More on the Trade in Rare Earth Elements and National Security

by Chris Borgen

A while back I wrote a sort post on the violent political economy of rare earth elements, also known as REE’s. A recent Congressional Research Service report (.pdf is here) describes the central (and until recently under-reported) role of REE’s in the modern economy and national security infrastructure:

Some of the major end uses for rare earth elements include use in automotive catalytic converters, fluid cracking catalysts in petroleum refining, phosphors in color television and flat panel displays (cell phones, portable DVDs, and laptops), permanent magnets and rechargeable batteries for hybrid and electric vehicles, and generators for wind turbines, and numerous medical devices. There are important defense applications, such as jet fighter engines, missile guidance systems, antimissile defense, and space-based satellites and communication systems.

The problem is that most rare earth mining takes place in China and, as described in my previous post, the industry is dominated by criminal gangs. The CRS report notes that:

While more abundant than many other minerals, REE are not concentrated enough to make them easily exploitable economically. The United States was once self-reliant in domestically produced REEs, but over the past 15 years has become 100% reliant on imports, primarily from China, because of lower-cost operations.

Moreover, according to one tech industry website,

China has warned that its own industrial demands could compel it to stop exporting rare earths within the next five or 10 years.

Although CRS believes that global reserves are sufficient to meet future demands, the concern is the power that China may have in the short to medium term with its domination of the REE market. Today’s New York Times notes that China has started using REE embargoes in its diplomatic relations with Japan:

Late last month, amid a diplomatic spat with Tokyo, China started to block exports of certain rare earths to Japan.

The shipping ban was still in effect on Monday evening in Japan, an industry official said, though a trickle of shipments seemed to be seeping out as a result of uneven enforcement of the ban by customs officers at various ports. China has allowed exports of Chinese-made rare earth magnets and other rare earth products to Japan, but not semi-processed rare earth ores that would enable Japanese companies to make products.

The cutoff has caused hand-wringing at Japanese manufacturers, from giants like Toyota to tiny electronics makers, because the raw materials are crucial to products as diverse as hybrid electric cars, wind turbines and computer display screens.

Late last week, Japan’s trade minister, Akihiro Ohata, said he would ask the government to include a “rare earth strategy” in its supplementary budget for this year.

The main thrust of the article, though, is that Japanese companies have started recycling rare earths from used electronics. In addition to this there is the possibility of increasing domestic U.S. mining of rare earths; however, the start-up costs are daunting  and one independent consultant working with one of the U.S. mining companies “suggested that many U.S. companies have not jumped into the market because China’s state-owned mines keep rare earth prices artificially low,” making market-entry difficult. Hints of a possible WTO issue?

Another speculative possibility is the extraction of rare earths from the moon. This has its own set of problems, technical, legal, and strategic, similar to the issues discussed in a recent article by Richard Bilder.

How will the U.S., China, Japan, and other countries navigate this potential area of resource conflict? It will be interesting to see if any of the countries will attempt to multilateralize the issue or bring in institutional dispute resolution or whether the issue will remain one dealt with through a combination of bilateral deals and fresh investment (both public and private) in new mining ventures.

http://opiniojuris.org/2010/10/04/more-on-the-trade-in-rare-earth-elements-and-national-security/

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  1. [...] Earth Elements (REE) to Japan in retaliation for a Japanese detainment of a Chinese fishermen.  Here is more information about REEs and the role they play in international trade.  In other [...]