* China denies reports it plans to cut export quotas
* Japan says it wants to develop rare earths with Vietnam
* South Korea seeks cooperation with U.S., Japan
* WTO puts off ruling on complaint against China
(Adds U.S. congressman raising concerns, paragraphs 4-5)
BEIJING, (Reuters) - Japan and South Korea moved
Friday to reduce their dependence on China's rare earth metals
amid fears export reductions by Beijing could be the trigger
for a broader trade conflict as nations joust over currencies.
Reports this week that China halted shipments of rare
earths to Japan during a sea territory dispute raised fears
that China could use its global dominance of supplies as a
China denied reports it planned to slash export quotas of
rare earths, which are used in automobiles, computers, cell
phones and other products. But with more than 90 percent of the
global production of rare earths coming from China, the reports
In Washington, Democratic U.S. Representative Ed Markey,
who heads the House of Representatives Select Committee on
Energy Impendence and Global Warming, wrote a letter urging
Defense Secretary Robert Gates, Energy Secretary Stephen Chu,
Commerce Secretary Gary Locke and U.S. Trade Representative
Ronald Kirk to investigate the reported Chinese export cuts.
"I am troubled by this recent turn of events and concerned
that the world's reliance on Chinese rare earth materials, in
combination with China's apparent willingness to use this
reliance for leverage in wider international affairs, poses a
potential threat to American economic and national security
interests," wrote Markey.
JAPAN LOOKS TO VIETNAM
In Tokyo, Trade Minister Akihiro Ohata said Japan wanted to
conclude a development program with Vietnam for rare earths.
"Vietnam is a very promising place, and naturally I am
strongly hoping for a joint development of rare earths," Jiji
news agency quoted Ohata as saying.
The Nikkei business daily had earlier said Japanese Prime
Minister Naoto Kan would meet his Vietnamese counterpart,
Nguyen Tan Dung, on Oct. 31 in Hanoi to agree on a development
Former Prime Minister Yukio Hatoyama left for Vietnam
Friday to discuss possible cooperation in rare earths and
infrastructure development, Hatoyama's office said.
Bloomberg said South Korea wanted to cooperate with Japan
and the United States to develop alternative sources.
In Geneva, the World Trade Organization said it would not
publish a ruling in a separate dispute brought against China
over exports of raw materials such as bauxite and magnesium
until next April instead of this year.
The chairman of the panel examining the cases said in a
statement on the WTO website the panel expected to complete its
work by April. The panel gave no reason for the delay, but said
it had been agreed on with the parties to the dispute.
The United States, European Union and Mexico launched a
dispute at the WTO last year, saying Chinese export
restrictions on the minerals discriminated against foreign
manufacturers and gave an unfair advantage to domestic
producers. Japanese trading houses Toyota Tsusho Corpand
Sojitz Corpare already preparing for rare earth development in
Vietnam, while Sumitomo Corpanother trading firm, aims to
start rare earth shipment to Japan from Vietnam as early as
2013, the Nikkei said.
Sumitomo and Sojitz said plans were still in the early
Bloomberg quoted Kim Sang Woo, a deputy director at the
Minerals Resources Division of South Korea's Knowledge Economy
Ministry, as saying he expected China would maintain export
caps and increase stockpiles to meet higher demand.
Sun Zhenyu, ambassador to the World Trade Organization,
told Reuters Insider that China's own stocks of the rare metals
were falling fast and had to be conserved.
"I think there will be probably not a very quick change in
the export quota mechanism of rare earths," Sun said in an
interview on the trade implications of the 5-year-plan,
unveiled this month.
China's media has accused Western countries of making
unreasonable demands over the cheap supply of rare earths.
"Rare earths are a commodity. Each country has the right to
decide how much it exports or imports. This is normal economic
behavior," the People's Daily said.
"China has the absolute right to decide for itself how much
rare earths it can export and produce."
But any cut in exports could rattle firms that use the
metals. A slowdown in shipments may reflect a drop in export
quotas, which has left overcommitted traders scrambling to
cover orders placed in the first half of the year, analysts
The rare earth concerns come as G20 finance officials
meeting in South Korea struggle to reach an agreement to tackle
global economic imbalances and fend off the prospect of
damaging currency devaluations.
Many countries gave a cool reception to U.S. proposals to
set limits on current account balances to defuse tension over
currencies that economists fear could trigger trade wars.
Experts say Vietnam is a key channel for smuggling rare
earths and other minerals out of China.
About 20,000 tonnes of rare earths were smuggled out of
China in 2009, according to a note by Eurasia Group analyst
Damien Ma, supplementing legal exports through that year's
quotas of about 50,000 tonnes.
(Reporting by Ben Blanchard in Beijing, Kiyoshi Takenada in
Tokyo, Jonathan Lynn in Geneva and Tom Doggett in Washington;
Writing by David Fox and Ron Popeski; Editing by Robert Birsel
and Peter Cooney)
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