The Trade Policy Evolution and Protection of China's Rare Earth

【Abstract】 Over the past thirty years, China has issued many policies on the foreign trade in rare earth resources, which is inclined to solve the most prominent problem in reality but neglect the role of trade partners in the development of industry and trade in a long term. In 2012, the Chinese government promulgated the "China's Rare Earth Situation and Policy", and put forward the principles and targets of protecting and developing rare earth resources. After losing the rare earth lawsuit in WTO, China launched a series of measures to avoid punishment while still protecting rare earth resources. This article will discuss this three aspects of the development of China's rare earth trade policy since Chinese economic reform, the principles and targets of protecting and developing rare earth resources, and the protection measures in current period. The purpose of this paper is to clarify the development course of China's rare earth resources.

【Key Words】 rare earth metals; trade policy; resource protection

1. The evolution of China's rare earth metals trade policy

Scarce minerals are rarely found in the earth's crust, which are difficult to extract but have wide uses and are of great importance to human development. Since the reform and opening up, China's trade policy on scarce mineral resources has changed many times. With 2000 and 2015 as time nodes, two fundamental changes have emerged, from encouraging export oriented trade policies to export regulated trade policies and then to open trade policies. The evolution and influence of these trade policies is the reason why China adopted many other measures to protect rare earth resources after the failure of the rare earth lawsuit in WTO. Only by understanding the evolution of the trade policy of rare earth resources can we understand the new measures taken by China after the failure of the lawsuit. We will elaborate on these three stages of trade policy and summarize their impacts in the following paragraphs.

1.1 Encouraging the export oriented trade policy in the initial stage of Chinese economic reform

In the early days of reform and opening up, China's industrial base was weak and its economy was relatively backward. The export of primary products including the rare earth metals was encouraged. In 1985, in order to expand exports, China began to implement the export tax rebate policy in an all-round way, including rare earth. At the same time, in order to stabilize prices and incomes, China has implemented many licensing management systems for scarce mineral exports during this period. In 1985, the original Ministry of foreign trade and economic cooperation further promulgated the regulations on the hierarchical management of export licenses, and divided the export license commodities into 3 levels.

1.2 Controlled export trade policy from 2000 to 2014

Due to the resources protection and the urgency of sustainable development, China has taken a fundamental change in the trade policy of scarce mineral resources from encouraging the export to the planned export. Since 2000, restrictive measures had been taken to limit the export of scarce mineral products such as export quotas, the abolition of export tax rebates, export tariffs, market access barriers and foreign investment restrictions. 1) Export quotas. From 2002 to 2007, China gradually managed the export quota of rare earth resources, tungsten antimony tin and products and indium molybdenum, which made the quantity of export quota of rare mineral products gradually decreasing. At the same time, the state also had mandatorily control over the production and exploitation of scarce minerals, and the Ministry of land and resources issued the annual mandatory production plan. 2) The abolition of export tax rebate. From 2004 to 2007, China's export tax rebate policy for scarce minerals was gradually reduced and eventually abolished. 3) Export tariff. At the same time of abolishing export tax rebate, China began to levy export duties on various kinds of rare earth products and raise tariff rates continuously. 4) Increase the access threshold. At the end of 2006, the State Development and Reform Commission decided to implement the entry system for the tungsten, tin and antimony industries, and made clear requirements for the establishment of the layout, production scale, technological equipment, resource recovery, environmental protection and so on. After 2006, the state has put forward higher standards for the qualification of rare earth export enterprises, not only in the size and quality of supply, but also on the qualification of rare earth export enterprises, linking the results of environmental verification with the qualification of export quotas. 5) Restrict foreign investment. From 2004 to 2007, the Chinese government gradually issued corresponding regulations and adopted restrictive measures to foreign investment.

On the whole, the trade policy of rare earth was gradually tightened from 2000 to 2014. Although this policy change has played a positive role in restraining the rapid growth of the export of rare earth metals, it had also aroused strong dissatisfaction from the main western consumer countries.We were accused in WTO and lose the lawsuit eventually.

1.3 Open export trade policy after 2015 

In August 2014, with the final verdict on the US, Japan and Europe complaints about China's rare earth, tungsten and molybdenum export control measures, more than 10 years’ export quota restriction and the export tariff system have been forced to be cancelled. The policy of China's rare earth trade has been restructured again to a more open export trade policy from controlled export policy. In January 2015, the Ministry of Commerce announced the abolition of export quota of rare earth, tungsten, molybdenum and other products, and further abolished the export tariff of rare earth, tungsten and molybdenum products in May 2015.

1.4 Impacts of these trade policies in three stages

The above three stages of China's trade policy on rare earths have both positive and negative effects. Positive aspects: in the early days of reform and opening up, the export trade of rare earth resources in China had developed rapidly, creating a large amount of foreign exchange earnings for the country. The early export encouragement policy also led to the development of China's scarce mineral industry and formed a relatively concentrated industrial base. In twenty-first Century, China adopted a tightening policy on the export of rare earth resources. These measures contained the overexploitation of scarce mineral resources in China, promoted the orderly exploitation and export of rare earth and increased the export prices and benefits. At the same time, tightening measures also helped to improve the export trade structure of rare earth metals in China.

