U.S., EU FILE TRADE CASE AGAINST CHINA OVER RARE EARTHS

The United States, the European Union and Japan filed a trade case Tuesday over China’s export restrictions on minerals that are crucial for the production of many high-tech devices, according to EU and U.S. officials.

The case aims to pressure China to lift export limits on certain minerals known as rare earths, a senior Obama administration official said.

President Barack Obama will make a statement about the case later Tuesday from the White House Rose Garden.

China produces 97% of all rare earths, according to the EU. The materials are used in products such as flat-screen televisions, smart phones, hybrid car batteries, wind turbines, energy-efficient lighting, electronics, cars and petroleum.

“Together with the U.S. and Japan, the EU formally requested dispute settlement consultations with China in the World Trade Organization,” a statement said.

The EU said the challenge targets raw materials including 17 rare earths, including cerium, neodymium and dysprosium as well as tungsten and molybdenum. The elements and substances are used in high-tech and “green” businesses and also in cars, machinery manufacturing, chemicals and steel.

Tungsten is used in lighting technology, in electronics and in automotive, aerospace and medical technologies, the EU said. China produces 91% of the world’s tungsten.

Molybdenum is a metallic element used for filaments in light bulbs. China produces 36% of the world’s molybdenum, according to the EU.

Most of the time, rare earths cannot be substituted without resulting in a redesigned and more costly product, according to the EU. “Their non-availability can lead to the disruption of whole value chains,” the EU said.

China has gradually tightened export restrictions on the materials through raising export taxes and “drastically reducing the export quota,” according to the EU. In 2010, China reduced the quota by 32% for domestic companies and 54% for foreign-invested companies.

“Because China is a top global producer for these key inputs, its harmful policies artificially increase prices for the inputs outside of China while lowering prices in China,” said a Tuesday statement from the U.S. Trade Representative.

“This price dynamic creates significant advantages for China’s producers when competing against U.S. producers — both in China’s market and in other markets around the world. The improper export restraints also contribute to creating substantial pressure on U.S. and other non-Chinese downstream producers to move their operations, jobs and technologies to China.”

Beijing defended its approach Tuesday.

“China has worked out its own policy on managing rare earths, which is in line with WTO regulations,” Liu Weimin, a spokesman for the Chinese Ministry of Foreign Affairs, said at a news conference. “Our policies tackle not only the export of rare earth but also its production and exploration.”

The United States accuses China of hoarding the valuable minerals for its own use. But China said the restrictions are motivated by environmental concerns.

China will have 10 days to respond to the case and must hold talks with the other parties within two months.

The WTO, the body tasked with monitoring trade between nations, will be asked to be a facilitator in talks with China, the U.S. official said Monday.

“China’s restrictions on rare earths and other products violate international trade rules and must be removed,” said Karel De Gucht, EU trade commissioner, in a statement. “These measures hurt our producers and consumers in the EU and across the world, including manufacturers.”

Despite a recent ruling in a separate dispute over different raw materials, “China has made no attempt to remove the other export restrictions,” he said. “This leaves us no choice but to challenge China’s export regime again to ensure fair access for our businesses to these materials.”

Ron Kirk, U.S. trade representative, said, “America’s workers and manufacturers are being hurt in both established and budding industrial sectors by these policies. China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace.”

Concern in the United States over the supply of rare earths resulted in a September hearing on the matter by the House Foreign Affairs Subcommittee on Asia and the Pacific.

Of particular concern was how vital the minerals are for top-of-the-line weapons, including missile guidance systems, drones and the new F-35 Joint Strike Fighter.

American companies are trying to answer the demand. Molycorp Inc., one of the few producers of rare earth minerals outside China, has urged Congress to do more to confront the problem and encourage research and development. Molycorp has mines in California and Colorado.

In 2010, China temporarily halted shipments of rare earths to Japan, prompting a sharp spike in prices of the minerals.

The EU said it has raised the issue repeatedly with China over the past few years without success. If no solution can be found through the consultation process, the dispute can be transmitted to a WTO panel for a ruling, the EU said.

 CNN’s Dan Lothian, Jethro Mullen and Junko Ogura contributed to this report.