BEIJING—In a widely expected move following requests by the United States, European Union and Japan, the World Trade Organization has set up a panel to probe China's rare-earth export policies, the trade body said in a report on its website Tuesday.
The trade dispute centers on China's domination over the production of 17 metallic minerals that are essential for a range of sensitive cutting-edge technologies including missile defense systems, wind turbines and smart phones.
The WTO Dispute Settlement Body's decision moves forward the request made in March to have the agency probe China's export quotas, duties and other restrictions on rare earths, as well as minor metals molybdenum and tungsten.
But coming at a time when global production is rising and prices are under pressure, the findings of the trade body can only have limited impact on prices as the world no longer relies on Chinese supply for all its needs.
After China imposed quota restrictions on exports, global suppliers have made considerable headway in reducing dependence on Chinese supply.
U.S.-based Molycorp has begun production at its California mine, and Avalon Rare Metals is developing a deposit in Canada's Northwest Territories, according to a U.S. Congress research report in June.
Japan also has a deal for a rare-earth development project in Quebec, and Australia's Lynas Corp. is due to start mine production at its Mount Weld facility this year as well as potentially reopen a mine in South Africa.
The Lynas project is expected to produce 40,000 tons annually by 2013, while Molycorp's Mountain Pass could produce 20,000 tons a year. The two projects together could potentially account for about a third of world demand, the congressional report said.
At the time when the quota restrictions came into force, China accounted for nearly 95% of global supply.
In a changing market, China has struggled with plummeting rare-earth prices as demand weakened in the past year. Prices of bellwether rare-earth products such as neodymium oxide have nearly halved from last year's level to around $67.50 a metric ton Monday, according to Lynas Corp.
Beijing has said it regrets the complaint, defending its policy as a means to control an environmentally polluting industry, although it led to sharply higher prices when the measures were announced.
If found to contravene WTO rules, China may have to remove or amend some of its policies and that could further free up the rare-earth market.
Vietnam, Norway, Oman, Taiwan, South Korea, Saudi Arabia, Brazil, India, Canada and Colombia plan to exercise third-party rights in this case, the WTO said. Third parties in WTO disputes can monitor and influence proceedings, which usually take about six months to complete.
Flagging global demand and rising private stockpile, coming amid worries over China's control over output, have dented international trade in these commodities. Chinese exporters used up only 62% of last year's quota. Industry websites show only a quarter of this year's initial quota has been used so far.
China has so far allowed its companies the right to export 21,226 tons of rare-earth metals this year. The government has said it plans to maintain its 2012 quota volume "basically flat" compared with last year's 30,184 tons.
China's largest rare-earth producer, Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co., said earlier this month that it plans to launch a physical-trading platform for the minerals on Aug. 8, which may bolster China's control over their pricing.
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