was 91,413 MW, an annual market
> growth rate of 21%. In 2013, wind power generated 134.9TWh of electricity,
> making wind the third largest power generation source in China after
> thermal power and hydropower, providing 2.5% of China’s electricity. This
> is less than the EU’s 8%, but an increase of 25% from 2.0% in 2012.30
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-442>
> In 2016, the total installed wind-power capacity in gigawatts for China
> was 168.7 (GW), compared to a total of 153.7 GW for the EU and 82.1 GW for
> the United States.31
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-443> China’s
> solar capacity at the end of 2016 stood at 77.4 gigawatts (GW). The new
> domestic priorities of the PRC’s five-year plans for the future speak to
> concerted government intervention in the rare-earth industry to build the
> particular high-growth economic sector of renewables and high-tech
> applications.32
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-444>
> China Seeks to Add Value to Its Rare-Earth Industry: Quotas, Taxes, and
> the Supply Chain
> Already, in August 2009, there was a draft report from China’s Ministry of
> Industry and Information Technology indicating that exports would be banned
> within the next five years. This alarmed those in both military (p.125) and
> commercial industries that were dependent on the Chinese. Given the
> potential resource scarcity that suddenly reared its head in the
> international rare-earth industry, there was renewed interest in exploring
> new REE supplies in other areas of the world. A handful of Canadian mining
> companies began doing just that in South Africa, Brazil, and the United
> States while also moving forward with existing projects.
> “There has been increased interest to look into ways to mine rare earth
> out of China, especially given the protectionism China is applying to its
> resources,” said Frederic Bastien, an analyst at Raymond James in answer to
> a question asked by the *New York Times* in September 2009.33
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-445> Canadian
> companies looking for rare-earth resources outside China included Great
> Western Minerals Group, Rare Element Resources, Avalon Rare Metals, and Neo
> Material Technologies. Though the signs of China’s intentions were clear in
> 2008, it was in July 2010, after China drastically reduced exports and was
> accused of withholding shipments to Japan over the two countries’
> geopolitical dispute in September, that the surprise over the extent of the
> disruption fully registered. This reaction then shook the rare earths
> industry and triggered an unanticipated and exorbitant rise in REE prices
> through 2011.
> On July 9, 2010, Bloomberg News, for example, raised an alarm, “China, the
> world’s largest rare-earths producer, cut export quotas for the minerals
> needed to make hybrid cars and televisions by 72 percent for the second
> half of the year, raising the possibility of a trade dispute with the U.S.”
> 34
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-446> Looking
> more specifically at the figures, the overall reduction of quotas of rare
> earths from 2005 to 2010 were over 50 percent (see Table 4.1
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-chapter-5-tableGroup-4>
> ).
> Table 4.1. Export Quotas 2005–2010a
> Year
> Tons of Rare Earth Oxides
> Annual change
> 2005
> 65,580
> 2006
> 61,070
> −6.9%
> 2007
> 59,643
> −2.3%
> 2008
> 49,990
> −16.2%
> 2009
> 48,155
> −3.7%
> 2010
> 30,259
> −37.2%
> The abrupt reduction in the allowed quotas of REEs from China also
> accelerated changes by the entire chain of the REE industry and gave rise
> to concerns that had political implications encompassing issues of national
> security.
> In 2011, exploration projects continued to multiply, as did investment and
> interest in rare-earth projects. According to the US Geological Survey,35
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-447> in
> 2012, economic assessments were ongoing in North America at Bear Lodge in
> Wyoming; Diamond Creek in Idaho; Elk Creek in Nebraska; Hoidas Lake in
> Saskatchewan, Canada; Kipawa in Quebec, Canada; Lemhi Pass (p.126) in
> Idaho-Montana; and Nechalacho (Thor Lake) in Northwest Territories, Canada.
> In other locations globally, economic assessments took place at Dubbo
> Zirconia in New South Wales, Australia; Kangankunde in Malawi; Mount Weld
> in Western Australia, Australia; Nolans Project in Northern Territory,
> Australia; and Steenkampskraal in Western Cape, South Africa.36
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-448>
> The three quota systems that China implemented vis-à-vis the rare-earth
> industry included the production quota issued from 2006 by the Ministry of
> Land and Resources, the smelting and separating quota issued by the
> Ministry of Industry and Information Technology that went into effect in
> 2010, and the export quota issued by the Ministry of Commerce. The latter
> was removed in 2015 in compliance with the WTO ruling (see below in section
> China and the WTO).
> Quotas, Allocations, and Their Repercussions across the Board
> On December 27, 2011, the Chinese Ministry of Commerce announced its first
> set of rare-earth export quotas for 2012. This first round of quotas was
> set at 24,904 tons.37
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-449> The
> Ministry issued separate quota allocations for light rare earths and
> medium/heavy rare-earth products. For the first time, rare-earth companies
> were separated into two groups, one made up of those with confirmed
> allocations and the second group with provisional (p.127) allocations.
> The criterion for being placed in the first group was being able to
> demonstrate progress toward implementing new pollution control regulations.
> Those with provisional quotas would receive them only if they met various
> requirements by July 2012. Failure to do so would mean that their quotas
> would be reallocated to compliant companies. The quota of 24,904 tons of
> rare earths announced by the government was revised in May 17, 2012 to
> 25,150 tons and represented 80 percent of the allocations for 2012. This
> was an indication that the total for 2012 would be only slightly higher
> than the 2011 quotas, which had stood at approximately 30,996 tons. It is
> worth underscoring that 87.5 percent of the 2012 quota was made up by light
> rare earths, which are the most abundant elements and considerably lower in
> price.
> “On December 27, 2012, the Foreign Trade Division of the Chinese Ministry
> of Commerce (MOFCOM) announced the first round of allocations of rare-earth
> export quotas for 2013. A total of 15,499 t of export quotas was allocated
> in this first round, comprising 13,561 t of light rare-earth (LRE) products
> and 1,938 t of medium/heavy rare-earth (M/HRE) products.”38
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-450> This
> was the second time that the allocations had been broken into the
> categories of light and medium/heavy rare earths. The first round of
> announced quotas for 2013 was considerably smaller than that of 2012 but
> the final allocation ended up being approximately 30,999 tons. One
> interpretation of this was that China would adjust its final quota in a way
> that would maintain stable price levels and control over the global supply.
> Moreover, in 2014, the proportion of M/HRE to total allocations was 11.8
> percent. This compares to 11.7 percent for 2013 and 12.5 percent for 2012,
> the first year that the quotas were split in this way.
> Furthermore, discussions were underway for the initiation of a
> central-government policy to attract processing plants to China, creating a
> more profitable downstream processing sector by reaping added value and by
> gaining technological expertise in the process. Consolidation,39
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-451> moreover,
> became a critical goal in order for the Chinese government to restrict
> rare-earth mining operations to state-owned enterprises. The Baotou Mine
> has been the center of the consolidation scheme, and the plan was for
> Baotou Steel40
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-452> to
> have exclusive rights to mine in the region. At the (p.128) time, *China
> Daily* wrote that the central government has been planning to reduce
> rare-earth mines from 123 to fewer than 10; and processing firms, from 73
> to 20.41
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-453> In
> the most recent announcements, of 2015, it was reported by the Xinhua News
> Agency that China’s natural resource ministry had declared that “plans
> consolidating the rare industry into six firms have been approved . . . The
> plans involve miners and processors in the industry consolidating under six
> firms—China Aluminum Corporation, Xiamen Tungsten Co Ltd, Inner Mongolia
> BaoTou Steel Union Co Ltd, China Minmetals Corporation, Ganzhou Rare Earth
> Group Co Ltd and Guangdong Rare Earth Industrial Group Co Ltd.”42
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-454>
> The first batch of mining quota announced for 2016 was a combined 52,500
> metric tons of rare earths of which medium/heavy rare-earth minerals
> amounted to 8,950 metric tons.43
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-455> The
> six Chinese companies that are owned by the state produced 99.9 percent of
> China’s rare-earth production quota for the first half of 2016 according to
> the Ministry of Industry and Information Technology.44
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-456>
> Five of these Chinese companies are listed and have produced 74 percent of
> the production quota for the first half of 2016. While their market value
> is estimated at approximately US $23.4 billion, this number does not
> accurately reflect the market value for the rare-earth industry because
> these companies do not produce rare earths exclusively but other materials
> and products as well (such as steel and aluminum). Moreover, the value of
> the other ten global rare-earth companies combined stood at $409 million.
> Given that both Molycorp and the Great Western Minerals Group have now gone
> bankrupt, this estimate should be readjusted downward. Lynas, which
> continues to operate, had a market cap of $145.6 million in October 2016.
