With worldwide demand for strategic minerals steadily increasing, an international regulatory body is necessary to mediate international conflicts that may arise over the trade of these scarce but economically critical materials. This body should allow all nations, both developed and developing, to have a fair and equal chance to obtain access to these ever decreasing resources.
Currently, the World Trade Organization (WTO) regulates international trade. However, when it comes to mediating international conflict over the trade of strategic minerals, the WTO's dispute-handling process has been found to be extremely time-consuming. This requires adjustments that will expedite the dispute handling process. Moreover, while the WTO does have methods that encourage the integration of developing nations into the world market, these methods must be strengthened and supplemented with proactive measures taken by developing nations.
A more direct way to address the trade of strategic minerals would be the establishment of a commodity trading exchange. Such an organization would deal solely with the trade of these scarce economically viable materials. In addition, as presented in the protocol page, a specialized agency under the Economic and Social Council of the United Nations that focuses only with strategic minerals would also directly address the environmental and workforce issues that arise over the commerce of strategic minerals.
The WTO works to mediate conflicts among its member nations through the dispute settlement process (World Trade Organization, 2012). This procedure has been tested most recently in the dispute over China's rare earth elements. In March 2012, the European Union, the United States, and Japan sought WTO action in response to China's cuts to domestic output and reduced exports of rare earths and the minerals tungsten and molybdenum (Ching, 2011). In July 2012, the WTO began to actively probe into the matter (Freedman, 2012). However, there has been controversy over the effectiveness of getting the WTO to intervene in this issue: as of November 2012, there have not been any major updates on this pressing issue.
Caption: The current dispute settlement process is an extremely lengthy process.
Companies are beginning to realize how slow and ineffective it would be to rely solely on the WTO when it comes to the REE trade. In his testimony to the U.S House of Representatives Committee on Foreign Affairs in September 2011, Mark A. Smith, the President and CEO of Molycorp, Inc., argued that it would not be productive to blame China for the unequal distribution of REEs and that it would be better to redirect efforts into improving technologies and relying on domestic resources to reduce dependence on China (Smith, 2011). In fact, Smith's foresight was soon reinforced by a U.S Defense Department study (Perkowski, 2012) which predicted that China's monopoly on REEs would be broken with the development of new production sites in North America by 2013.
However, whether or not China's dominance of REEs will in fact weaken within the coming years does nothing for the nations that are currently so dependent on China's REE resources. The dispute settlement process of the WTO normally takes about one full year and a maximum of fifteen months if the case is appealed (World Trade Organization, 2001). The lost time and money accrued over this period of time is a serious issue for nations, in particular those that are developed and heavily dependent on REEs for the manufacture of various technologies. This is why it is so necessary to expedite and facilitate this process.
The WTO also has recognized the need to provide support for developing nations. The "special and differential treatment" (World Trade Organization, n.d.) that is given to these nations, in particular "least developed countries," is certainly a step in the right direction. These measures include providing leniency for developing nations in fulfilling membership requirements, provisions that give developing nations greater market access, and provision that safeguard developing nations' interests. (World Trade Organization, n.d.).
However, despite this extra leniency, developing nations are seriously disadvantaged due to their lack of infrastructure and lack of experience in trade policies. This is the reason for their low participation rates in WTO disputes (Oxford, 2010). It is a serious issue that their interests are not being explicitly expressed to the WTO.
In 2009, the United States filed Dispute DS394 with the WTO to request consultation with China with respect to China's restraints on the exports of other raw materials, such as bauxite, magnesium, and silicon (Sholts, 2012). In this case, the WTO sent judges to examine and then re-examine the appeal. China was found to be in violation of numerous rules, including three articles of the General Agreement on Tariffs and Trade (GATT) 1994, the world's original agreement dealing with trade in goods (World Trade Organization, n.d.), and several sections of Part 1 of the Protocol on the Accession of the People's Republic of China (World Trade Organization, 2012). The WTO also found China's claim that an export quota was instituted to protect "critical shortages" of refractive-grade bauxite was rejected by the WTO (Sholts, 2012).
The formal request for consultations was received on June 23, 2009 (World Trade Organization, 2012). However, it will not be until December 2012 (Sholts, 2012) when China will meet the deadline to change their policies to comply with WTO regulations. This issue took a full thirty months to be resolved, which is an unacceptable length of time.
