EU warns China about export controls on rare earths

EU warns China about export controls on rare earths

The European Union has called on China to ease restrictions on rare earths - materials that are crucial for everything from cars to washing machines. Beijing's export controls have disrupted supply chains and triggered production problems in various industries in Europe and America.

urgency of the topic

European Union Trade Commissioner Maros Sefcovic said the issue was a "top priority" during his meeting with Chinese Trade Minister Wang Wentao on Tuesday during the Organization for Economic Co-operation and Development conference in Paris. “I informed my Chinese counterpart about the worrying situation in the European automotive industry, but I would say that this concerns all industries because rare earths and permanent magnets are absolutely important for industrial production,” Sefcovic told reporters on Wednesday.

China's dominance in the supply chain

In April, during a trade dispute with America, China used its global dominance in rare earths and introduced new export controls for seven types of rare minerals and several magnets. These are required for everything from everyday electronics and vehicles to high-priced weapons like the F-35 fighter jet. China controls 90% of global rare earth processing.

Impact on the industry

Despite a 90 day Trading calm With the US, Beijing has so far failed to relax these controls, which has led to growing discontent in Washington. Last week there was a skirmish between China and the US over violations of the temporary trade agreement reached in Geneva. Meanwhile, automakers are warning that factory closures are imminent as they find it nearly impossible to import rare earth magnets from China.

Concerns about production disruptions

“When it comes to permanent magnets, which are clearly used for civilian production, as they are needed for washing machines, cars and other household appliances, this has a huge impact on the industry,” Sefcovic explained. On Wednesday, a European automobile association also expressed concern about the "significant disruption" in Europe's automotive supply chain due to China's restrictions on rare earths.

New export controls and their challenges

Under the new controls, exporters of rare earths and magnets will be required to apply for a license for each shipment and provide supporting documents verifying the intended end use of these materials. Since April, Chinese authorities have approved only about a quarter of the hundreds of license applications. In addition, the application process was opaque and inconsistent across provinces, with some licenses rejected for procedural reasons and others requiring the disclosure of sensitive information, including intellectual property.

International reactions

The German car manufacturer Volkswagen has previously CNN announced that its suppliers had been granted “a limited number of export licenses”. China's customs authorities showed that shipments of rare earth magnets to Germany fell by half from March to April, the month the restrictions took effect.

Frustration in the USA

In the USA, frustration is also growing among officials over the slow approval process for rare earth exports. US President Donald Trump's administration believed China would lift export restrictions on rare earths as part of the trade truce and has accused Beijing of violating the agreement agreed in Geneva. Some Chinese suppliers have received approval to export rare earths to several American automakers - although it is unclear whether these operations are actually in the US.

Challenges when exporting

A long-time rare earth dealer in the U.S. reported that his company is still waiting for approval of shipping requests submitted by its Chinese suppliers seven weeks ago. One of the application documents requested a photo of the end user's production facility. “I don’t know anyone who would be willing to do that,” the dealer added.

Price increase and delayed deliveries

The export restrictions have undoubtedly forced manufacturers to scramble to stockpile the now-restricted materials, and prices are rising rapidly. “All those who have stocks of it are selling at prices four to seven times higher than what could have been offered on the market two months ago,” the dealer explained. In some cases, such as the soft metal yttrium, customers are willing to pay more than ten times the price.

The presence of export controls has also affected the exchange of materials not on the list. "We are experiencing slower deliveries. Chinese customs authorities are scrutinizing exports more intensively than ever before," the source said. In fact, shipments of rare earth magnets to the US fell by 60% from March to April.

Chinese Foreign Ministry spokesman Lin Jian said Thursday that the country's export controls are "in line with standard international practices, non-discriminatory and not targeted at any specific countries."

Reporting by CNN's Fred He contributed to this article.