China expects WTO action over rare earths: report

China is bracing for renewed calls to ease its rare earths controls after the World Trade Organization ruled Beijing's limits on key raw material exports broke trade rules, the China Daily said Wednesday.

The WTO on Monday upheld its original decision and said China must bring duty and export quota measures on elements including magnesium and zinc into line with its WTO obligations.

Beijing had argued that measures on some of the metals were justified to conserve its natural resources -- the same reasoning it uses to defend its export restrictions on rare earths, which are used to make high-tech products.

"We are ready for it," Yu Fang, deputy director of the department of treaty and law under the Commerce Ministry, was quoted by the China Daily as saying.

Developed countries "will probably request that China loosen export restrictions on rare earths in the coming months" and even present their case to the WTO.

"But we don't fear this because we are fully prepared."

Yu declined to comment when contacted by AFP.

China is the world's largest producer of rare earths -- 17 elements crucial in the manufacturing of everything from iPods to low-emission cars -- and has angered its trade partners by limiting shipments of the valuable minerals.

European Union trade commissioner Karel De Gucht -- a vocal critic of China's rare earths export controls -- said the WTO ruling represented a success in efforts to ensure fair access to raw materials for EU industry.

He called on China to bring its "overall export regime, including for rare earths, in line with WTO rules".

Beijing said it "deeply regretted" the WTO decision, but added that it respected the ruling and would "apply reasonable policies to administer products" according to WTO rules.

Analysts said the ruling would spur the United States, Europe and other countries to challenge China's rare earths policy at the trade body, but market forces would probably render their efforts "unnecessary fairly soon".

"Price corrections have been sizeable since last June or July and we believe are headed lower still over the course of the next two years as new non-Chinese sources (of rare earths) open up," said John Mothersole, a Washington-based commodities analyst at IHS Global Insight.

"Looking out on a three to five year horizon we actually see markets for most rare earths in surplus" as buyers find substitutes for rare earths and mines outside China start production.