Addressing the need for international regulation of the REE trade consists of a three part process: (1) Strengthening the current international trade body, the WTO and/or creating a separate commodity exchange of strategic minerals; (2) Creating a specialized agency under the UN to directly oversee the social, political, economical, and environmental implications of the strategic mineral trade; (3) Taking action to ensure that developing nations have access to strategic minerals.
Strengthening the WTO
In order to expedite the dispute settlement process and consequently the process of dealing with complications of the REE trade, the WTO would need to restructure so that decisions can be made faster and more inclusively of developing nations. Suggestions as to how the WTO can restructure itself have been proposed by various academics, including WTO Deputy Director-General Alejandor Jara. Jara was delegated by the Director-General to research ways to address the growing costs of the dispute settlement and the sentiment that the process is too slow (Jara, 2012).
In his document, Jara proposes double-briefing, a process in which written submissions are submitted to a panel prior to the first hearing of a dispute (Jara, 2012). This would speed up the panel process and possibly eliminate the need for a second hearing. He also noticed that often parties are not prepared to provide answers during the first meeting of the panel process due to their lack of background with the panel's preoccupations. For this reason, he proposes the creation of agendas for panel meetings, so as to provide parties in advance with a proposed agenda or structure for the meeting, and the institution of time limits on oral presentations (which in fact typically repeat written submissions). He also supports a previous proposal to limit pages for executive summaries, which will also ensure that panel reports are succinct.
We highly encourage Jar's proposals to be carried out by the WTO. These are simple, straightforward changes that can easily expedite the dispute settlement process. Moreover, the fact that some of these protocols have already been in use in some meetings reveals the relative ease of implementing these rules.
To further expedite the dispute ruling process that directly involve REEs, the WTO must identify REE-related issues as critical. The WTO has explicitly stated that more "pressing" issues are usually addressed more immediately (World Trade Organization, 2012). We hope that the WTO will realize that the REE trade is one that has serious implications for the economies of nations around the world, most especially the top producers of electronics such as Japan, India and the United States. International issues that arise over the REE trade need to be recognized as a critical matter that should be dealt promptly.
As was demonstrated by the complaint that the US issued against China in 2009, the WTO sometimes takes far too much time to resolve to trade disputes. If the WTO continues to spend this much time on future cases implicating the REE trade, then nations might have to rely on a different organization to settle these specific disputes.
Commodity Trading Exchange
A more direct and immediate way of addressing the need for the regulation of the REE trade is through the creation of a commodity trading exchange. These types of exchanges often require members to agree upon transparent trade and pricing.
An analogous exchange that a rare earth element exchange could be based upon is the London Metals Exchange (LME), the world's foremost commodities exchange for non-ferrous materials (London metal exchange, n.d.). According to the LME, each of the prices that are published by the exchange are derived directly from trading, providing transparent pricing for the global metals market. This is an excellent way for the REE market to maintain a stockpile of resources open to its members.
For such an REE exchange, the principal members would consist of the nations that are acting on behalf of the traders and consumers of the respective nations. This will ensure that motives are based upon the interests of the nation as a whole, and will preclude any partiality for corporations.
The reason that such an exchange has not yet been established is due to low concentrations of these elements on the Earth and the environmentally-unfriendly methods that are taken to obtain these products. These factors made such commodities hard to find in futures contracts or in physical exchange-traded funds (Pairitz, 2012). Moreover, because China produces 95% of the world's total supply of REEs, it is difficult to produce the same liquidity and predictable pricing that comes from being trade on a major exchange (Pairitiz, 2012). However, with the opening of new mines, such as Molycorp's Mountain Pass, China's stranglehold on the commerce of these materials may soon be lessened, making such a commodity trading exchange a viable option.
Creating a UN subcommittee
Another way to directly address the issue of REEs is through the creation of a subcommittee under the UN.
The UN charter stipulates that each of its primary organs can establish specialized agencies to fulfill its duties. Using the Economic and Social Council, an agency can be formed to deal with the growing REE problem. This agency will specialize in the exchange of the most up-to-date research of REEs and in overseeing that regulations concerned with REEs are fully implemented.