> 45
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-457> Arafura,
> the second mine in Australia in which the Chinese have a large stake had a
> market cap of approximately $25.1 million, also in October 2016.46
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-458>
> These figures may not seem significant enough to warrant such focus on
> rare earths. Nonetheless, the companies for which rare earths are
> indispensable, such as Apple and Samsung, boast a market capitalization of
> $614.6 billion and $216.2 billion respectively. Even Xiaomi, the Chinese
> smartphone producer, is now estimated to be worth $50 billion.47
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-459>
> (p.129) China’s plans for the rare-earth industry also included the
> implementation of a unified pricing mechanism. This action was aimed at
> cracking down on illegal mining and at stabilizing the market. China began
> requiring separator companies to produce documentation that they were
> buying legal feed. Illegal feeds48
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-460> may
> be bought at much lower prices, but companies with high standing in China
> would not risk their positions and would only dare to buy rare earths
> legally.49
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-461> Finally,
> China is said to have created a large stockpile of strategic reserves in
> the north of the country.50
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-462> More
> specifically, on August 5, 2014, Bloomberg reported that China had in fact
> “bought 10,000 metric tons of rare earths” for its stockpile.51
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-463> According
> to Peng Bo, an analyst at China Merchants Securities, whom Bloomberg
> quotes, “China is facing imminent pressure to abolish the export quota, so
> stockpiling is part of the policy reaction to help prop up prices and keep
> more of the resources at home for future use.”52
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-464> According
> to Huan Chen, an analyst at Beijing Antaike Information Development Co.,
> the government bought the rare earths at higher-than-market prices and are
> holding onto them in anticipation of increases in internal demand from
> domestic industry in the future.53
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-465>
> In 2012, Mark A. Smith, then the CEO of Molycorp, made some interesting
> observations on his blog about the 2012 REE quota announcement by the
> Chinese. In his view,
> China’s consolidation of its rare earth separations companies enables it
> to exercise much tighter control on what ultimately gets produced, consumed
> internally and exported . . . and allows for more effective control of what
> it considers “illegal” production. All this points to future constraints on
> global rare earth supply out of China.54
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-466>
> He also underscored the fact that, by withholding quotas to twenty
> companies until they complied with the new environmental regulations, China
> demonstrated its seriousness about cleaning up the environment. He did,
> however, add that the new requirements would increase production costs in
> China while also putting “pressure on China’s ability to increase its own
> production in line with increasing rare earth demand in China.”55
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-467>
> (p.130) Additionally, Mark Smith pointed out that the novelty of the
> announcement lay in the way the Chinese government categorized REEs into
> “light” versus “medium/heavy” for purposes of the split in export quotas.
> This was particularly interesting since, if an REE changes category from
> light to medium/heavy, it means that it will be in smaller supply, given
> that quotas in the heavy category were always lower.
> Smith used didymium, which is a combination of neodymium and praseodymium,
> and itself a critical element in the production of high-powered, permanent
> rare-earth magnets, to illustrate the point. If didymium were to be placed
> in the new middle/heavy category with tighter quotas, it could result in
> supply constraints. According to Smith, “Processors in northern China will
> use their heavies export quotas for didymium exports, while processors in
> the South will not have enough heavy quotas and will need to seek to
> purchase those from the North.”56
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-468> Finally,
> he indicated that supplies of terbium and dysprosium would be tight.
> Because of these developments, Molycorp, according to Mark Smith, would be
> focusing on substitution in downstream technologies that rely less on these
> scarcer rare earths. For companies such as Molycorp those higher prices
> initially provided space in which to grow and to look for ways to remain
> competitive in the rare-earth industry while China turned its attention
> inward. What initially looked like a hopeful scenario has today been proven
> an illusion inasmuch as Molycorp has gone bankrupt.
> China’s goals in mapping out this strategic approach to its rare-earth
> industry can be viewed as twofold, with the underlying aim of adding value
> to this important resource. First, it can be argued that China sought to
> ensure that it could service its domestic REE needs and Chinese consumers
> at prices lower than those exported. Second, that it also aimed to continue
> to provide access to international companies that would move and maintain
> their manufacturing facilities in China. These companies would be required
> to pay more than Chinese consumers, but prices would still be lower for
> them than for the rest of the world. With such focused domestic priorities,
> international consumers would need to find other sources for purchasing
> rare earths.57
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-469>
> (p.131) In 2011, prices for rare earths went through a correction. From
> 2012 and the beginning of 2013, there has been a period of market
> fluctuation following the initial period of alarm. Reasons for this include
> the economic downturn, the promise of new projects, and the continued high
> smuggling rates of rare earths from China. Nonetheless, prices remain
> substantially higher than they were before the crisis and China began
> adjusting its output to stabilize them.
> The issue of price volatility was immediately addressed by industry
> leaders. In 2011, the Lynas CEO at the time, Nicholas Curtis, spoke at the
> company’s general meeting in Australia saying that the 2010–2011 price
> explosion for rare earths had given rise to extraordinary media attention.
> The high prices, he conceded, helped to create investor interest in the
> sector. Nonetheless, he had to admit that these prices could not have been
> sustained by the industry. He went on to explain the correction, its
> aftereffects, and the industry’s prospects.
> Since August 2011 there has been a substantial retracement in Rare Earths
> prices and a consequent readjustment of equity market valuations in line
> with a much more sober global economic outlook. We believe this price
> retracement is healthy for the industry. Prices are still very satisfactory
> but much more sustainable for our customers. Our job is to grow the overall
> market for Rare Earths. This is difficult at unreasonably high prices. In
> fact, earlier in the year a number of upstream industrial recycling
> processes were implemented and this has led to a one-time reduction in
> demand for Rare Earths. However, with these process changes now in place,
> the industry is now poised for renewed growth in demand and we are
> committed to growing with our customers by providing Rare Earths at prices
> that are sustainable for both customers and suppliers alike.58
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-470>
> Figures 4.1
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-chapter-5-figureGroup-6>
> , 4.2
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-chapter-5-figureGroup-7>,
> and 4.3
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-chapter-5-figureGroup-8> show
> the price fluctuation of a number of rare earths and rare earth oxides.
> [image: How China Came to Dominate the Rare Earth Industry]
> Figure 4.1 Price changes of select rare earth oxides 2008–2016
> SOURCE: Rare Earths Prices, January 31, 2008–January 31, 2016, via
> Bloomberg LP, accessed September 28, 2016
> [image: How China Came to Dominate the Rare Earth Industry]
> Figure 4.2 Price changes of select rare earth oxides 2008–2016
> SOURCE: Rare Earths Prices, January 31, 2008–January 31, 2016, via
> Bloomberg LP, accessed September 28, 2016
> [image: How China Came to Dominate the Rare Earth Industry]
> Figure 4.3 Price changes for neodymium oxide and neodymium 2008–2016
> SOURCE: Rare Earths Prices, January 31, 2008–January 31, 2016, via
> Bloomberg LP, accessed September 28, 2016
> The steep price hikes gave both industry and the government59
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-471> much
> cause for concern, especially given the numerous reports that (p.132)
> (p.133) raised alarms for at least five of the elements that were vital
> for clean-energy applications—dysprosium, neodymium, terbium, europium, and
> yttrium.60
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-472> These
> five elements are used in magnets for wind turbines and electric vehicles,
> as well as phosphors, in energy-efficient lighting.
> China attempted to address international concerns. While conceding that
> prices had significantly increased, a white paper published by the
> government in 2012 argued that there had been, for many years, a “severe
> divergence between price and value.”61
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-473> It
> stood by its assertion that it was time for China to protect its reserves
> and enforce strict environmental regulations for extraction and processing.
> The World Reacts to the Realization of the Growing Scarcity of REEs
> It took an aggressive move on the part of the Chinese for the
> international community and world industry to fully grasp what dependence
> on one supplier of rare earths might mean in the high-tech race. As Cindy
> Hurst (p.134) put it, “The world was seemingly asleep as China grew to
> become a goliath in the rare-earth industry. It took the rest of the world
> nearly 20 years to suddenly wake up to the realization that the future of
> high technology could be in the hands of this one supplier.”62
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-474> One
> might find particularly surprising the extent to which the world seemed to
> have been unprepared for these developments and unable to see their stark
> dependency. In hindsight, closer scrutiny of Chinese policies should have
> made China’s intentions and goals more readily apparent.
> In the initial critical period in 2010, the United States, the EU, and
> Japan—all primarily dependent on accessible and affordable rare-earth
> supplies—joined efforts to address the situation. Each of these industrial
> powers designed and implemented a number of internal domestic strategies
> and policies to respond and adjust to the challenges caused by the supply
> disruption and the realization of China’s inordinate market power. Two
> significant initiatives, however, stood out from the rest. First, the US,
> the EU and Japan filed a complaint against China with the WTO; second, they
> began joint collaborations through a series of trilateral workshops63
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-475> to
> work on substitution, diversification, conservation, reuse, and recycling
> as a way to lessen their dependence on Chinese rare earths.
> Both initiatives, however, were undertaken with considerable delay. The
> first of three trilateral workshops took place one year after the crisis
> had erupted, starting in October 2011. The case against China at the WTO
> was filed in 2012, almost two years after the height of the crisis. The
> case brought against China with the WTO raises questions about the timing,
> intent, and efficacy of the complaint itself, when it is a well-known fact
> that WTO disputes require from one to three years to be settled. Why did
> the United States, the EU, and Japan resort to tools of economic statecraft
> so long after the fact? In 2012, when the affected parties decided on this
> plan of action, prices had already dropped significantly from their
> all-time high in 2011. Dysprosium oxide, for example, which had reached
> $1,903/kilogram64
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-476> in
> July 2011 was being sold for approximately $627/kilogram in February 2012,
> and even for less than $400/kilogram by December 2012.65
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-477> What
> kind of message did the big industrial powers intend to send China by
> proceeding in unison and with such fanfare if the problem was (p.135) short-lived?
> As expected, the WTO case produced a final verdict in 2014, four years
> after the beginning of the crisis. It was only on May 1, 2015 that China
> eliminated the controversial export duties to comply with the verdict.66
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-478> Ahead
> of that date, in April 2015, the Ministry of Finance announced a resource
> tax on rare earths based on “sales value instead of production quantity.”
> 67
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-479> Accordingly,
> taxes on light rare earths were set at “11.5%, 9.5%, and 7.5%, respectively
> in Inner Mongolia Autonomous Region, Sichuan Province, and Shandong
> Province, while for medium and heavy rare earths it is generally set at
> 27%.”68
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-480>
> Before taking a closer look at the most prominent, but delayed initiatives
> taken against China by the United States, the EU, and Japan, it might be
> helpful to give an overview of how each of these major industrial actors
> responded internally vis-à-vis the rare earths crunch. They clearly chose
> from a predictable array of options that were at their disposal attempting
> to weather the storm, vocalize their dissent, and develop a level of
> resilience. Looking back more closely, however, it becomes apparent that
> many of the initiatives either fizzled out or never came to pass. Part of
> this can be explained by the different regulatory traditions that impacted
> the focus of their strategies vis-à-vis the formulation of a critical
> minerals policy. Nonetheless, this shortsightedness may seem all the more
> perplexing since all three powers remain particularly dependent on rare
> earths for their high-tech, defense, and green applications.
