The World Trade Organization's Appellate Body ruled against China’s appeal in a case brought by the United States, European Union and Japan that challenged China’s 2010 rare earth element export restraints.
In the ruling, the World Trade Organization (WTO) said, “China has not demonstrated that the export quotas that China applies to various forms of rare earths, tungsten and molybdenum by virtue of the series of measures at issue are justified.”
China produces more than 90 percent of the world's rare earth minerals or metals. In 2010, it imposed strict export quotas, saying it was trying to curtail pollution and preserve resources.
Prices soared by hundreds of percent, leading the United States, European Union and Japan to complain that the restrictions gave Chinese companies a competitive edge in such products as hybrid car batteries, wind turbines and energy-efficient lighting, Reuters reported.
China's defeat at the WTO was widely expected after it lost a similar case over exports of other commodities. It will now be obliged to cancel its export quotas to abide by the WTO ruling.
U.S. Trade Representative Michael Froman said the ruling marked the "end of the line" for the dispute.
EU Trade Commissioner Karel de Gucht said he looked forward to China's swift compliance. "This ruling sends a clear signal that export restrictions cannot be used to protect or promote domestic industries at the expense of foreign competitors," he said in a statement.
The ruling could benefit rare earths producers outside of China like Molycorp Inc, whose shares were up 4.4 percent on Thursday, though the stock rose before the ruling was released, following news the company announced a long-awaited financing commitment.
China had argued that limits on exports of rare earths, as well as the metals tungsten and molybdenum, were needed to prevent over-mining and defended its policy as an essential part of China's sustainable development.
“China will carefully assess this ruling, continue to improve its management on resource-consuming products in a WTO-consistent manner, facilitate the protection of natural resources, and maintain fair competition with the objective of achieving sustainable development,” China’s Ministry of Commerce said in a statement.
The United States had also appealed against the ruling by the panel of three arbitrators who ruled against China in March this year.
However, the U.S. appeal, which challenged the panel's rejection of certain evidence, was conditional and one of the conditions was not met, so the Appellate Body did not rule on it.