Australia: The Challenges of Diversifying the Supply of Rare Earth Elements Situation: Rare earth elements (REEs) define mineral elements formed by a group of 17 elements composed of scandium, yttrium, and the lanthanides. They are relatively abundant in nature, and are necessary components of more than 200 productsmost of which are high-tech products such as computer hard drives, electric vehicles, and flat screen monitors as well as a plethora of defense technologies such as radars and guidance systems. In short, they are some of the most important inputs in a country's technology sector. Though rare earths are ironically quite common around the world, China employed "industrial policy" forming a near monopoly over the trade of these goods through years of "direct state intervention in the market and investment in technical expertise," according to Professor Kristin Vekasi of the University of Maine (Link). This resulted in China possessing 30% of the global supply of rare earths, centralizing the industry to six regionally-based, state-owned firms in 2016, making use of production and export quotas, price-level management, and establishing rare earth specific research institutions dating back to 1952. All in all, Chinese production of rare earths accounted for 80% of total output in 2017. China has used this strong economic position to influence its political stance. For example, during September of 2010, a stand-off occurred in the territorial waters of the Senkaku/Diaoyu Islands between a Chinese fishing trawler and the Japanese Coast Guard over the trawler refusing to leave "Japanese waters." This resulted in ships colliding. Both parties blamed each other for instigating the collision. In the end, the two Japanese Coast Guard vessels captured the captain of the Chinese fishing trawler after a 40-minute chase, and the captain was tried under Japanese domestic law. Reigniting a century old dispute over who actually owns the Senkaku/Diaoyu Islands, the Chinese retaliated against Japan's treatment of the fishing trawler captain not with military force or through political channel recourse, but with economic instruments. China responded to the fiasco with an export ban on rare earth elementshowever, Prime Minister Wen of China, and the rest of his administration did not publish a formal export ban as it would violate the World Trade Organization's free trade rules. Instead, the ban was internal, with Chinese rare earth mining and refining companies receiving an administrative order from China's customs agency to prevent the loading of rare earths on ships bound for Japan, thereby disrupting commercial contracts with Japanese technology firms. The ban lasted from September 22nd of 2010 to September 28th of 2010, but the implications of the export ban reverberated all around the world (Link). During the short existence of the Chinese export ban on rare earth elements, Dudley Kingsnorth, the then executive director of the Industrial Minerals Company of Australia, received several calls from executives in the rare earths industry worried about China's influence over the supply of these high-value inputs, which at the time accounted for around 90% of the global supply. In Kingsnorth's words, "By stopping the shipments [of rare earth elements], they're disrupting commercial contracts, which is regrettable and will only emphasize the need for geographic diversity of supply" (Link). Australia, situated in relative geographic proximity to the REE behemoth that is China, as well as possessing private REE businesses like Lynas and Iluka, whose operations are found both on mainland Australia and in portions of Malaysiasees its own industry's expansion as the answer to this "need for geographic diversity of [REE] supply" (Link). Australia ranks 6th in the world for world economic resources of rare earths (3%), behind China (38%), Brazil (19%), Vietnam (19%), Russia (10%), and India (6%), and is one of the few countries that are wealthy enough to invest in a large scale REE mining and refining expansion plan (Geoscience Australia Link). As a result, Australia accounts for 11% of the world's total production of REEs, which places them second in the world behind China. Australia, subscribing to the ideology that REEs being monopolistically supplied by China is a threat, has allowed Lynas to create preferential trade and contracts. For example, "China tried to acquire a 51 percent stake in [Lynas] in 2009, but the Australian government refused to allow this on grounds of the strategic need to ensure that non-Chinese controlled rare earth resources were still available to the market. Indeed, following a largest market correction, in 2011, it was Japan that strategically decided to keep Lynas operational by providing a total of USD 250 million in loans and equity in order to receive 8,500 tons of rare earth products over a period of ten years'' (Sophia Kalantzakos, Global Distinguished Professor in Environmental Studies and Public Policy at New York University and a long-term affiliate at NYU Abu Dhabi, Link). Complication: Today, Australia's Lynas is receiving $30mil to develop a REE plant in the United States in Texas. Back in 2011, Japan began to diversify the REE market by contracting with Australia as a result of the Chinese export quota. Australia seems to be the main competitor with China, having Lynas' owned Mt. Weld (one of the biggest RE deposits in the world) active, as well as being the answer to the growing international call for a diversity of supply in the rare-earth elements industry. However, "Supply chains for critical minerals are opaque, concentrated and vulnerable to disruption, which creates market risk and price volatility...