Washington (Platts)--10Jul2012/327 pm EDT/1927 GMT

China on Tuesday formally rejected a request by the US, European Union and Japan to have a World Trade Organization panel arbitrate a dispute over rare-earth export quotas.

The US, EU and Japan claim that China's export policies have distorted the market for rare-earth metals, tungsten and molybdenum, and unfairly advantaged Chinese manufacturers.

Earlier this month, they asked the WTO's Dispute Settlement Body to establish a panel to address their complaint, but China's formal objection means the parties have two weeks to resolve their issues before the DSB is scheduled to meet again on July 23.

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Under WTO rules, China is allowed to object once to the creation of a panel, but cannot block it again when the DSB meets on the issue for a second time.

China "said it was puzzled by the complainants' initiation of the panel process as it has no intention of protecting its domestic industry through means that would distort trade," DSB said Tuesday in a statement announcing China's objection. "It added that at the present meeting, it was not in a position to accept the establishment of a panel."

Rare earths, which include the 15 members of the lanthanide family on the Periodic Table of Elements, plus scandium and yttrium, are used in a number of clean-energy technologies including wind turbines, solar panels, efficient lighting and electric-vehicle batteries. They are also used in petroleum refining, cell phones and other advanced electronics, steel manufacturing and several military applications.

Though rare earths are not actually rare, they are spread out in small concentrations and are difficult to extract. China supplies about 95% of the global market in rare earths.

The US has charged that in addition to export quotas, China has imposed export duties and minimum export prices on rare-earth minerals in violation of WTO rules.

The US, EU and Japan first filed their complaint with the WTO in March, accusing China of using its near-monopoly to subsidize domestic manufacturers and to pressure foreign manufacturers to move their operations there.

After unsuccessful WTO consultations with China in April, the US, EU and Japan requested the panel in July.

China has said its rare-earth export quotas are fair and transparent and are justified on environmental and sustainability grounds.

Chinese officials have cited a clause in Article XX of the WTO's General Agreement on Tariffs and Trade, which provides an exemption if a quota is imposed "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption."

--Herman Wang, herman_wang@platts.com
--Edited by Lisa Miller, lisa_miller@platts.com

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