U.S. threatens WTO action on China rare earth curbs

WASHINGTON (Reuters) – China has refused repeated U.S. requests to eliminate export restraints on rare earths that have rattled its trading partners, the U.S. Trade Representative's office said on Thursday.

"Going forward, the United States will continue to pursue vigorous engagement with China on this issue and will not hesitate to take further action, including WTO dispute settlement, if appropriate," the trade representative's office said in an annual report on how well China has complied with commitments made when it joined the World Trade Organization in 2001.

The warning came one day after the U.S. trade representative's office said it had begun a legal challenge at the WTO against certain Chinese subsidies for wind power equipment manufacturers.

U.S. officials said on Wednesday they could file additional cases against questionable China policies in the clean energy sector, and the new report amplifies U.S. concerns about China's export restrictions on rare earths.

It said the United States most recently pressed China to eliminate its export restraints on rare earths during the high-level U.S.-China Joint Commission on Commerce and Trade meeting last week in Washington.

"But to date China has not been willing to change its policies," the U.S. trade office said.

China controls 97 percent of global supplies of the elements and uses quotas and taxes to limit exports.

China slashed the export quota by 40 percent this year and plans to trim it further next year. It has already announced increased export taxes on rare earths in 2011.

The 17 rare earth elements are used in high-tech electronics, magnets and batteries, with applications in hybrid cars, renewable energy, computer monitors and weapons.

China's export restrictions have caused "world prices for some of the rare earths to rise dramatically higher than China's domestic prices," which has hindered efforts in other countries to develop expertise in the manufacturing of clean technology products, USTR said.

"In September 2010, China reportedly imposed a de facto ban on all exports of rare earths to Japan, causing even more concern among China's trading partners," USTR said.

China says its curbs are for environmental reasons and to manage supplies.

The U.S. Trade Representative's annual report, which is required under U.S. law and runs 124 pages, also said China still has not fully implemented some important market-opening commitments it made when it joined the WTO in 2001.

"Frequently, these problems can be traced to China's pursuit of industrial policies that rely on excessive, trade-distorting government intervention intended to promote or protect China's domestic industries and state-owned enterprises," the trade office said.

China's "serious problem" with intellectual property rights enforcement, its slow movement toward joining the WTO's government procurement pact and its indigenous innovation policies that discriminate against foreign companies are all major concerns, the trade office said.

However, the report also said progress had been made on several issues during this month's U.S.-China talks.

(Reporting by Doug Palmer; Editing by Eric Beech and Bill Trott)

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