> Europe’s twenty-first-century ambition, for instance, has been to complete
> its transformation into a knowledge society, an innovation society, and an
> inclusive low-carbon economy. To achieve these objectives, Europe has
> identified specific targets for diversifying its energy mix with renewables
> and has increasingly invested in new green technologies. These goals have
> been in line with a political decision to lead the fight against climate
> change through international cooperation and to exchange best technological
> solutions and best practices, as well as to champion the development of
> legally binding agreements.
> These objectives have allowed Europe to deliver a new paradigm for growth
> in a zone that has seen its economy contract since the 2008 global economic
> downturn and the prolonged debt crisis that has ensued. The (p.136) “green
> economy” has provided Europe with an area for new growth that is also
> aligned with the desires of its citizens for climate action. Manuel
> Barroso, the president of the EU Commission in 2010 had argued, “The crisis
> wiped out years of economic and social progress and exposed structural
> weaknesses in Europe’s economy. In the meantime, the world is moving fast
> and long-term challenges—globalization, pressure on resources,
> ageing—intensify. The EU must now take charge of its future. We need a
> strategy to help us come out stronger from the crisis and turn the EU into
> a smart, sustainable and inclusive economy delivering high levels of
> employment, productivity and social cohesion.”69
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-481>
> To achieve this vision and develop its high-tech sector, however, Europe
> has had to increasingly rely on imports of many critical raw materials.
> Sustained availability of these minerals and metals is critical for its
> economy, and when the rare-earth crisis erupted, this issue became a
> pronounced concern. In the words of Antonio Tajani, commissioner for
> industry and entrepreneurship in 2011, “Without assured access to critical
> materials, the deployment of European cutting-edge technologies will not be
> possible. European companies need to have a secure, affordable and
> undistorted access to raw materials. This is essential for industrial
> competitiveness, innovation and jobs in Europe.”70
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-482>
> European output of metallic minerals has been low, making Europe
> particularly vulnerable to disruptions and increasingly reliant on a global
> matrix of supply chains. According to the EU Critical Raw Material Report
> of 2014, Germany’s contribution to the global critical raw materials supply
> was 1 percent, while for France and Italy the contribution was 0 percent.
> 71
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-483> Already
> in 1975, the European Economic Community (EEC), as it was then called, had
> begun to address the need for uninterrupted access to important materials
> and it had drafted a raw materials report. This report pointed out the many
> vulnerabilities, such as insufficient diversification of supply, political
> instability in supplier countries, and insufficient knowledge of the
> current and future outlook of material usage. The report put forward a
> series of policy suggestions, including propositions meant to tackle
> bottlenecks and price volatility through long-term contracts, stockpiles,
> and international agreements.
> (p.137) The shock of the rare-earth crisis made these vulnerabilities
> particularly apparent. These minerals were critical inputs for the
> realization of Europe’s energy-technology policy launched in 2008. The
> SET-plan (Strategic Energy Technology Plan), as it is known, was designed
> to help accelerate knowledge development and technology transfer and
> uptake, maintain EU industrial leadership on low-carbon energy
> technologies, foster science for transforming energy technologies to
> achieve the 2020 Energy and Climate Change goals, and contribute to the
> worldwide transition to a low-carbon economy by 2050.72
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-484>
> The SET-Plan is meant to work in tandem with the European Industrial
> Initiatives (EIIs)73
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-485> to
> quickly develop key energy technologies at a European level. The European
> Energy Research Alliance (EERA) has sought to align R & D activities across
> Europe to the priorities of the SET-Plan and to establish a
> joint-programming framework across the continent. The SET-Plan, with an
> estimated budget of approximately €71.5 billion,74
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-486> provides
> the framework from which Europe’s 2030 climate and energy policy goals are
> to be realized.75
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-487> These
> goals reflect the EU’s intention to reduce greenhouse-gas emissions by 80
> to 95 percent below 1990 levels by 2050.
> With so much at stake, the EU first responded to the rare-earth crisis
> through the EU Raw Materials Initiative in 2010. The report was intended to
> help industry prepare for all eventualities by identifying the most
> critical materials having a high economic importance, yet also increasingly
> facing potential supply risks. Rare earths were prominent on the list.76
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-488> This
> was not the only initiative, however. It was coupled with the launch of a
> “rare earths diplomatic offensive”77
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-489> to
> restore access to these valuable minerals. Germany was the most vocal of
> European countries, speaking up repeatedly about the shortage of these
> critical elements. Germany raised the issue at the G20 talks in October
> 2010.78
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-490> Although
> not publicly released, a letter to the G20 was written by a broad coalition
> of businesses from North America, Europe and Asia underlining the
> repercussions of potential rare-earth shortages and asking that China not
> impose further restrictions on their export.79
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-491> In
> fall 2010, both the EU and the WTO had stated that they were addressing
> Germany’s concern over Chinese restrictions on rare-earth exports. The EU,
> furthermore, had that same year (p.138) weighed the possibility of taking
> legal action against China’s policy. In the end, however, it chose to join
> the United States and Japan in filing the joint complaint with the WTO in
> 2012.
> Andrea Maresi, the press officer to Antonio Tajani, the EU industry
> commissioner at the time, reported that Europe had begun to stockpile rare
> earths, in order “to better profit from the material that we have in the
> EU.” Maresi added, “We are trying to improve our sourcing and reduce our
> dependence on China.”80
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-492> Later,
> in November 2011, he stated that “European companies need to have a secure,
> affordable and undistorted access to raw materials. This is essential for
> industrial competitiveness, innovation and jobs in Europe. Today’s report
> (i.e.: on critical raw materials 2010) highlights that we are on the right
> track with our raw materials strategy.”81
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-493>
> In fact, following the commission’s report on critical materials in 2010,
> the Joint Research Center82
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-494> scientists
> found that five metals essential for manufacturing low-carbon technologies
> were at risk of serious shortages. The JRC scientists produced a list of
> recommended actions that would allow the SET-Plan to move forward smoothly
> to deploy and develop low-carbon applications.83
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-495> The
> metals identified were neodymium, dysprosium, indium, tellurium, and
> gallium. The recommendations in the JRC report included reuse, recycling,
> and, whenever possible, substitution with less critical materials,
> alternative technologies, and increasing Europe’s primary production by
> opening new or dormant mines.84
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-496>
> In October 2010, Germany’s economy minister, Rainer Bruederle, reiterated,
> “The most important domestic source of raw materials is more recycling. We
> need to utilize the valuable potential of our own residual waste.”85
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-497> At
> present, Germany has the highest commitment to a low-carbon economy of the
> EU industrial nations. Germany imports raw materials worth about 80 billion
> euros each year. Recycling is being widely talked about and discussed,
> especially among industrial nations that are wary of rare-earth shortages.
> But such a tactic faces many challenges, both technological and in terms of
> cost-efficiency. If prices are high, then recycling becomes a financially
> attractive alternative. If prices are low, the cost of recycling is
> prohibitive. Nonetheless, recycling figures remain very low, (p.139) and
> that is why the issue continues to be a top EU priority. Germany, for
> example, recycles only 1 percent of its natural resources. If that
> percentage were to rise to 10 percent in the next five years “that would be
> a very good achievement,” said Harald Elsner, a senior geologist at the
> Federal Institute for Geosciences and Natural Resources.86
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-498>
> Taking a further proactive approach to the crisis, the German government
> signed an agreement with Kazakhstan, on February 7, 2012, to form a
> “partnership in the raw materials, industrial and technological spheres,”
> focusing on rare earths.87
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-499> The
> drive to secure uninterrupted access to rare earths in response to price
> hikes has led countries like Germany to look for opportunities to invest in
> prospecting, in the acquisition of mining rights, in the construction of
> processing plants and to extend credit guarantees. These agreements for
> “priority access” were accompanied by technology-transfer arrangements that
> are vital for developing countries like Kazakhstan. This particular
> agreement, furthermore, represented a public-private partnership endeavor
> for the Germans. When industry initiated the negotiations with twelve of
> Germany’s largest industrial concerns, forming the Alliance for Raw
> Material Supply Security, the government stepped in to assist. Economic
> relations between the two countries have been growing in recent years.
> Today, Kazakhstan is Germany’s third largest crude-oil supplier. Agreements
> totaling approximately $4 billion came after Germany had also signed an
> agreement with Mongolia, another nation with untapped rare-earth reserves.
> Clearly, Germany has taken a leadership role within the EU to avoid China’s
> restrictions hampering its own economic and industrial objectives.88
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-500>
> As Manuel Barroso pointed out, in 2010, when he described how Europe was
> planning to proceed to fulfill the Union’s strategic objectives in the
> aftermath of the economic crisis plaguing its members, “The crisis is a
> wake-up call, the moment where we recognize that “business as usual” would
> consign us to a gradual decline, to the second rank of the new global
> order. This is Europe’s moment of truth. It is the time to be bold and
> ambitious.”89
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-501> The
> emphasis on mineral diplomacy, efficiency in production, and
> waste-management policies and initiatives reflected the new thinking that
> has entered the equation since the rare earths crisis.
