Europe wrong-footed on China rare earths response

(BRUSSELS) - Caught between a rock and a hard place, Europe feels wrongfooted by Chinese moves to consolidate vital rare earths supplies but remains unsure which way to turn.

The world's biggest tariff-free market faces calls for trade retaliation and is set to lay out its options in the days ahead.

US government studies have found that about one-third of accessible rare earth reserves are mined in China, and the top consumer, Japan, leads efforts to unlock important reserves elsewhere, such as in Australia.

Beijing produces more than 95 percent of the global market for the hard-to-mine minerals -- 17 elements with special chemical or electromagnetic properties used to make everything from iPads to electric car batteries or solar panels.

China has tightened control over the metals by slashing quotas for overseas shipments by some 35 percent for the first half of 2011, as well as hiking export taxes.

Tougher environmental standards for mining are also expected to raise export prices, all of which adds up to accusations of a protectionist agenda and loud calls to respond by blocking Beijing from other markets.

"We cannot accept restrictions on exports, but two years down the line, the European Commission has still done nothing," said Rene van Sloten of Business Europe, the employers federation.

"Prices on domestic markets are 10 times more expensive, so our companies have no choice other than to produce in China or perish," he underlined.

"We need to show we are serious -- we need both carrot and stick."

The commission is working on its policy but is unsure what stance to take, with individual commissioners on the 27-strong European Union executive cabinet unable to agree.

A first draft of a strategic document on the issue included the threat of retaliation, but that was dropped from the latest version seen Thursday.

"Certain commissioners are against retaliation, as are several key member states," one of the negotiators told AFP, referring principally to trade commissioner Karel De Gucht and the likes of Britain.

"That said, the option has not been excluded," he added, ahead of a deadline next Wednesday for EU ambassadors to adopt a position.

France, which chairs the G20 this year, wants action coordinated across the world's richest economies on raw materials speculation -- including rare earths.

EU industry commissioner Antonio Tajani is looking at three ways to reduce its dependence on China for a series of key minerals going beyond the rare earths classification.

These include recycling some 20 million tonnes of electronic and electrical EU waste, developing substitute products and opening up new mining in Europe.

However, he recently admitted in an interview with AFP that EU environmental legislation would make the third option difficult, while the volume of investment required for recycling could also prove prohibitive.

The commission, in its latest draft position, is looking at the "feasibility" of building up strategic stock piles.

Tajani's office also said Thursday that he is expected to travel to Brazil, Bolivia and Chile in May, where he has previously said "amazing" resources are on offer.