[and makes] it difficult for projects to secure offtake agreements and investment" (Link). Although Australia is financially equipped to further develop their REE sector, projects are expensive, complex, and technically challenging. Each investment discussed thus far, whether it be from Australia or China, has been accompanied by the development of at least one research center. Moreover, Australia pursues these projects with a greater commitment to environmental standards and with higher labor costs than China, meaning there are self-imposed economic roadblocks in the way for Australia to the benefit of the environment and Australian workers. In addition to these complications, China is Australia's largest trading partner, accounting for over 40% of Australia's exports. After the Australian government criticized China's handling of the COVID-19 outbreak in Wuhan Province and called for an investigation into the matter, China has retaliated. China put up a 200% import tariffs on Australian wine, proposed as "anti-dumping" measures, and decreased their investment in Australia by 61%. Trying to compete with China's REE supply may harm Australia in terms of their trade relationship, as China may not take kindly to the fact that Australia is using political leverage to assist the economic independence of "Western" states (see Kalantzakos, "When the crisis eventually died down..."). Decision: In 2019, Australia published the first Critical Minerals Strategy, "a vision to put Australia at the center of meeting the growing demand for critical minerals." The strategy involved funding for helping explorers target new mineralization, supported the MinEx Cooperative Research Centre in developing next generation drilling technology, and guaranteed that the Cooperative Research Centre for Optimising Resource Extraction "consumes all of its $34.45 million in funding by 2021 as it works on developing energy-saving and resource-expanding technology that will allow lower-grade ores to be economically and eco-efficiently mined," among other investments and provisions (Link). In 2022, the Australian government revisited the 2019 Critical Mineral Strategy and financed $1.5 billion towards an updated version. In the 2022 Critical Mineral Strategy, Australia's Minister for Resources and Water, Keith Pitt, explains the growing demand for REEs and other Critical Mineralsa phenomenon associated with today's "fourth industrial revolution," and how Australia intends to meet these demands with its reserve of critical minerals. The government is committing $200 million to the Critical Minerals Accelerator Initiative, which is said to "support strategically significant projects at challenging points in their development... [and also] accelerate projects to market and drive investment" (Link), as well as establishing a $50 million virtual Critical Minerals Research and Development Center. On top of these new investments, the Critical Minerals Facility (established in 2021 with a $2 billion government investment) is providing loans to the critical minerals sector. The COVID-19 pandemic gave occasion for Australia's resource and energy exports sector earnings to achieve a record high of $348.9 billion in 2021 as supply chains were stunted and altered all around the globe. This rapid pace of technological development leaves Australia in a position to become a global leader in resource and energy exports if they continue to invest domestically and form trade contracts with companies and countries alike. Currently, much of the investment still necessary for Australia to take away a large market share from Chinese REE companies depends on Australia's ability to create down-the-line processing, refining, and production facilities which have seldom existed in Australia before (See Link, "Lynas, the exception..."). While progress is being made, observing the gap between the two countries makes evident the fact that there are still many steps and considerations Australia must make before it can begin to compete with the Chinese. Questions: 1.Why is China restricting exports of rare earth elements and what trade policy measures (or instruments) are they using? Which groups within China would be against this policy? 2.Who benefits from Australia's investment in rare earth elements? Is Australia creating preferential trade agreements with certain countries? 3.Is there a responsibility for trade organizations to step in in these situations? What type of measures can be taken to prevent indirect export bans from happening