The WTO decision against China with regard to the rare earths has an after-effects. Two years ago, the European Union, the US and Japan complained that China had introduced export quotas for rare earths and some other raw materials. This made it difficult for other countries to access the raw materials, which gave China a competitive advantage. The WTO has given the plaintiffs right, China will probably lift its export duties.
WTO should have nothing to criticize taxes
The lost money could be flushed back into the state's coffers in a different way. Chinese media report that a new tax is to be levied on the rare earths. This should be paid by the producers of raw materials. That would raise prices overall, affecting both domestic and foreign customers. The WTO should not be bothered. In addition, the tax would not depend on the weight but on the value of the raw materials. At the same time, environmental costs should also be taken more into account. At the same time, it is being considered to issue environmental certificates. Only those who are in possession of such a certificate may export business. So China wants to limit the depletion of the environment.
According to unnamed sources, various ministries in Beijing are currently dealing with the matter. It is believed that the tax in the second half of 2014 could enter into force or at least then announced. However, an official confirmation has been issued so far. The newspaper reports, however, has not been contradicted.
Sales and profits on a downtrend
Recently, prices for rare earths have dropped significantly. This can also be seen in the years of various promoters. In Inner Mongolia, where many rare earth producers are based, 2013's raw materials have generated 290 million dollar sales, a drop of 25 percent compared to 2012. The profit has been reduced by 5 percent to around 30 million dollars.
A similar development can be seen in Inner Mongolia's Baotou Steel Rare-Earth Hi-Tech (ISIN: CNE000000T18), the country's largest producer of rare earths. Its revenue in the first quarter of 2014 has plummeted by nearly 53 percent to 175 million dollars. The profit has decreased by nearly 72 percent to 11,2 million dollars.
The authorities hope that the sponsors will pass on the tax to the consumers. This would mean rising prices. At the same time, prices could be raised at the same time, which could help promoters after the recent setbacks.
Smuggling becomes more lucrative
However, high prices would make smuggling more attractive again. China has to fight again and again. It is believed that much of the Rare Earth does not leave the country by legal means, but sinks into dark channels. New taxes would further strengthen this illegal business. Whether the demand really can be better regulated, must be doubted.
