WTO: China rare earth caps 'break rules'
China's caps on exports of rare earth elements break global trade rules, the World Trade Organization (WTO) ruled.
Rare earths are used in gadgets such as DVDs and mobile phones, and China accounts for more than 90% of their global production.
But it has put limits on their exports, which it says are aimed at reducing pollution and conserving resources.
However, the organisation said the limits helped "secure preferential use" of the elements for domestic firms.
In its ruling, the WTO said: "The overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers".
"Accordingly, the panel concluded that China's trading rights restrictions breach its WTO obligations."
The demand for rare earth elements has jumped in recent years, triggered by growth in the number of high-tech gadgets being produced.
These elements have unique magnetic and optical properties making them a crucial part of almost all modern-day equipment.
Over the past decade the demand for rare earths has increased three-fold to nearly 125,000 metric tons a year.
According to some estimates, the figure could cross 200,000 tons this year.
However, there have been concerns that mining and processing these elements generates toxic waste and impacts the environment.
As a result, many countries that have rare earth resources have imposed restrictions on their mining, making China the biggest global supplier.
Over the past few years Beijing also imposed its own set of limits on the sector, citing similar concerns.
In a response to the WTO ruling, China's trade ministry said: "The Chinese government has been reinforcing and improving its comprehensive regulation on high-polluting, high-energy-consuming and resource-consuming products in recent years".
"China believes that these regulatory measures are perfectly consistent with the objective of sustainable development promoted by the WTO."
However, China's restrictions saw prices of these elements surge, prompting the US, European Union and Japan to lodge a complaint with the WTO.
After the ruling, Michael Forman, US Trade Representative, said: "China's decision to promote its own industry and discriminate against US companies has caused US manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths."
Beijing, which has 60 days to appeal against the ruling, said it was assessing the report.