After the request by the European Union, Japan, and the United States for the World Trade Organization to examine China’s rare-earth industry, the WTO will probe into China’s rare-earth policies, from AFP:

The decision was taken at a meeting of the trade arbiter's Dispute Settlement Body (DSB) after a request by the European Union, the United States and Japan.

An earlier call for DSB arbitration was blocked on July 10 by China, which is accused of unfairly choking off exports of rare earths, tungsten and molybdenum to benefit domestic industries.

The US claims that China sets export quotas, duties and other restrictions that make the products increasingly expensive.

In response China's WTO delegation said it “regrets that the complaining parties request the DSB to establish a panel on these disputes for a second time”, adding that its policies “are aimed at protecting natural resources and achieving sustainable economic development”.

According to the Wall Street Journal, the WTO’s investigation can only have a limited impact on the prices of rare-earth minerals:

But coming at a time when global production is rising and prices are under pressure, the findings of the trade body can only have limited impact on prices as the world no longer relies on Chinese supply for all its needs.

After China imposed quota restrictions on exports, global suppliers have made considerable headway in reducing dependence on Chinese supply.

U.S.-based Molycorp has begun production at its California mine, and Avalon Rare Metals(AVL-0.71%)is developing a deposit in Canada's Northwest Territories, according to a U.S. Congress research report in June.

Japan also has a deal for a rare-earth development project in Quebec, and Australia's Lynas Corp.(LYC.AU -0.62%) is due to start mine production at its Mount Weld facility this year as well as potentially reopen a mine in South Africa.

While the world is becoming less dependent on the Chinese supply of rare-earth elements, China Daily reports that exports to South Korea surged in June:

China's rare earth exports to South Korea surged last month due to a fall in export prices, Korean customs data showed Tuesday.

South Korea purchased a total of 126 metric tons of rare earth material from China in June, up 36.3 percent from a month earlier, according to the Korea Customs Service.

In terms of value, rare earth export to South Korea edged down 0.4 percent on-month to $3.8million in June, indicating that falling export prices contributed mainly to the June surge.

Meanwhile, magnesium exports to South Korea soared 73.3 percent on-month to 903 tons in June, but tungsten exports declined 24.8 percent to 36 tons. Cobalt exports to the country expanded 39.2 percent to 436 tons over the cited period.

Aside from being multilaterally confronted over its rare-earth policies, China is also dealing with the issue of illegal mines, which was covered in the white paper published on rare earths. Bloomberg adds:

While China has yet to change its policies on raw materials to comply with that ruling, there has been speculation that it will scrap the tariffs and instead impose domestic taxes on mining.

In what may have been an effort to buttress its argument, the Chinese government issued its first white paper on rare- earth industry policies on June 20, describing how a lack of proper regulations has led to excessive mining and environmental degradation in China. The government promised an extensive cleanup and a crackdown on illegal mines.

As in the raw-materials case, the three complaining governments say the curbs on rare earths violate paragraph 11.3 of China’s accession protocol requiring the country to scrap all taxes and charges on exports unless specifically provided for in Annex 6. While Annex 6 allows China to impose export duties on 84 tariff lines up to a specified limit, none of the rare earths or metals at issue are included on that list.

Once the WTO panel is established, judges have six months to issue their report, which all parties can then appeal.

Read more about rare-earth elements in China and their environmental cost, via CDT.