> (p.140) Sustainability is a key goal in Europe’s vision in the
> Anthropocene, and it means more than just diversifying its energy mix. It
> also marks a transition to an innovative knowledge-based, low-carbon
> economy that supports the EU’s growth strategy. It means job creation
> heralded by politicians as a win-win proposition for the Union. “Solar,
> wind and biomass technologies have progressed most rapidly . . . Europe’s
> renewable energy sector added 320,000 jobs between 2005 and 2009 . . . In
> all, the employment potential from developing the renewable energy sector
> is estimated at three million jobs by 2020 [and] . . . in Germany alone,
> employment in the renewable energy sector is forecast to rise from 400,000
> today to 600,000 by 2020,”90
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-502> said
> Connie Hedegaard (former EU Commissioner) in 2012. According to the 2016
> renewable energy and jobs review published by International Renewable
> Energy Agency (IRENA), the total number of green jobs across the EU was
> estimated at 1.17 million in 2014.91
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-503> According
> to the same review, the wind industry accounted for the majority of these
> jobs, with Germany, the United Kingdom, Denmark, Sweden, Greece, and
> Austria making the most significant contributions in this area.
> Uninterrupted access to critical minerals is, therefore, essential if the
> EU is to continue to achieve these goals.
> The rare-earth crisis, therefore, prompted a long overdue examination of
> how to weather supply disruptions of valuable materials for its economy,
> especially given its transition to a low-carbon future. The 2014 EU Report
> on Critical Raw Materials indicated that China was in fact the most
> influential country in terms of the supply of the twenty most critical
> minerals. Included on this list of imports from China are antimony (87%),
> coking coal (51%), fluorspar (56%), gallium (69%), germanium (59%), indium
> (58%), magnesite (69%), magnesium (86%), natural graphite (69%), phosphate
> rock (38%), (heavy) REEs (87%), silicon metal (56%), and tungsten (85%).
> The continent’s resource poverty in the past was offset by expansion and
> colonialism, which ensured the acquisition of vital materials. Today,
> Europe relies on international trade. The EU’s initial consensual style of
> looking for the most effective means of addressing the rare earths crisis
> has not been strong enough, however, because it has left more practical
> (p.141) matters and new exploratory projects to its member states.
> Seemingly, the prevailing attitude is that industry is largely responsible
> for ensuring access to raw materials and for finding solutions to
> supply-chain vulnerabilities. In fact, the most recent Report on Critical
> Raw Materials for the EU,92
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-504> gives
> evidence that the few national strategies of member states that were
> included, in large part, reflected this notion of industry and individual
> member state responsibility.
> France (2010), Finland (2010), Germany (2010), the Netherlands (2011), the
> United Kingdom (2012), and Sweden (2010) were among the countries that
> produced reports on their raw material strategies. Sweden and Finland, for
> example, aimed at strengthening their mining positions and incorporating
> sustainability into the management of their resources. The others focused
> mainly on resource risk strategies; the United Kingdom emphasized “a
> framework for business action to address resource risk,” something that
> Germany also underscored. The EU has mainly focused on providing the
> regulatory framework to help avoid bottlenecks, level the playing field,
> and help to maintain fair market conditions.
> Throughout this period, Europe tried to maintain a balance in its
> relationship with China. The PRC provides a strong export market for
> Europe’s goods, invests in Europe, and holds significant amounts of
> European debt. Unlike the United States, as we shall soon see, though
> Europe desires to maintain a powerful say on the global playing field,
> engaging actively in how the world works, it is not positioning itself as
> the rival power to China. Furthermore, in the case of the EU, the question
> of access to rare earths has not been so strongly linked to the
> vulnerabilities in the defense industry; instead, the emphasis has been on
> high-tech and renewable applications overall.93
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-505> Nonetheless,
> if the crisis once again becomes as intense as it was in 2010 and 2011,
> Europe will not have set up an effective centralized plan that is
> sufficient to disentangle itself and its industries from China’s powerful
> hold on rare earths.
> When it became clear, in 2009, that the supply or rare earths would begin
> to be problematic, Japan, a major importer of rare earths, began to take
> steps to prevent shortages in their industries. Yukio Edano, Japan’s trade
> minister in 2012 said, “It is important that the consuming countries
> (p.142) and supplying countries . . . develop a global supply chain so
> that we are not dependent on one source, . . . If we cannot access these
> resources, it will slow the transition to renewables. This is not
> acceptable.”94
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-506> While
> Japan’s imports from China were particularly high it was believed—and
> strongly alleged by China—that perhaps up to a fifth of the REEs entering
> Japan came from a black market network95
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-507> that
> had been thriving in China.
> The Japanese government was thus forced into action because of the
> resource crunch and complicated geopolitical tensions. As a highly
> industrialized economy, Japan’s different product supply chains are spread
> all over the world. This fragmentation, characteristic of the global
> industrial economy, in combination with its own resource poverty and an
> increasingly tense geopolitical environment, put Japan in an extremely
> vulnerable position. This is why, even though Japan’s industries are
> expected to address and manage supply disruptions and ensure uninterrupted
> access to vital inputs, the state also takes an active role by working with
> businesses to help offset adverse impacts on the supply chain from regional
> rivalries.
> Japan’s REE industry is intrinsically linked to China. Forty percent of
> China’s REE exports go to Japan, in comparison with 18 percent to the
> United States. Japan, which boasts an exceptional high-tech industrial
> base, uses REEs in polishing (20%), metal alloys (18%), magnets (14%), and
> catalysts (12%). In 2011, 82% of its REEs originated from China.96
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-508>
> During the escalation of the rare earths crisis, Japan’s strategy included
> increased support for mining development in foreign countries and
> infrastructure development in surrounding areas. Japan also promoted active
> technology transfer and environmental conservation. Although Japan has been
> energetic in the area of urban recycling of metals from compact
> electronics, such as cell phones and digital cameras because of their
> significant rare-earth content, it understands the limited viability of
> this effort when rare-earth prices are low. “Recycling can’t be implemented
> immediately as it takes time for it to be a viable business. But there is
> no doubt it has to be done,” said Naohiro Niimura, a partner at Tokyo-based
> research and consulting firm Market Risk Advisory Co.97
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-509>
> (p.143) Given Japan’s acute supply vulnerabilities, in February 2004 the
> government integrated two agencies, Japan National Oil Corporation (JNOC)
> and Metallic Minerals Exploration Financing Agency of Japan (MMAJ) to
> establish the Japan Oil, Gas and Metals National Corporation (JOGMEC). It
> assumed its predecessors’ respective roles as independent administrative
> institutions in order to secure a stable supply of oil and natural gas and
> of nonferrous metal and mineral resources. JOGMEC manages Japan’s
> stockpiles of petroleum and liquid petroleum gas. It also manages the
> country’s national stockpiles of rare metals to ensure stable economic
> conditions. In addition, JOGMEC periodically reviews Japan’s commodities in
> reserve and stockpiles rare metals to ensure stable economic conditions;
> rare-earth elements have been designated as meriting close observation.98
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-510>
> JOGMEC has agreed to partner with India to more actively explore for new
> rare-earth resources and to establish a processing facility. This includes
> exploration of seabed minerals, which constitutes a new high-tech frontier
> for mining. The model by which Japan pursues these kinds of partnerships is
> by backing the endeavors of Japanese firms in these regions. India and
> Japan have embarked on a larger strategic partnership, in addition to their
> September 2014 agreement, on the commercial contract between Indian Rare
> Earths Limited and Toyota Tsusho Corporation for the exploration and
> production of rare earths.99
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-511> Japanese
> firms are particularly interested in the raw stage of rare earths, so they
> seek mining projects outside China in which to invest. Examples of such
> projects include the collaboration between Sumitomo Corporation and
> Kazakhstan’s National Mining Company—Kazatomprom—which have formed a joint
> venture to produce LREEs. Toyota Tsusho and Sojitz partnered with Vietnam’s
> Dong Pao project to produce LREEs.
> JOGMEC also invested in the Lynas Corporation of Australia100
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-512> in
> 2011. Specifically, Sojitz Corporation and JOGMEC provided a total of
> US$250 million101
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-513>—through
> loans and equity—to receive over a period of ten years 8,500 tons of
> rare-earth products for Japan. The Foreign Investment Review Board in
> Australia approved the investment in April of 2011. Japan’s proactive
> investment has helped to keep Lynas operational. (p.144) The mine, one of
> only two significant rare-earth mines outside of China, has faced many
> challenges in trying to stay afloat since the rare-earth crisis. Its
> counterpart in the United States, Molycorp, has already gone bankrupt.
> Japan clearly recognizes the geostrategic implications the rare-earth
> crisis signifies given its growing and increasingly heated rivalry with
> China especially because of how it has itself been impacted. This is why
> its strategy reflects a sense of urgency as it seeks concrete and practical
> ways of weathering another possible crisis and shortage. Relying on
> imports, Japan’s primary focus is to ensure that it does not become
> dependent on one supplier, and especially not China. Its emphasis, as we
> have seen, has been on research, recycling, and substitution as responses
> to the problem, in addition to seeking investments in other viable foreign
> projects. These endeavors have produced some positive results for Japan.
> Since the rare-earth crisis, Japan has been able to somewhat increase its
> rare-earth imports from other sources, but its imports of rare earths from
> China have also increased. According to figures from the Japanese Finance
> Ministry, (see Figure 4.4
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-chapter-5-figureGroup-9>),
> in 2008 Japan imported 31,097 tons of rare earths from China representing
> approximately 91 percent of its imports. In 2010, it imported 23,311 tons,
> which represented 81.6 percent of its imports. By 2014, Chinese imports
> stood at 13,303 tons, representing 59.6 percent of its imports. Still, the
> imports from China were significantly up from 9,084 tons in 2013. Increases
> in supply from elsewhere helped offset Japan’s dependency, but the 2014
> increase of rare earths coming from China indicates that though the overall
> percentage may be lower, imports from China are again growing, as are the
> total imports of rare earths into Japan. Earlier, low overall imports of
> rare earths may have been attributable to the recession, the illegal feed
> of rare earths coming into Japan, stockpiling during the crisis, and also
> technological improvements in substitution and efficiency. The data also
> indicates that breaking away from China’s stranglehold will not be an easy
> task in the future.102
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-514>
> [image: How China Came to Dominate the Rare Earth Industry]
> Figure 4.4 Japanese rare earth imports from China and worldwide
> SOURCE: Trade Statistics of Japan, Ministry of Finance
> In the United States reactions to the perceived rare-earth crisis took
> place at many levels, but mainly within the context of the growing
> geopolitical rivalry between the two powers and their economies. The
> climate (p.145) at the time was riddled with alarmist and bold statements
> over Chinese intentions. According to Clyde Prestowitz, former US trade
> negotiator,
> The mantra in the US ever since the late 1990s has been that globalization
> will make everybody rich. By being rich, they will all become democratic.
