China has lost an appeal at the World Trade Organization over a ruling that its restrictions on exports of rare earths essential for hi-tech electronics are unjustified.
The original ruling resulted from a case brought by the USA, the EU and Japan to challenge China's export quotas for rare earth minerals or metals, which are key elements in defence industry components and modern technology from iPhones and disk drives to wind turbines.
China, which produces more than 90 per cent of the world's rare earth minerals or metals, imposed strict export quotas in 2010, saying it was trying to curtail pollution and preserve resources.
Prices soared by hundreds of percent, leading to the complaint to the WTO that the restrictions gave Chinese companies a competitive edge in such products as hybrid car batteries, wind turbines and energy-efficient lighting.
The WTO accepted the charge in March and ordered China to repeal the export limits. China appealed, but a WTO Appellate Body judgement published yesterday rejected its case.
"China has not demonstrated that the export quotas that China applies to various forms of rare earths, tungsten and molybdenum by virtue of the series of measures at issue are justified," the document's conclusion said.
China's defeat at the WTO was widely expected after it lost a similar case over exports of other commodities and it will now be obliged to cancel its export quotas to abide by the WTO ruling.
US Trade Representative Michael Froman said the ruling marked the "end of the line" for the dispute, while EU Trade Commissioner Karel de Gucht said he looked forward to China's swift compliance.
"This ruling sends a clear signal that export restrictions cannot be used to protect or promote domestic industries at the expense of foreign competitors," de Gucht said in a statement.
Demand for rare earths comes from a variety of industries: General Electric uses rare earths in wind turbines; Toyota and Nissan use them for their hybrid and electric cars; while Blackberry and Apple need them for smartphones and tablet computers.
China had argued that limits on exports of rare earths, as well as the metals tungsten and molybdenum, were needed to prevent over-mining and defended its policy as an essential part of China's sustainable development.
"China will carefully assess this ruling, continue to improve its management on resource-consuming products in a WTO-consistent manner, facilitate the protection of natural resources, and maintain fair competition with the objective of achieving sustainable development," China's Ministry of Commerce said in a statement.