China Confirms Plans to End Rare Earths Export Tax

30 April 2015

China’s Ministry of Finance recently confirmed that it will be ending its export tax on rare earths, starting on 1 May. The policy, along with its past use of export quotas on these minerals, had been the subject of a high-profile WTO dispute that Beijing lost last year.

The tax and quotas had been challenged at the WTO by the EU, US, and Japan, with the organisation’s Appellate Body ruling in August 2014 that China’s export restrictions on various rare earths, as well as tungsten and molybdenum, are largely inconsistent with trade rules. (See Bridges Weekly, 10 September 2014)

Beijing had argued that the policies were needed in order to help limit the domestic environmental consequences resulting from the extraction and production of rare earths. The complainants, however, had suggested that the restrictions were actually aimed to prop up prices of the minerals, giving Chinese producers an unfair competitive edge.

China is the world’s leading producer of rare earths minerals, accounting for approximately 90 percent of global production despite only holding a quarter of rare earths global supply. These minerals are primarily used in manufacturing high-tech products, including clean energy technology goods such as wind turbines and energy-efficient lighting.

Chinese officials have also announced plans to institute a rare earths resource tax domestically, starting on 1 May. The tax would be calculated on an ad valorem basis – in other words, depending on value rather than volume. 

May compliance deadline

According to an agreement between the parties to the WTO dispute, the “reasonable period of time” for China to bring its illegal measures into compliance with global trade rules will expire on 2 May. Should the complainants in the dispute deem that Beijing’s changes are insufficient, they can ask that a panel be established to review compliance.

Beijing had already moved in January to end its rare earths export quotas, according to an announcement published by state media. Chinese rare earth domestic producers exporting abroad now need a license issued on the basis of an export contract but no restrictions will exist on volumes of rare earths sold abroad. (See Bridges Weekly, 15 January 2015)

ICTSD reporting; “China stocks mixed as banks drag, Hong Kong market slips,” REUTERS, 29 April 2015; “China to levy new resource tax on rare earths May 1st,” INVESTORINTEL, 28 April 2015; “China ends export tax on rare earths and other metals,” THE FINANCIAL TIMES, 23 April 2015.

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