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Letter to The Honorable Timothy F. Geithner, Secretary of the Treasury; The Honorable Ken Salazar, Secretary of U.S. Department of the Interior

Letter

By:
Date:
Location: Washington, DC

U.S. Senators Debbie Stabenow (D-MI), Charles E. Schumer (D-NY), Robert Casey (D-PA) and Sheldon Whitehouse (D-RI) today called on administration officials to step up their fight against unfair Chinese trade practices that are hurting hi-tech U.S. industries and potentially threatening U.S. security.

China is currently hoarding rare earth elements (REEs) critical to a wide range of industries - from hi-tech batteries for advanced technology vehicles-like the Chevy Volt-to smart phone batteries to important military technologies. America used to produce its own REEs, but now China controls production of more than 95% percent of the world's supply-and has increasingly been imposing export controls to reduce the amount available on the world market, sending costs for many industries that rely on REEs skyrocketing. China also has policies to prevent foreign companies from mining REEs within its borders.

Last year, China even restricted REE shipments to Japan over a diplomatic dispute, showing China's willingness to use its REE market dominance as a weapon against other countries.

The Senators are urging Secretary of the Treasury Timothy Geithner and Secretary of the Interior Ken Salazar to use their power to prevent any U.S. funding through multilateral banks of Chinese mining projects abroad and to block Chinese mining projects in the United States until China agrees to participate fairly in the global trade of REEs.

In a letter, the Senators said that the lack of access to REEs and resulting increases in costs creates both an economic and national security problem, and urged Sec. Geithner to instruct the U.S. representatives to the multilateral banks (including the World Bank entities) to oppose funding for any Chinese financed mining project in China or abroad. They also asked Sec. Salazar to use his authority to block any Chinese-funded domestic mining project, until the Chinese end their anticompetitive practices in regard to REEs. U.S. mining law recognizes that foreign investment in mineral exploration and purchase should be prohibited where a foreign country denies reciprocal privileges to U.S. companies, and the Senators urged Secretary Salazar to invoke that power.

In their letter, the Senators stressed that "In recent years, China has ratcheted up restrictions on the export of rare earth minerals to encourage the production and export of high value-added rare earth products.... We propose the United States stop helping China enhance its dominant position in rare earth minerals."

The letter continues, "The United States should not sit passively while China's investment policies hamstring U.S. companies and undermine our national and economic security needs.... [We] must act to address the rare earth minerals shortage caused by China's anticompetitive policies."

The full text of the Senators' letter follows.

Background

China has recently taken numerous actions to hoard REEs in recent months. China's exports of REEs fell by 9.3% last year, and published reports indicate that China is considering cutting their REE export quotas by as much as 30% this year. Recent reports have also indicated that China is building storage facilities to house stockpiles of REEs; according to the Wall Street Journal, storage facilities built in recent months are large enough to hold over 39,000 metric tons of REEs - more than the total amount China exported last year. China has even used their monopoly as a retaliations tactic against other countries - just last year, China imposed a two-month embargo on rare earth shipments to Japan during a territorial dispute.

As China's anti-competitive practices drive rare earth prices increasingly higher, American businesses suffer the consequences. The Chevy Volt, an electric car manufactured in Michigan, relies on rare earth metals for its engine, and countless American clean energy technology, defense technology, and other high-tech companies use rare earth metals in their products.

China's trade practices also pose a threat to national security. According to the Department of Defense, difficulty in obtaining cerium, a rare earth metal, has already caused production delays with weapons systems. Several branches of the military, a defense contractor, and departments across the federal government have begun to review their rare earth metals acquisition process, recognizing the possible perils of depending on a Chinese-dominated market full of unfair policies. Rare earth elements from China are essential to a wide range of commercial and military products including batteries, magnets, laser-guided bombs and munitions, and night-vision goggles.

The text of the Senators' letter is below.

March 15, 2011

The Honorable Timothy F. Geithner The Honorable Ken Salazar

Secretary of the Treasury Secretary of U.S. Department of the Interior
1500 Pennsylvania Avenue, NW 1849 C Street, NW
Washington, DC 20220 Washington, DC 20240

Dear Secretary Geithner and Secretary Salazar,

A series of recent reports highlights the United States' vulnerability to shortages of rare earth minerals increasingly used in national security and clean energy applications. China has a monopoly on rare earths mining and processing, producing over 95 percent of the world output of rare earth minerals. The United States is 100 percent reliant on imports.

In recent years, China has ratcheted up restrictions on the export of rare earth minerals to encourage the production and export of high value-added rare earth products. China's anticompetitive practices are exacerbating global supply problems at a time when world demand continues to climb. We propose the United States stop helping China enhance its dominant position in rare earth minerals. To that end, Secretary Geithner, we respectfully request that you instruct the United States Executive Director at each multilateral bank, including the World Bank entities, to oppose the approval of any new financing to the government of China or for a project located within China involving rare earth mining, smelting or separation, or production of rare earth products. The United States' support for multilateral bank international development initiatives should not extend to projects directly at odds with our own national and economic security needs.

China's anticompetitive rare earths policies extend beyond export restrictions. China also prohibits foreign investors from mining rare earths and from participating in rare-earth smelting and separation projects except in joint ventures with Chinese firms. We propose the United States stop tolerating China's imposition of unfavorable terms on foreign companies. For over 90 years, U.S. mining law has recognized that foreign investment in mineral exploration and purchase should be prohibited where a foreign country denies reciprocal privileges to U.S. companies. Secretary Salazar, until China lifts its rare earths foreign investment prohibitions, we respectfully request that you enforce reciprocal prohibitions with respect to Chinese investment in mineral exploration and purchase in the United States. The United States should not sit passively while China's investment policies hamstring U.S. companies and undermine our national and economic security needs.

The United States must have an adequate and reliable supply of rare earth materials for national security and industrial needs. In the long run, new mining projects coupled with development of refining, alloying and fabricating capacity will alleviate supply concerns. However, in the short term, the United States must act to address the rare earth minerals shortage caused by China's anticompetitive policies. We know from experience with China's foreign exchange regime that meetings and discussions have no significant impact on China's anticompetitive practices - which is why we respectfully ask you take specific steps to respond to China's deleterious rare earths policies.

Thank you for your time and attention to this important issue.

Sincerely,

Sen. Debbie Stabenow

Sen. Charles E. Schumer

Sen. Robert Casey (D-PA)

Sen. Sheldon Whitehouse (D-RI)


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