WTO rules against China on rare earths export quotas The World Trade Organisation has judged that China's export restrictions on rare earth minerals are incompatible with its rules, sources from nations involved in the dispute said, marking the second time that Beijing's use of export quotas and tariffs as an industrial policy tool has been successfully challenged. The ruling from the panel has not yet been formally released by the WTO, which declined to comment. The case, brought by Japan, the US and Europe, came after a rise in tensions between China and Japan in 2010 highlighted China's control of international trade in rare earths minerals, which have high-tech and military applications. It also applies to tungsten and molybdenum. China is likely to appeal against the ruling, which emerged on Tuesday, Mei Xinyu, an influential policy analyst at the Ministry of Commerce, told the FT. As I see it, China has every right to limit exports of strategic resources or highly polluting, energy-intensive products like rare earths. China is by far the world's largest producer of the 17 metals known collectively as "rare earths" although high prices three years ago allowed the development of mines in Australia, the US and most recently, Greenland. China had gradually reduced rare earths export quotas for several years before 2010 in an effort to encourage more processing of the metals domestically. A sharp cut in the quota allocation in the second half of that year coincided with a confrontation between a Chinese fishing boat and Japanese patrols in disputed waters, creating a squeeze that pushed up prices amid allegations of an embargo against Japan. When China negotiated to join the WTO in the 1990s, talks focused on dismantling its barriers against imports to allow foreign goods to compete in the Chinese market. Since then, China has raised or lowered export taxes and imposed export quotas on various products as a tool to either encourage or limit domestic capacity expansion. Those measures have helped keep prices of some products much lower in China than in international markets. In 2011, the US, Europe and Mexico won a WTO case against China's use of export quotas on a variety of industrial raw materials, setting the stage for the challenge against its rare earths policy. China maintained that export quotas were necessary to limit environmental damage caused by mining and processing rare earths. But while limiting exports it simultaneously encouraged the expansion of the domestic processing industry, leading the WTO to reject its argument. China meanwhile has consolidated control of its two main rare earths reserves in Inner Mongolia and Jiangxi under a few state-owned enterprises, in an effort to reduce the gross environmental damage inflicted by unregulated miners and processors. With additional reporting by Claire Jones in London