Have Anti-dumping Laws Contributed to America’s Manufacturing Woes?

Added June 6th, 2012 by Anthony David

In June 2009, the United States along with the EU and Mexico filed a complaint with the WTO against China’s controls in regulating the export of critical minerals. China’s stranglehold over the production and export of mineral resources allows it to dictate prices as well as availability of strategic minerals that are critical to infrastructure, electronics, defense, aerospace, energy production and automobile manufacturing companies. In recent months, the U.S. has been most vocal about American access to critical rare earth minerals. And it’s not just access to rare earth minerals that American industry needs to worry about, there’s also manganese and magnesium among others. Most significantly China controls about 95% of the rare earths market, around 97% of the Electrolytic Manganese Metal (EMM) market and about 87% of the world’s Magnesium market.

As in all such cases, a monopoly does not develop overnight. On China’s part it is a conscious effort to attain market supremacy, invest-ment in research and the access to cheap and abundant labor. For the U.S., it is an almost direct result of restrictive American policies and shortsightedness. In a global economy with a global supply chain there’s no room for restrictive trade practices without inflicting a certain amount of self-damage.

A case in point is the U.S Anti-dumping and Countervailing Duty laws which restrict U.S. exporters’ ability to compete in the international market. In 2004, the U.S industry’s antidumping petition against the import of magnesium from China and Russia to protect its own domestic magnesium production, denied downstream U.S manufacturers the access to the metal at competitive international prices. By early 2010, the U.S. price for magnesium was $2.30 per pound whereas European manufacturers paid $1.49 per pound and the Chinese paid only $1.36 per pound. The difference in cost presented a huge advantage to non-American manufacturers and the trickledown effect resulted in a high manufacturing cost in the U.S, blunted competitiveness of U.S. manufacturers in the international market, reduced U.S. exports and flight of American manufacturing jobs.

American industries’ access to the country’s mineral resources is blocked by cumbersome legislation, circuitous procedures to attain mining permits and the omnipresent environment protection lobbies. Companies in the U.S. face the longest wait for mining permits. On an average it takes almost seven years to obtain permits and approvals to open a mine in the U.S. This effectively means that while the U.S. has the reserves it has ended up importing from other countries.

In a bid to contain the damage many American companies have setup manufacturing facilities in China and other countries, to ensure competitive and reliable supply of raw materials. The exodus of industrial facilities has cost American jobs and billions of dollars in lost revenue and intellectual property.

Complaints to the WTO notwithstanding, the U.S. needs to do more. There are increasing voices in America demanding the easing of restrictive hurdles in the issue of mining permits. According to a U.S. Geological Survey report in 2010, 13 million tons of rare earth deposits have been identified in various regions across the country. Recently, the U.S. Natural Resources Committee passed the Strategic and Critical Minerals Production Act aimed at streamlining the permitting process for mining in the U.S.; the bill will now be sent for a floor vote by the full House.

China’s monopoly on strategic minerals need not strangle American industry. In recent months, American mining companies have reported encouraging and economically viable finds of rare earth minerals, manganese, magnesium and other critical metals. However most of these projects are still in an exploratory stage and years away from production. In the short-term, U.S. companies can get access to strategic minerals through strategic alliances as in the case of the Molycorp – Neo Material Technologies deal. Besides, China isn’t the only country that has significant mineral resources. Canadian and Australian mining companies are actively involved in mining in Canada, Australia, Africa, South America and other countries with significant mineral resources. Japan and Korea are already in talks with countries such as India and Kazakhstan to jointly develop rare earth production facilities. In the long-term the U.S. must promote mining with supportive legislation, balance out environmental concerns with effective laws and build domestic supply chains for processing minerals.

Companies have already begun research into alternatives for rare earth minerals. Korean scientists are working on research to produce computer memory based on grapheme oxide. The Japanese Govt. has ear marked $65 million in subsidies to encourage Japanese companies to reduce reliance on rare earth metals and develop alternatives.

The Strategic Minerals Conference 2012 aims to look into the issue of the supply of critical minerals from the perspective of “Private Markets, Public Policy, and National Security”. During the one-day, invitation only conference, panelists such as Larry W. Reaugh of American Manganese Inc. (TSX.V – AMY) and other speakers will “address the geo-politics of resource supply, the breadth of our critical mineral needs, as well as the roles the public and private sectors can and must play in the maximization of domestic mineral resource potential.” The conference will be held on June 6, 2012 at the Hyatt Regency Washington on Capitol Hill in Washington, DC.

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