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Behind the WTO Rare Earth Dispute between China and Japan
**Behind the WTO Rare Earth Dispute Between China and Japan**
On March 26, the World Trade Organization (WTO) released a report from an expert panel regarding a case filed by the United States, the European Union, and Japan against China’s export restrictions on rare earths, tungsten, and molybdenum. The ruling found that China’s export control measures violated WTO rules, marking another loss in what has become a long-standing dispute over rare earth resources.
This outcome was not entirely unexpected. For years, analysts had predicted this result, as China had previously faced similar challenges. In 2009, for instance, China lost a case involving nine raw materials, including bauxite and coke, and was forced to lift export restrictions. This time, many questioned whether China could use its five major rare earths—established during the appeal period—to offset the damage. However, with the 14th year of China’s WTO membership approaching, it remains unclear whether China can avoid further penalties.
The rare earth battle officially began in 2012 when Japan accused China of violating WTO rules by restricting the export of rare earths, tungsten, and molybdenum. According to Zhang Hanlin, director of the China WTO Research Institute at the University of International Business and Economics, China’s position was already weak from the start. “Since the moment Japan filed the complaint, China had already lost the case,†he stated.
Experts like Tang Yin from the Academy of Social Economics and Strategy analyzed the legal basis of the case. They pointed out that China’s export restrictions were challenged under Article 20(g) of the GATT, which allows members to protect natural resources. However, China failed to demonstrate that it had implemented equivalent domestic restrictions on rare earth extraction or consumption. Additionally, the export tax measures were criticized for lacking proper procedural compliance, such as consultations with affected countries.
Two years later, the WTO’s expert panel report confirmed these concerns. The findings aligned closely with earlier analyses, suggesting that China’s legal strategy was flawed. Meanwhile, Japanese media, such as *Japan Economic News*, used the issue to stoke nationalist sentiment, comparing the situation to Japan’s oil crisis in the 1970s and framing the dispute as a form of “economic warfare.â€
Chinese economists, like Lang Xianping, also voiced concerns about China’s lack of understanding of WTO rules. He criticized officials for failing to comply with international standards, pointing out that China openly allocated quotas for rare earth exports and provided subsidies for domestic industries—actions that violated WTO principles.
Analysts such as Chang Sheng and Shou Liang predicted that China would lose the case, citing both legal and economic factors. They highlighted the global shift in rare earth production, Japan’s declining imports, and the development of alternative technologies that could reduce reliance on Chinese supplies.
As the dispute escalated, the U.S. law firm Stewart & Co., representing the complainants, argued that China had not revised its policies after previous losses. They emphasized that China’s export restrictions were aimed at protecting domestic industries rather than the environment, and that the policy lacked clear guidance or transparency.
Despite the pressure, some media outlets, including the *Financial Times* and *New York Times*, noted that the WTO did not officially confirm the existence of an interim report. However, anonymous sources suggested that the results favored the U.S., Japan, and the EU.
In response, market research firms like TrendForce and the Japan Metal Research Bureau warned that if China lost the case, the release of export quotas could lead to smuggling and uncontrolled usage. They advised China to tighten controls on rare earth production to prevent a potential crisis.
Overall, the rare earth dispute highlights the complex interplay between trade laws, resource control, and national interests. As China continues to navigate its role in the global economy, the lessons from this case remain relevant for future policy decisions.