The timing of the WTO action by the U.S., the EU, Japan and Canada is curious, though, because it appears that market forces are already correcting the current imbalance. Molycorp is in the process of modernizing and reopening its Mountain Pass mine, which is expected to come online later this year. A study by the U.S. Defense Department published in March, the same month that the WTO complaint was filed, found that the stranglehold that China has on rare earth production could be coming to an end with the opening of new production facilities in North America.
If the WTO dispute is unnecessary, why might it still go forward? I can think of three good reasons. First, you never know. Sure, it looks like North American rare earth supplies will solve the problem, but it hasn’t happened yet.
Second, and more important, legal precedent. Just as the raw materials case set a precedent regarding export quotas, a rare earth quota win would seal the deal, making it very difficult for China, or anyone else, to institute a similar program in the future.
Third, if the U.S. thinks that it has a strong legal case and has the evidence to back it up, why give up on something that can be used as a bargaining chip? China doesn’t want to lose the case and suffer a public loss of face backtracking on a policy that it just this week so strongly supported. If I’m a U.S. trade negotiator, I want the threat of a WTO dispute like this in my back of tricks when I come to Beijing for bilateral talks.