Date of Award

4-8-2012

Document Type

Thesis

First Advisor

Committee: Humberto Barreto

Second Advisor

Michele Villinski

Third Advisor

Dunil Sahu

Abstract

Rare earth elements (REE) have critical applications in high-technology industries such as defense and clean energy. China holds more than 90% of the current production capacity for these elements and in September, 2010 announced plans to cut its exports of the elements by 72%. Amid a rush to develop substitutes for the materials, in 2012 the USS. E.U., and Japan have filed a case against China in the WTO. This paper will analyze the extraction of rare earth clement (REE) extraction from the joint perspective of Economics and Political Science. After a brief backgrounder provided in Section 1, Section 2 of this paper discusses the Economies of the issue. The topic is interesting from the perspective of Economics because REE are a scarce and depletable resource. As a result, it is important to identify how quickly they should be extracted given economic factors such as costs, prices and the interest rate. Theories of optimal extraction from the Economic literature will be used to tackle these questions and, using Microsoft Excel, China's economically optimal extraction path is charted, given such factors as mineral stocks, cost of extraction, price and interest rate Section 2 assumes that profit maximization is the objective of the Chinese government but Political Science would tell us that this may be only part of a nation’s objectives. Power, cooperative international relations or environmental sustainability might be other objectives that temper the results observed through a purely economic worldview. Section 3 therefore considers the politics of REE from the perspective of the relationship between the China and the WTO and China's environmental movement with its government, REEs have important strategic value in high-technology industries such as defense and green energy and while the Chinese government claims environmental protection as its reasons for export restrictions, skeptics suggest that China is violating international trade law for its narrow national interest. Given China’s formidable growth and growing importance in international forums like the WTO, its violation of international law could weaken systems of international cooperation. Yet, China is a developing nation and bound by the constraints and priorities that are unique to developing nations such as poverty alleviation, environmental sustainability and effective governance. In that context Section 3 discusses the possible outcomes of the REE case against China currently underway in the WTO and the consequences that ruling would have for international trade. It also touches on the role of the Chinese civil society, particularly its Environmental NGOs (ENGOs) in China's foreign policy and growth priorities.

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