> By being democratic, they will all be peaceful. Well, globalization is
> working in a somewhat different way. China is getting rich and India is
> getting rich. But China’s not getting democratic. We’ve seen in the recent
> case of China embargoing the export of rare earths that it’s a kind of a
> mercantilist economy. The economy is being run for strategic purposes in
> ways that we didn’t anticipate.103
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-515>
> Similarly, then US Representative Ed Markey stated, “I am troubled by this
> recent turn of events and concerned that the world’s reliance on Chinese
> rare-earth materials, in combination with China’s apparent (p.146) willingness
> to use this reliance for leverage in wider international affairs, poses a
> potential threat to American economic and national security interests.”104
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-516>
> Nonetheless, during the rare-earth crisis, the United States, like the EU
> and Japan, kept its responses within a limited range of options. US
> disquiet was first expressed at a high level in 2010 during Secretary
> Clinton’s seven-nation tour of the Asia-Pacific region in November 2010.
> Clinton discussed the United States’ growing apprehension over Chinese
> restrictions of rare-earth exports with her Australian counterpart Kevin
> Rudd and also with Japanese foreign minister Seiji Maehara. She described
> the rare-earth crisis as a “wake up call” for the United States and its
> allies to diversify their sourcing.105
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-517>
> The United States joined the other industrial nations in seeking solutions
> to resource scarcity, emphasizing the need for research, development, and
> education in rare earths to help facilitate investment in domestic
> production facilities and to promote international collaboration in the
> field.106
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-518> The
> difference between Europe, Japan, and the United States, however, was that
> the United States has considerable rare-earth reserves in its territory and
> could therefore underscore the possibilities of developing its own
> resources instead of actively seeking mining opportunities abroad.
> Moreover, and in line with the United States’ tradition of innovation,
> researchers in private and public industries have been pursuing the
> development of alternative solutions.107
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-519> In
> spring 2010, the US Government Accountability Office108
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-520> submitted
> a report to the Committees of the Armed Services and the Senate and House
> of Representatives on rare earths used in the defense industry and its
> supply chain. The fact that rare earths became associated with matters of
> defense added a level of urgency to dealing with the crisis and piqued the
> interest of legislators in Washington.109
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-521> Through
> the report, it became abundantly clear that rare-earth materials must go
> through a number of processing stages before they can be used in an
> application. Because the US Department of Defense uses rare earths in
> critical defense systems, the report mapped out the steps needed to mine
> and produce rare earths, showing that the process is long and arduous, time
> consuming, and capital intensive. It became evident (p.147) that the
> production of rare earths could not effectively be established overnight.
> 110
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-522>
> Following the flurry of reports and the alarm over resource scarcity and
> its impact on defense and security, a number of legislative bills were
> introduced in Congress. Congressional gridlock, however, ensured that none
> of them were ever voted into law. On March 13, 2012, Senator Lisa Murkowski
> (R-AK), in her keynote address at the Technology and Rare Earth Metals
> (TREM) Center’s 12th Annual Conference, highlighted both the urgency of the
> situation, congressional efforts, and the frustration that she, too, had
> experienced having introduced the Critical Minerals Policy Act.
> Minerals are the building blocks of our nation’s economy. From rare earths
> to molybdenum, we rely on minerals for everything from the smallest
> computer chips to the tallest skyscrapers. Minerals make it possible for us
> to innovate and invent—and in the process they shape our daily lives, our
> standard of living, and our ability to prosper . . .
> There is no question that a stable and affordable supply of minerals is
> critical to America’s future competitiveness. And yet—despite that—our
> mineral-related capabilities have been slipping for decades. Rare earths
> garner most of the headlines, but we are 100 percent dependent on foreign
> sources for 17 other minerals and more than 50 percent dependent on foreign
> sources for some 25 more. For years, the government has been content to
> report on those facts—without doing much to change them.111
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-523>
> Murkowski, along with nineteen bipartisan cosponsors, had introduced the
> Critical Minerals Policy Act (S. 1113) in 2011. According to Murkowski’s
> statements during the conference, “The Senate Energy and Natural Resources
> Committee still has not allowed the bill to be marked up, in part due to
> misperceptions about its permitting and resource assessment provisions.”
> The Senator went on to say that while the problem had drawn the attention
> of legislators, none of the bills introduced at the time had even come
> (p.148) close to becoming the law of the land. “In the Senate alone,
> twenty-four different Senators—nearly a quarter of those serving—are
> supporting legislation to address some aspect of this problem . . . So far,
> those efforts have fallen victim to the new normal in Congress: they’ve
> gone nowhere. Not one bill on this topic has been reported from a Senate
> committee—even when the votes are likely there to do so.” The following is
> a list of legislative initiatives that drew attention but did not become
> law, highlighting the inconsistency between declared objectives and the
> realities on the ground.
>    -
>    • On March 17, 2010, the RESTART Act (H.R. 4866) was introduced by
>    Representative Mike Coffman (R-CO) regarding the stockpiling of rare earths
>    and the establishment of rare earths production facilities in the United
>    States. According to the 2011 Department of Energy report on critical
>    materials,112
>    <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-524> the
>    goal of this bill was to “reestablish a competitive domestic RE minerals
>    production industry; a domestic RE processing, refining, purification and
>    metals production industry; a domestic RE metals alloying industry and a
>    domestic RE-based magnet production industry and supply chain in the
>    Defense Logistics Agency of DOD.” No further legislative action has been
>    taken since November 28, 2011. In effect, this bill, too, “died” by being
>    referred to committee.113
>    <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-525>
>    -
>    • In the Senate, the Rare Earths Supply Technology and Resources
>    Transformation Act of 2010 (S.3521) was introduced by Senator Murkowski.
>    The Senator herself pointed out that this piece of legislature has gone
>    nowhere.114
>    <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-526>
>    -
>    • In September 2010, the House of Representatives passed H.R. 6160, a
>    bill that directed the Department of Energy to support new rare-earth
>    technology through public- and private-sector collaboration and
>    coordination with the European Union. The same bill called for loan
>    guarantees for rare-earth-related investment. The bill was introduced to
>    the House by Representative Kathleen Dahlkemper (D-PA). The bill died
>    because it was never passed by the Senate.115
>    <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-527>
>     (p.149)
>    -
>    • On March 8, 2011, Representative Brad Miller (D-NC) introduced
>    H.R.952, Energy Critical Elements Renewal Act of 2011, to develop a rare
>    earths material program, to amend the National Materials and Mineral
>    Policy, Research and Development Act of 1980, and other purposes.116
>    <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-528> The
>    bill was never enacted.
> The rare-earth crisis may have died out in the news, but individual
> members of Congress keep trying to draw attention to the inability of the
> US to devise a long-term solution. From the point of view of the
> legislative process, nothing has come of these efforts except an indication
> that the particular problem has not been resolved satisfactorily. In 2014,
> Steve Stockman of the House of Representatives introduced Bill HR 4883 that
> sought to establish a “Thorium-Bearing Rare Earth Refinery Cooperative as a
> federal charter to provide for the domestic processing of thorium-bearing
> rare-earth concentrates as residual unprocessed and unrefined ores.” The
> bill further required the “Cooperative’s Board to establish a refinery and
> a Thorium Storage, Energy, and Industrial Products Corporation to develop
> uses and markets for thorium, including energy.” It also “directed the
> Secretary of Defense (DOD) to coordinate with other federal agencies to
> advance and protect domestic rare-earth mining, the refining of rare-earth
> elements, basic rare-earth metals production, and the development and
> commercialization of thorium.” The bill went on to mandate that “beginning
> in January 2020, all purchased or procured weapon systems to contain only
> U.S. or North Atlantic Treaty Organization (NATO) member nation produced
> and sourced rare-earth materials, metals, magnets, parts, and components.”
> It also called for the prohibition of “any rare earth materials that
> originate or pass through a non-NATO member nation and barred any waivers
> from being granted unless the lead contractor can demonstrate that it has
> pursued all possible corrective actions, including direct investment into
> the supply chain.”117
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-529> The
> bill would need to pass by both the House and Senate in identical form to
> then be signed by the president to become law. It was never enacted.
> The list of legislative initiatives included H.R.761 National Strategic
> Minerals Production Act of 2013 that was received, read twice, and
> (p.150) referred to the Committee on Energy and Natural Resources.118
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-530> It
> too was never passed by the Senate. H.R 1937: National Strategic and
> Critical Minerals Production Act of 2015 passed the House on October 22,
> 2015, but was never passed by the Senate.119
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-531> Moreover,
> the White House issued a statement in which it expressed the
> administration’s opposition to the bill arguing that while it “strongly
> supports the development of rare earth elements and other critical
> minerals, [it] rejects the notion that their development is incompatible
> with existing safeguards regarding uses of public lands, environmental
> protection, and public involvement in agency decision-making.”120
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-532> In
> summary, repeated attempts at legislative action to respond to United
> States’ dependence on rare-earth imports from China have yet to produce any
> concrete results.
> In searching for the appropriate domestic response to the crisis, the
> Department of Energy put together a report for the development of a
> Critical Materials Strategy in 2010. The main objectives were threefold.
