A Political Economy of China's Export Restrictions on Rare Earth Elements

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. A Political Economy of China's Export Restrictions on Rare Earth ElementsFrank Pothen * † Kilian Fink ‡ April 20, 2015 AbstractWe investigate why governments restrict exports of exotic raw materials taking rare earth elements as a case study. Trade restrictions on exotic materials do not have immediate macroeconomic effects. Relocating rare earth intensive industries is found to be the main reason behind China's export barriers. They are part of a more extensive strategy aiming at creating comparative advantages in these sectors and at overcoming path dependencies. Moreover, export barriers serve as a second-best instrument to reduce pollution and to slow down the depletion of exhaustible resources.Growing domestic rare earth consumption renders those increasingly ineffective. Rising reliance on mine-site regulation indicates that this fact is taken into account. Rare earth extraction is dominated by a few large companies; the demand side is dispersed.That speaks against successful lobbying for export restrictions. It appears as if the export barriers are set up to compensate mining firms.JEL Classifications: Q37,Q38,D78, P26

China and the WTO

“…resources, emphasized their "signalling" function, 4 a point to which we will return in the next section. Discussing the veracity of China's assertion that export restrictions, in particular export quotas, were implemented to conserve natural resources, commentators point out that the efficiency of export restraints in contributing to the declared goal of conserving exhaustible natural resources and reducing pollution could be undermined by the growing domestic consumption (Pothen & Fink, 2015;Bond & Trachtman, 2016).…”

“…2.39.) china's use of export restrictions and wto law study by Pothen and Fink (2015) conclude that China's export restrictions on rare earth pursued three main objectives: to create incentives for foreign industries to relocate to China, to conserve exhaustible natural resources and to reduce pollution. Chad Bown (2020) draws a similar conclusion that China's export restrictions provided unfair advantages to Chinese manufacturers and enabled them to use cheap local inputs.…”