 Negative aspects: First, China paid a heavy cost of resources and environment. In the 80s and 90s of last century, due to the overexploitation of resources and the disorderly excavation of some areas, the natural environment was greatly destroyed. The pollution of water resources, the acidification of the soil and the destruction of the vegetation occurred in many areas. At the same time, over exploitation also led to massive and rapid loss of scarce resources and waste of resources in China. Second, although China is a big country of scarce mineral resources in the world, it has been at the end of the rare resource metal commercial value chain for a long time, and has not obtained the right to price the rare earth resources. Third, exacerbating trade frictions and worsening the international trade environment. From 2000 to 2014, due to the implementation of export control policy, the trade frictions between China and the main importing countries were warming up.

2. Principles and targets for the protection and development of rare earth resources

On June 20, 2012, the Chinese government promulgated the "China's rare earth situation and policy", and put forward the principles and targets of protecting and developing rare earth resources. These principles and targets play a key role in guiding a series of measures to protect rare earth resources after China's WTO defeat.

2.1 Fundamental Principles

    - Adhering to environmental protection and resource conservation. The state will implement stricter standards for ecological protection and protective exploitation policies concerning rare earth resources, improve relevant laws and regulations on the industry's administration, and crack down on all violations of laws and regulations according to law.

    - Adhering to total-amount control and optimizing reserves. The state will quicken its steps to implement the conglomerate strategy, promote structural adjustment of the industry, actively push forward technological innovation, strictly control the mining, smelting and separating capacities, phase out outdated capacity, and further increase the concentration rate of the industry.

    - Adhering to giving consideration to both the domestic and international markets and resources. The state will take synchronized administrative measures on rare earth mining, production and export, and encourage international exchanges and cooperation.

    - Adhering to coordinated development of local economy and society. The state will strive to correctly handle the relations between local and overall development and current and long-term development, and maintain a normal order of industrial development.

2.2 Main Targets

    Within a short period of time, the state will strive to establish a regulated and orderly system of rare earth resource exploitation, smelting and separating, and market circulation, and effectively control the disorderly exploitation of resource, deterioration of the ecological environment, blind expansion of production, and rampant smuggling; increase the recycling rate of rare earth resources, the recycling rate of ore dressing recovery, and the rate of comprehensive utilization, enforce effective control over the intensity of resource exploitation, and restore the reserve-extraction ratio to a proper level. It will make sure the discharge of waste water and gas and slag meet the established standards, and effectively restore the ecological environment in key areas. It will push forward merger and reorganization in the rare earth industry, and develop large-scale, highly efficient, and clean production enterprises. New product development and new technology application will be accelerated. On this basis, the state will further improve related policies and laws and regulations regarding the rare earth industry, gradually establish a unified, standardized, and highly efficient administrative system for the industry, and develop a sustainable and healthy development pattern featuring rational mining, orderly production, efficient utilization, advanced technology and intensive development.

3. China's protection for rare earth metals in current stage

After losing the lawsuit in WTO, though China had to give up its export control over rare earths, the task of protecting rare earth resources could not be abandoned. In order to recapture the pricing power of rare earth resources, protect rare earth resources and domestic environment, the Chinese government has adopted a series of measures from strategy to tactics.

3.1 Made in China 2025

China is the largest supplier of rare earth resources, but it has not mastered the pricing power of rare earth resources largely because foreign demand for rare earth is far greater than domestic demand. If the domestic demand for rare earth can see a significant increase, the changes in foreign demand will not have a destructive effect on the price of rare earth, which will greatly enhance our bargaining power on the price of rare earth, so that the price and value of rare earth resources will be matched. Therefore, China's "Made in China 2025" plan released by the Chinese government in May 2015 will greatly promote the domestic demand of rare earth. This is because the planning needs to speed up the intelligent transformation of machinery, aviation, shipping, automobile, light industry, textile, food, electronics and other industries, improve precision manufacturing, agile manufacturing capacity, overall layout and push intelligent transportation tools, intelligent engineering machinery, service machines, intelligent household appliances, intelligent lighting appliances and R & D and industrialization of wearable equipment and other products. If we want to realize the development and progress of these high emerging industries, there will be a huge demand for rare earth resources, which will fundamentally change the supply and demand of rare earth resources at home and abroad, and help China to win the right of price the rare earth.