> First, to mitigate supply risk, the United States would need to diversify
> its global supply chains. Second, it would have to develop both material
> and technology substitutes. Third, it would need to promote recycling,
> reuse, and efficiency of use in order to lower dependence on critical
> materials. Although the report included other critical materials as well,
> it was prompted by the rare-earth crisis. The Department of Energy updated
> its report, publishing its Critical Materials Strategy in December 2011
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-bibItem-355>
> .121
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-533> In
> the strategy itself, it became clear that the department was particularly
> concerned about how rare-earth shortages could impact clean-energy
> technologies. There was acknowledgment throughout the report that while
> demand for critical materials had increased over a decade, there were
> factors that had prevented the supply from catching up. Capital
> constraints, long lead times, trade policies, the complexities of
> coproduction and byproduction, as well as the market’s lack of transparency
> and size, were contributing factors to its lack of efficiency.
> In any event, and as David Sandolow, assistant secretary for policy and
> international affairs at the Department of Energy, underscored, on March
> 17, 2010, at the Technology and Rare Earth Metals Conference in Washington
> DC, “Supply constraints aren’t static. Strategies for addressing (p.151) shortages
> of strategic resources are available, if we act wisely. We can invest in
> additional sources of supply. We can develop substitutes. We can re-use
> materials and find ways to use them more efficiently. We can consider use
> of stockpiles and strategic reserves.”122
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-534>
> Domestically, the United States once again turned its attention and focus
> toward research and innovation, which is why it also decided to fund an
> Energy Innovation Hub that could produce solutions to domestic shortages of
> critical materials such as rare earths should these ever occur again.123
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-535> The
> Critical Materials Institute limits its focus to “research and development
> efforts leading to technologies that can diversify the sources of critical
> materials; provide substitutes for materials that are in short supply; or
> improve the utilization of existing resources through enhanced efficiency
> in manufacturing and improved recycling . . . We measure our progress by
> the advancement of the relevant technologies, and our success by the
> adoption of our technologies by the commercial sector.”124
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-536>
> Correspondingly, although there was considerable hand-waving at the
> Department of Defense very little progress in addressing possible shortages
> has materialized. The United States created the first National Defense
> Stockpile in 1939. The stockpile was meant for use during situations of
> national emergency, and the goal was to maintain and manage strategic and
> critical materials for just such an eventuality.125
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-537> According
> to the “Reconfiguration of the National Defense Stockpile (NDS) Report to
> Congress” (2009),126
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-538> the
> Department of Defense determined that its stockpile was in excess of its
> needs. Congress authorized disposing of more than 99 percent of the
> stockpile’s material and earmarked the money from the sales for various
> defense programs, primarily military health and retirement benefits. The
> stockpile did not contain rare earths, and revenue from the sales amounting
> to more than $5.9 billion between 1993 and 2005 have also been used as a
> tool to strengthen relations with countries with which the United States
> was seeking to build relationships.127
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-539>
> In its 2008 report, the Department of Defense defined what “criticality”
> means for its mission. “The “criticality” of a material is a function of
> its importance in DOD applications, the extent to which DOD actions are
> required to shape and sustain the market, and the impact and likelihood of
> supply (p.152) disruption.”128
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-540> In
> a report to Congress, in April 2012, entitled “Rare Earth Elements in
> National Defense: Background, Oversight Issues, and Options for Congress,”
> Valerie Bailey Grasso, a specialist in defense acquisition, proposed that
> “Congress could require a strategic rare earth elements stockpile.
> Stockpiles might possibly increase the security of the domestic U.S. supply
> for rare earths.”129
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-541> In
> its 2013 Strategic and Critical Materials Report on Stockpile Requirements,
> the Department of Defense recommended stockpiling $120.43 million of HREEs.
> The Strategic Materials Advisory Council went one step further to urge the
> Department of Defense to “create and nurture a U.S. based rare earth supply
> chain.”130
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-542> According
> to the US Geological Survey report of 2016, the United States did not
> stockpile rare earths.131
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-543>
> In February 2016, the US Government Accountability Office submitted a
> report to congressional committees about rare-earth materials. It found
> that six years after the crisis, the Department of Defense had not yet
> developed a “comprehensive approach for ensuring a sufficient supply of
> rare earths for national security needs—one that can establish criticality,
> assess supply risks, and identify mitigating actions—[that] would better
> position DOD (Department of Defense) to help ensure continued functionality
> in weapon system components should a disruption occur, even though supply
> disruptions in rare earths have not occurred over the last several years.”
> 132
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-544> Furthermore,
> and according to the same report, the Department of Defense had not reached
> an agreement on what in fact “constitutes ‘critical’ rare earths. While
> various organizations’ definitions of critical may be similar, DOD has
> identified 15 of the 17 rare earths as critical over the last 5 years.”133
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-545>
> The Obama Administration was slow to respond as well. Two years after the
> crisis and just three days after announcing the decision to take China to
> the WTO, President Obama, acting in his capacity as Commander in Chief of
> the Armed Forces, went on to sign an executive order on resources
> preparedness. The order included a substantial section on the expansion of
> productive capacity and of supply, and it called for loans, loan
> guarantees, subsidies, and more. There was a particular focus on critical
> and strategic minerals.
> *Sec*. *306*. *Strategic and Critical Materials*. The Secretary of
> Defense, and the Secretary of the Interior in consultation with the
> Secretary (p.153) of Defense as the National Defense Stockpile Manager,
> are each delegated the authority of the President under section
> 303(a)(1)(B) of the Act, 50 U.S.C. App. 2093(a)(1)(B), to encourage the
> exploration, development, and mining of strategic and critical materials
> and other materials.
> *Sec*. *307*. *Substitutes*. The head of each agency engaged in
> procurement for the national defense is delegated the authority of the
> President under section 303(g) of the Act, 50 U.S.C. App. 2093(g), to make
> provision for the development of substitutes for strategic and critical
> materials, critical components, critical technology items, and other
> resources to aid the national defense.134
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-546>
> After the initial crisis erupted, analysts tried to explain the timing of
> these decisions. Many attributed them to tensions with Iran that could
> potentially lead to an all-out conflict, and this was seen as a way for the
> administration to put China on notice. Others interpreted the decision as a
> tacit acknowledgement that the US military was in fact vulnerable to
> China’s monopoly of rare earths, including its control of the supply chain.
> That same month, the US government moved even more aggressively with two
> targeted decisions with economic repercussions. The United States, on March
> 21, 2012, ruled to add a customs tax on China’s solar panels. The decision
> followed a long investigation into Chinese state subsidization of the solar
> industry, which had brought prices down by approximately 30 percent since
> the PRC began to move robustly into their manufacture. In 2011, the United
> States imported $3.1 billion in solar panels from the Chinese. The United
> States’ taxation of Chinese solar companies would be determined by the
> level of subsidy thought to have been given by the PRC government. Examples
> of the tax levels imposed were a 2.9 percent tax on China Suntech; whereas
> Changzhou Tina was taxed at 4.73 percent. Other companies were taxed at
> 3.61 percent. The EU followed suit with more modest taxation. These
> consecutive actions were aimed at putting pressure on China to desist from
> trying to control the renewables industry in which both the EU and the
> United States had a growing stake.
> (p.154) The Chinese side, of course, did not remain silent as US
> reactions escalated. Chinese companies argued that the United States also
> offers subsidization for its companies. The Chinese government counteracted
> US actions by declaring that it would launch its own investigation into the
> United States’ renewable energy practices. In retaliation, the PRC decided
> to tax polysilicon, the main ingredient in solar production, which the
> United States exports to China.135
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-547>
> These vocal and forceful initiatives, undertaken by the United States
> within a single month, were meant to signal two things. First, they fired a
> number of warning shots to encourage the Chinese government to curtail or
> rethink its strategic designs at not only an economic but also a
> geostrategic level. It also reflected a growing US interest in having a
> role in the production and deployment of renewables. President Obama made
> that plain in his State of the Union Address in 2013
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-bibItem-572> when
> he declared, “As long as countries like China keep going all in on clean
> energy, so must we.”136
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-548>
> Having accepted that the United States was lagging behind in the
> green-growth race in which China was investing heavily, the Obama
> administration turned its attention to deploying these technologies. In
> point of fact, however, as much as rare earths have figured into policy
> discussions and the geostrategic conversation, securing unobstructed access
> to these materials was largely left to the industries themselves, in the
> same manner that both the EU and Japan had largely done as well.
> In the end, two government initiatives stood out as the most solid and
> targeted responses to the rare-earth crisis. The first was the trilateral
> cooperation between the United States, the EU, and Japan, and the second
> was the filing of the case against China at the WTO. Both garnered much
> attention and publicity, but a closer examination will reveal their limited
> scope and effectiveness.
> Trilateral Cooperation
> When Japan, the EU, and the United States joined forces to find mutually
> beneficial solutions to the rare-earth crisis, they were attempting to
> address (p.155) a number of wider problems. Clean-energy options required
> a large quantity of rare earths and other less common materials. These
> materials were supplied by a potential rival and as markets continued to
> grow, supplies could become even tighter and costs more prohibitive. These
> facts, then, raised the following questions: How could the EU, Japan, and
> the United States find new or enhanced recycling technologies to increase
> the available supplies of rare earths? Is substitution possible, and are
> there alternate device designs that might perform as efficiently at a
> comparable cost? How can changes in design and technological innovation
> impact the amount of rare earths necessary to give the optimal result of an
> application?
> The first workshop was organized by the European Commission, the US
> Department of Energy, and the Japanese Ministry of Economy Trade and
> Industry, as well as the New Energy and Industrial Technology Development
> Organization. It was held in Washington, on October 4 and 5, 2011. The main
> issues addressed were the policy and strategic implications of shortages,
> and these were followed by two parallel technical workshops. One workshop
> explored techniques of extraction, separation, and processing in a
> sustainable manner, and the other focused on efficient uses and
> substitutes. These themes carried into the second, third, and fourth
> conferences, held in Tokyo in 2012, Brussels in 2013, and at the Ames
> Laboratory in the United States in September 2014, respectively.