The collaborative efforts of the WTO and this new agency would indeed strengthen international regulation of the REE trade. The WTO will ensure that free trade is maintained, while the agency will oversee and enforce REE regulation. The reasons why we have chosen the UN and the WTO as vehicles for implementing our solution are because the UN has the power and influence to sway the minds of world leaders, while the WTO already has the structure necessary to protect free trade.
We suggest that the agency created under the Economic and Social Council should meet twice yearly to discuss issues pertaining REEs. In addition, when a major international or national problem arises, the body will convene to solve the matter at hand. The body will have equal representation from all member United Nations countries, which include 193 member states as of November 2012. The meetings will include ministers or secretaries of mines and mineral resources for each respective nation. It will then be the responsibility of the minister or secretary to push for specific resolutions. International resolutions will be made and implemented by the body as a whole. The resolutions which are more regionally confined must be shepherded by the respective nation's ministers or secretaries.
More about the creation of this agency can be found here.
To ensure that developing nations have access to REEs, it is important to strengthen the role that these nations have in the WTO. While the WTO does have certain resources for developing nations, such as technical support from the WTO Secretariat (Developing countries, n.d.), there are further steps that must be taken to ensure fair trade for these nations and to protect them from exploitation.
In July 2012, the WTO established new rules governing its accession process that would provide the least developed countries, which are nations that the WTO recognizes as the world's poorest countries, a smoother path to membership (McClanahan, 2012). These guidelines will allow least developed countries flexibility in using tariffs to protect their domestic industries. However, these nations will still be vulnerable to the demands of WTO members because of the standing requirement for new members to establish binding limits on the taxes they charge on imports. Following the same reasoning for the creation of the new rules, it is also necessary to provide least developed nations additional flexibility by eliminating the need to establish binding limits on taxes on imports. This will protect the country's domestic producers from foreign competition (McClanahan, 2012).
The WTO's Aid or Trade initiative, "which aims to help developing countries develop the trade-related skills and infrastructure that is needed to implement and benefit from WTO agreements and to expand their trade" (Aid for Trade, n.d), has potential to improve the competitive, well-regulated logistics that will improve physical infrastructure and trade competitiveness of developing nations, as well as help domestic producers upgrade equipment and improve marketing activities (World Trade Organization, 2012). This initiative derives its power from the Enhanced Integrated Framework (EIF), which is the mechanism through which the supply and demand for Aid for Trade is taken to mainstream trade (World Trade Organization, n.d). This process will not only assist least developing countries in mainstreaming trade into their national development strategies, but also provide them with leverage of funding.
To ensure that the developing countries are able to develop the trade competitiveness of developing nations, action should be taken at the regional level to facilitate trade. A recent study suggests that a cooperative body among developing countries could also enhance the members' collective capacity (Oxford, 2010). For example, the African Union is taking steps to improve weak regional infrastructure. It has adopted a declaration on "Boosting Intra-African Trade," pledging to improve infrastructure and reduce trade barriers (World Trade Organization, 2012). The WTO should encourage similar actions to be taken by its member nations. The WTO could present this case study and directly convey the benefits of a collaborative effort amongst developing nations. Such bodies would have a more pronounced say in the WTO, and would better vocalize and address the needs of these developing nations.
Our suggestions on strengthening the WTO consist of simple changes in the panel process that are intended to reduce deliberation times. It is hoped that they should not cost any additional money and in fact we expect they will actually decrease the costs of the dispute settlement process. Reducing the length of panel reports reduces the costs of printing, publication, and translation (Jara, 2012).
The United Nations has the capability to fund and create such a specialized agency, as exemplified by the Food and Agriculture Organization (FAO), World Health Organization (WHO), and United Nations Children's Fund (UNICEF). The cost of establishing a specialized agency under the UN is projected to range between 1 to 4 billion USD. This is based upon the costs of instituting other specialized agencies. An exact figure cannot be calculated at the moment because there are many factors to consider, such as the costs of facilities, special programs that will be implemented under this agency, outbreak and crises responses. However, a rough projection can be made based on other United Nations sub-agencies. The Food and Agricultural Organisation has a proposed biennial budget (2012-2013) of about 1 billion USD and expected contributions of 1.4 billion USD during this period (Food and Agriculture Organization, 2011), while the World Health Organization's proposed 2012-2013 budget was found to be around 4 billion USD (World Health Organization, 2011).
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