3.2 The establishment of six major rare earth groups

Since it is strongly opposed by trade partners to regulate the export of rare earth by trade measures, we need to accelerate the integration of rare earth enterprises in China and improve the competitiveness of our rare earth enterprises in order to develop and protect our rare earth resources in a legal way. In May 10, 2011, the State Council issued a number of suggestions on promoting the sustainable and healthy development of the rare earth industry, setting the key to the development of rare earth enterprises in China. The Ministry of industry and information has proposed the plan for the establishment of "1+5" national large-scale rare earth group, which is to promote the optimization, merger and reorganization of the domestic rare earth enterprises. A new structure for a rare earth company in the north and five rare earth companies in the south. Up to now, the integration of the six major rare earth groups has been completed, and 22 rare earth mines and 54 smelting and separating enterprises have been integrated, and only 1 rare earth mines and 5 smelting and separating enterprises have not been integrated. So far, the pattern of the six big groups dominating China's rare earth industry has basically taken shape. In addition, in the rare earth "13th Five-Year" plan, it is also clearly proposed that at the end of 2020, the six major rare earth groups completed the integration of all the national rare earth mining, smelting separation, and comprehensive utilization of resources, that is to say, the six major rare earth groups in 4 years will completely monopolize the rare earth industry in China. This will bring many positive effects, such as solving the problem of overcapacity, improving the production, utilization and recycling efficiency of rare earth resources, and optimizing the industrial structure to help us move from the low value-added field to the high value-added field and make the industrial layout more reasonable. Finally, it helps our country grasp the pricing power of rare earth resources in a reasonable way.

3.3 The reform of resource tax on rare earth resources

In April 28, 2015, the State Council promulgated the reform of rare earth resources tax. This reform realized the rare earth resources tax levying way from the "from the measurement" to the "pricing", to carry out the differential tax rate for the light and heavy rare earth resources tax, to truly reflect the rare degree of rare earth resources and to promote the healthy development of the rare earth industry. In the past, the rare-earth resources tax in our country has been practicing the measurement of the quota. The biggest drawback of this method is that the amount of the tax can not increase with the price rise, which is not matched with the change of the scarcity of resources, so that the effective utilization of resources is a institutional obstacle. After this reform, the price of rare earth resources will go along with the market, the allocation of the source of tax becomes more scientific and reasonable.And it will adjust the the location of the resource tax from the general tax on the increase of revenue to the special tax using the tax lever to achieve the national economic policy goal. In addition, it can stimulate Chinese enterprises to take the rare-earth deep processing road, improving the competitiveness of China's rare-earth industry as a whole.

3.4 Strategic reserve of rare earth metals

The invention of every six new technologies in the world today is inseparable from rare earth elements. Rare earth is an important strategic resource in twenty-first Century, and it is applied more and more widely in defense strategic weapons, new materials development, information industry and bioengineering. For example, greatly improving the tactical performance of steel, aluminum alloy, magnesium alloy and titanium alloy used for making tanks, aircraft and missiles. The use of rare earth technology in military affairs will inevitably bring about a leap in military technology. On this basis, it is particularly important to increase the strategic storage of rare earth metals. Therefore, the state establishes the rare earth strategic reserve system, implements the reserves and product reserves of rare earth resources, delimits the first 11 rare earth national planning areas, and compiling the special planning of the key planning area (mining area) to complete the rare earth resources. At the same time, the state's strategic storage was written into the "12th Five-Year plan", and private purchases and storage are also encouraged. In 2017, China held three rounds of State Reserve tendering, which reserved 8000 tons of rare metal resources. In January 19th, the total amount of rare earth reserve tenders was over 2000 tons. In March 28th, the total number of tenders for rare-earth National Reserve was about 3000 tons. In May 27th, more than 3000 tons of rare earth national reserves were tendering. From this, we can see that China has begun to learn from western developed countries and protect the rare earth resources through national reserves to protect China's rare earth resources from foreign countries.

3.5 Anti-corruption and crackdowns on speculation and profiteering 

The profits of the rare earth industry are huge, so the black interest chain is rampant, which has caused great damage to the national environmental protection and strategic development. Illegal traders who violate the development of rare earths can earn 10 million a month, but environmental governance will take decades. At present, crackdowns on speculation over rare earth metals has become the core of the supply side reform of the rare earth industry. It is the key to solve the problems of the smooth development of the rare earth industry and the illegal outflow of resources in the future. At the end of December 2016, the eight departments, such as the Ministry of industry and information, jointly issued a notice that, in order to further standardize the order of rare earth market, combat illegal exploitation, production and trading of rare earth, the member units of the coordination mechanism of rare metals in business, decided to fight rare earth from December 2016 to April 2017 on the basis of the earlier rectification work. Special actions for illegal and irregularities. It is believed that under the impetus of the country's strong anti-corruption and special black action, after the introduction of relevant laws and regulations, it will be able to contain the black and evil behavior of illegal officials and businessmen, and establish a management strict fair and high value-added rare earth industry.

In addition, China has taken other measures to protect rare earth resources: Strictly control the access threshold of the upstream mining sector, resolutely shut down, rectify and eliminate backward production capacity for enterprises that have not reached the national standard. Strengthen Customs supervision, standardize export order, and strictly control smuggling and  illegal export behaviors while opening the scarce mineral market step by step. Promote the research and investment in the basic and production fields of scarce mineral resources. Improve laws and regulations, strengthen the system of resource property rights, prepare the regulations on rare metals management and the rare metal protection law. Prepare rare earth futures to promote the transparency and rationalization of rare earth prices.


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