> The dialogue that the trilateral workshops initiated facilitated the
> exchange of best practices and common approaches to potential shortages of
> critical metals. In the beginning, they drew considerable media and
> government attention, but since the end of the rare-earth crisis, they seem
> to have faded to the background.
> China and the WTO
> China became a member of the WTO in December 11, 2001. This was thought of
> as an historic event. China’s population size, its rapidly expanding
> economy and its one-party system in which the state maintained a
> significant role vis-à-vis resource allocation – all made it a formidable
> rising (p.156) international power.. The fear of other WTO members was
> whether or not China’s economy would blend in with theirs, which were
> primarily market oriented. As noted by economist Robert Lawrence,137
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-549> when
> China joined the organization, there were worries that it “would not
> participate constructively in the WTO. It would throw its weight around,
> try quickly to obtain disproportionate influence and use its influence to
> fundamentally change the WTO system. China was also seen as a potentially
> powerful addition to the ranks of developing countries, and many in the
> developed world worried that it would seek to limit the obligations
> required of developing countries.” The logic that prevailed, however, was
> that it would be far better to have China engaged in the operations of the
> world system through its participation in international organizations than
> to have it remain isolated at the edges of that system, where it could
> threaten and challenge international order and stability as the other
> actors understood those to be.
> For China, too, the process of accession held significance.138
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-550> Accession
> had never been straightforward because there were many voices in China that
> opposed such an opening of the economy. Membership was a complex
> commitment, and China’s internal debate reflected considerable hesitation.
> There were those who argued that China (ever since it began opening its
> economy to the world) had been relying rather heavily on foreign
> investment, and that it was now time for it to develop the national
> domestic economy. The contagion of the 1997 Asian financial crisis seemed
> to strengthen these anxieties. Nonetheless, China “needed the rules-based
> WTO system to secure rights to market access for exports and rights against
> protectionist measures of its trading partners, as it was moving to the
> very center of the globalization process. And the WTO needed China as a
> full and committed member to be a truly global and effective system.”139
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-551>
> Ultimately, after internal bargaining at the highest Chinese levels, it
> was decided that it would be best to proceed by opening a number of
> economic sectors to competition and to carry out economic reform,
> especially in the public and banking sectors. The time had come for China
> to reciprocate if Chinese exports were to more substantially compete in the
> markets of (p.157) many of its trading partners. The high-tech revolution
> of the 1990s was another contributing factor to China’s decision because it
> could not afford to miss participating in these technological developments.
> Finally, China’s entry into the WTO would allow it to partake in the
> workings of the organization and help shape its future without having to
> depend on revisions for most-favored-nation status.
> For all these reasons, both sides, understandably, had their own
> apprehensions at the time of accession. China’s inclusion could have caused
> disruption and an unprecedented trade surge. But mostly there was fear that
> China would enter the WTO and then proceed to disrupt its workings by
> ignoring its rules. How could the others be sure of China’s commitment? The
> United States and the EU had the greatest concerns, but they took the risk
> and undertook the monitoring of China’s behavior and compliance through
> task forces and by using two important institutional mechanisms: the Trade
> Policy Review Mechanism and the Dispute Settlement Body. They had also
> requested that prior to membership, China should first accede to a protocol
> under which the PRC would commit itself to wider non-WTO obligations.140
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-552>
> As Mike Moore, the WTO director general, observed at the conclusion of the
> meeting of the Working Party on China’s Accession, which took place in
> Doha, “International economic cooperation has brought about this defining
> moment in the history of the multilateral trading system . . . With China’s
> membership, the WTO will take a major step towards becoming a truly world
> organization. The near-universal acceptance of its rules-based system will
> serve a pivotal role in underpinning global economic cooperation.”
> Since China’s accession to the WTO, many have written about the subsequent
> experience of those years and on China’s performance as a member. The
> general consensus seems to be that China’s participation has been positive
> for overall trade. During the first few years, the PRC moved conservatively
> inside the WTO system, perhaps to better understand it and get its
> bearings, but it gradually became more active in the workings of the
> organization and of the Dispute Settlement Body system as well. The Dispute
> Settlement Mechanism of the WTO is rules oriented. The (p.158) settlement
> of disputes is done through a set of enforced rules previously agreed on by
> both parties. Given that the disputes are brought by states against other
> states, this system provides a number of benefits that induce acceptance
> and a willingness to settle.141
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-553> China’s
> initial reluctance to participate in the Dispute Settlement Body mechanism
> may have reflected a suspicion of normative constraints and even an
> aversion to multilateral adjudication.142
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-554> Nonetheless,
> China has complied with tariff-reduction commitments in a timely fashion.
> 143
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-555>
> Since those early years, moreover, China has increasingly made use of the
> mechanism for settling disputes, many of them between the PRC and the
> United States. This in the minds of some indicates that these initial
> disputes could be foreshadowing possible trade wars. Specifically, from
> 2007 and 2012, the United States brought thirteen WTO cases against China,
> and China brought seven against the United States.144
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-556> In
> the end, there will always be some critics who offer a consistent critique
> of China’s “maximizing its interests through minimal involvement abroad.”
> 145
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-557> This
> critique comes mostly from those who view China as a larger threat because
> of its growing economic, political, and military strength.
> On March 13, 2012, the United States, the EU, and Japan chose to act in
> unison by simultaneously filing complaints with the WTO demanding
> consultations with China over its restrictions on the export of rare
> earths, tungsten, and molybdenum.146
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-558> The
> three powers alleged that China’s actions were not in line with WTO
> provisions. The actions they listed were:
> The imposition of export duties; The imposition of export quotas, and
> other quantitative restrictions; The imposition of other restrictions such
> as the right to export based on licenses, prior export experience, minimum
> capital requirement, and {other conditions that appear to treat foreign
> invested entities differently from domestic entities}; The maintenance of
> minimum export prices, through the examination and approval of contracts
> and offered prices, and through the administration and collection of the
> export duties, {in a manner that is not uniform, impartial, reasonable or
> transparent}; (p.159) The imposition and administration of restrictions
> through unpublished measures.147
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-559>
> European Union trade commissioner Karel De Gucht said that China’s
> restrictions on rare earths “hurt our producers and consumers in the EU and
> across the world, including manufacturers of pioneering hi-tech and ‘green’
> business applications.”148
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-560> In
> its response, China insisted that it was cutting rare-earth mining because
> of environmental concerns. “Regarding rare earth management, we have a very
> clear idea and direction, which is environmental protection and the
> long-term sustainable use of resources.”149
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-561>
> The complaint against China was subject to divergent interpretations.
> Professor Yufan Hao of the University of Macau, in 2012, for example,
> during an interview for the National Bureau of Asian Research said,
> The basis for the three complainants’ case is the WTO’s support for free
> trade, and that the three parties think that China’s export restrictions on
> rare earths are against WTO rules. However, many people in China feel that
> this case is quite ironic. These countries never complained to the WTO
> about China previously dumping underpriced rare earth product, as they did
> with China’s export of low-priced steel and textiles. They urged China to
> sell them rare earths at a very low price, and denounced rare earth export
> restrictions from a liberal economic viewpoint. And at the same time, these
> three groups are also very reluctant to sell China high-tech products, not
> to mention arms, which are produced using rare earths.150
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-562>
> Others raised questions about China’s defense strategy. Jane Nakano, a
> fellow in the Energy and National Security Program at the Center for
> Strategic and International Studies, had the following concerns:
> China’s dominance of the global rare earth supply has come at a great
> cost, with serious environmental issues. But many consumer countries feel
> that China will have to provide a much more satisfactory (p.160) answer
> as to why the export quota has been declining while the production quota
> has been increasing. Also, it’s one thing to have the overall level of
> export quotas unchanged, but it would be quite another to allow exports—in
> a sufficient amount—of the types of rare earth materials that consumers
> want.151
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-563>
> The EU, the United States, and Japan took their complaint to the WTO in
> accordance with their wider policies of seeking to find solutions with
> China through an institutionalized, cooperative, rules-based framework to
> which all parties have subscribed. It was also their way of not merely
> settling a trade dispute but also using a tool of economic statecraft to
> challenge the Chinese position.
> This became particularly clear when President Obama himself stepped into
> the Rose Garden to announce to the world that the three allies had taken
> action. Obama, with much fanfare, was responding to China, not just to a
> material shortage of rare earths. His announcement was tailored to both an
> international and a domestic audience. As the US president faced criticism
> on an economy still in recession, Obama’s words were greeted partially as a
> predictable political maneuver to emphasize the government’s concern with
> job creation in the United States. In the Rose Garden and under the guise
> of the rare earths dispute, the president could defend American interests,
> promote renewables as a response to climate change, and put China on
> notice, all in one fell swoop. On an international level, he indicated that
> the United States would continue to defend fair-trade practices, protect
> its dominant position both in the high-tech and in the green-tech
> industries, and champion a system of international rules and norms.
> Accordingly, President Obama underlined that American manufacturers needed
> unobstructed access to rare earths in order to produce high-tech products
> such as advanced batteries and that by curtailing exports, China was not
> allowing them to do so. This, he stated, went against WTO regulations.
> “Being able to manufacture advanced batteries and hybrid cars in America is
> too important for us to stand by and do nothing. We’ve got to take control
> of our energy future, and we can’t let that energy industry take root in
> some other country because they were (p.161) allowed to break the rules .
> . . We are going to make sure that this isn’t a country that’s just known
> for what we consume.”152
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-564>
> The president, the most vocal of all three actors in the dispute, strove
> to ensure that the clean-energy agenda that his administration had been
> pushing would have the materials necessary for production. Reliable and
> affordable access to rare earths was essential to achieving this aim. The
> steep rise in prices following the 2010 crisis and the fear that exports
> could be further restricted in the future raised concerns in
> green-technology companies in the United States because rare earths were
> essential elements in their industry.
> It had not been the first time China had interfered with the supply of
> critical materials. On the contrary, it had restricted raw-material exports
> before. In 2009 the United States, the EU, and Mexico launched a WTO case
> challenging China’s right to restrict bauxite, coke, magnesium, manganese,
> and zinc exports, again forcing prices to rise.153
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-565> On
> January 30, 2012, a WTO panel ruled that China was in fact in violation of
> WTO regulations.154
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-566> The
> panel asserted that the restrictions led to price inflation outside China
> and gave domestic Chinese firms unfair advantage. The ruling encouraged the
> United States, Japan, and the EU to submit a similar case about rare earths
> on March 13, 2012.
> Immediately following the ruling on bauxite, coke, magnesium, manganese,
> and zinc, Vivian Pang, an analyst with the Asian Metal consultancy in
> Beijing, said, “It is still too early to say what the impact will be [on
> rare earths], but I can’t see it having a big impact on prices—the main
> issue will still be supply and demand.”155
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-567> According
> to industry analysts at the time, the widely held belief was that China
> would most likely not increase its production capacity because its priority
> was to control the environmental repercussions due to lax oversight in
> mining and separation and in order to maintain high prices of their
> strategic elements. The use of the environmental defense at the WTO was, in
> fact, grounds for limiting exports, so China needed to demonstrate the
> health and environmental implications of REE mining, and to show how the
> reduction of production had in fact helped to cut pollution and improve
> public health. China had also to convince the WTO that it applies its
> policies equally to foreign and domestic companies.
> (p.162) According to Dr. Si Jinsong,156
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-568> at
> the time the second secretary of the Economics Affairs Office at the
> Embassy of China in Washington DC, who spoke at the TREM 12 Conference on
> March 14, 2012, China would continue to supply the global market with rare
> earths. It would also develop its policies and effectively manage its
> resources in line with WTO regulations. The PRC, according to Dr. Jinsong,
> would strengthen its international cooperation with the United States, in
> particular, especially in areas of substitution and the improved
> utilization of these resources. He insisted that China had been urging
> other countries to develop their own rare-earth resources—since they do
> exist elsewhere—instead of only turning to China for supplies.
> Dr. Jinsong spoke at length about the need to consolidate the industry
> within China, which once had 1,000 REE mining, smelting, and separating
> enterprises, but at the time had only 120. He attributed this reduction to
> the need to monitor the environmental toll of extraction and processing in
> many parts of the country, as well as the Chinese decision to crack down on
> the illegal mining and smuggling157
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-569> of
> rare earths.
> Dr. Jinsong produced extensive data highlighting that thirty-four
> countries had discovered rare earths, adding that China’s rare earths
> accounted for 36.4 percent of the global total. He stressed that China’s
> per capita reserve of rare earths was lower than the reserves of other
> countries, emphasizing that mining had led to China’s reserves quickly
> dwindling, falling by 40 percent in the past fifty years. China, he
> continued, had been exporting beyond its reserve share, and it now had to
> be careful because if the reserve was exhausted, it would be damaging not
> only to China but also to the world economy. In short, China’s position was
> that the world had received ample warning that it needed to look elsewhere
> for rare earths, because if China remained the only reliable supplier, then
> it would be safe to surmise that such a trajectory would lead to conditions
> of scarcity because of limited market availability.
> To underscore these concerns, the Chinese Information Office of the State
> Council released a white paper on rare earths in 2012. It was drafted to
> “provide the international community a better understanding of this issue.”
> 158
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-570> According
> to its findings, excessive mining taking place over the (p.163) past
> fifty years had led to such rates of decline that in rich rare-earth areas
> like Baotou,
> only one-third of the original volume of rare earth resources is available
> in the main mining areas, and the reserve-extraction ratio of
> ion-absorption rare earth mines in China’s southern provinces has declined
> from 50 two decades ago to the present 15. Most of the southern
> ion-absorption rare earth deposits are located in remote mountainous areas.
> There are so many mines scattering over a large area that it is difficult
> and costly to monitor their operation. As a result, illegal mining has
> severely depleted local resources, and mines rich in reserves and easy to
> exploit are favored over the others, resulting in a low recovery rate of
> the rare earth resources. Less that 50 percent of such resources are
> recovered in ion-absorption rare earth mines in southern China, and only
> ten percent of the Baotou reserves are dressed and utilized.159
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-571>
> Nevertheless, the Chinese arguments did not suffice, and the PRC did not
> win the case at the WTO. The ruling came out against China on March 26,
> 2014. China, moreover, lost its appeal, on August 7, 2014, and subsequently
> announced its compliance, which took place in May 2015. While the dispute
> lasted, there had been much speculation about what China would be willing
> to do vis-à-vis rare earths. Would it abide by its WTO obligations or not?
> The outcome of the dispute and China’s compliance indicates that the
> PRC—just like other members—had gained the expertise on how to adhere to
> the rules and regulations of the organization while simultaneously using
> the rules to promote and secure its own interests.
> A recent study published in *Resources Policy*,160
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-572> in
> 2015, examining whether or not China’s rare earths export policies had
> worked over the period in question showed that, in fact, “the market power
> and price sensitivity of China’s rare-earth products increased
> dramatically, indicating that China’s export policies have exerted
> significant effects. The quantitative estimate of the market power of
> China’s rare-earth products on the US and Japanese markets shows that it
> has risen significantly.” However, (p.164) the authors also suggest that
> in the future, and in terms of sustainable improvement in pricing power,
> China’s focus could shift from “controlling exports to controlling
> production.”161
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-573>
> Furthermore, by the time China was required to comply with the WTO ruling,
> it had nothing to lose. Prices had dropped, and there was an oversupply in
> the market because of ongoing smuggling and the stockpiling at the height
> of the crisis. While the case was being discussed, China had taken
> advantage of the critical years it needed to consolidate the industry
> domestically in order to reposition itself for the future. As the famous
> Chinese strategist Sun Tzu said, “Ultimate excellence lies in not winning
> every battle but in defeating the enemy without ever fighting.”162
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-note-574>
> Notes:
> (1.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-413>
> ) Jun Li and Xin Wang, “Energy and Climate Policy in China’s Twelfth
> Five-Year Plan: A Paradigm Shift,” *Energy Policy*, no. 42 (2012): 519–28;J.
> H. L. Voncken, *The Rare Earth Elements: An Introduction* (Delft, NL:
> Springer, 2015), 110; Seaman, “Rare Earths and Clean Energy.”
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> (2.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-414>
> ) Warren N. Warhol, “Molycorp’s Mountain Pass Operations,” in *Geology
> and Mineral Wealth of the California Desert*, ed. D. L. Fife and A.R.
> Brown (Santa Ana, CA: South Coast Geological Society, 1980), 359–66.
> (3.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-415>
> ) “Molycorp’s History,” Molycorp.com, accessed June 29, 2012,
> http://www.molycorp.com/about-us/our-history. After Molycorp went
> bankrupt, the link takes the reader to:
> http://neomaterials.com/company/our-history/.
> (4.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-416>
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> (5.
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> ) James B. Hedrick, “Rare-Earth Metals,” USGS, accessed September 19,
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> http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/740798.pdf.
> (6.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-418>
> ) C. Wu, Z. Yuan, and G. Bai, “Rare Earth Deposits in China,” in *Rare
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> (7.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-419>
> ) Hurst, “China’s Rare Earth Elements Industry.”
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#oso-9780190670931-miscMatter-8-bibItem-181>
> (8.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-420>)
> Pui-Kwan Tse, “China’s Rare-Earth Industry” (Open-File Report 2011–1042,
> USGS, November 12, 2011), http://pubs.usgs.gov/of/2011/1042/.
> (9.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-421>
> ) Yasuo Kanazawa and Masaharu Kamitani, “Rare Earth Minerals and
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> (10.
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> ) J. B. Hendrick, “2005 Minerals Yearbook: Rare Earths,” US Geological
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> Pui-Kwan Tse, “China’s Rare-Earth Industry.”
> (13.
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> ) Hurst, “China’s Rare Earth Elements Industry.”
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> (14.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-426>)
> Beijing San Huan New Materials High-Tech Inc. and China National
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> “China Fails in Another Bid for Resources Firm.”
> (21.
> <https://oxford.universitypressscholarship.com/view/10.1093/oso/9780190670931.001.0001/oso-9780190670931-chapter-5#ref_oso-9780190670931-miscMatter-8-note-433>)
> Bloomberg News obtained the minutes through an Australia Freedom of
> Information Act request and published them.
> (22.
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> “The European Industrial Initiatives are joint large-scale technology
> development projects between academia, research and industry. The goal of
> the EIIs is to focus and align the efforts of the Community, Member States
> and industry in order to achieve common goals and to create a critical mass
> of activities and actors, thereby strengthening industrial energy research
> and innovation on technologies for which working at the Community level
> will add most value. Industrial Initiatives within the SET-Plan include:
> Wind (The European Wind Initiative), Solar (The Solar Europe
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> Steps in the Mining Process
>    -
>    (•
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>    -
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>    separating the rare earth ore into individual rare earth oxides;
>    -
>    (•
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>    refining the rare earth oxides into metals with different purity levels;
>    -
>    (•
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>    forming the metals into rare earth alloys; and
>    -
>    (•
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> Dr. Si Jinsong spoke, on March 14, 2012, at the TREM12 conference, which
> took place in Washington, DC, on March 13–14, 2012. His presentation
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> the EU, and Japan had requested WTO consultation meetings with China over
> their rare-earth exports policies.
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> ) Ann Lee, *What the U.S. Can Learn from China* (San Francisco:
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