BRUSSELS/WASHINGTON (Reuters) - The European Union, the United States and Japan formally asked the World Trade Organization on Tuesday to settle a dispute with China over Beijing's restriction on exports of raw materials, including rare earth elements critical to electronics makers.
The dispute is one of several between Beijing and the other three economic powers, as Chinese industry remolds the world economic order. It is the first case to be jointly filed by the EU, United States and Japan at the WTO, an EU official said.
The process also comes in the middle of a U.S. election year. President Barack Obama, a Democrat, is toughening his stance on Chinese trade practices amid criticism from his Republican rivals that his administration has not been strict enough with Beijing.
U.S. Trade Representative Ron Kirk said the case was part of a broader effort by the Obama administration to make sure China and other countries play by global trade rules.
"America's workers and manufacturers are being hurt in both established and budding industrial sectors by these policies. China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace," Kirk said in a statement.
EU trade chief Karel De Gucht said the three trading powers were making a dispute settlement request - the first step before filing a full trade case.
"China's restrictions on rare earths and other products violate international trade rules and must be removed," De Gucht said in a statement.
"These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and 'green' business applications."
Beijing said the export curbs were motivated by environmental concerns and said it would defend itself.
Though dependent on the outside world for vast qualities of industrial inputs such as iron and coal, China accounts for about 97 percent of world output of the 17 rare earth metals. They are critical in producing items such as mobile phones, disk drives, wind turbines and electric cars.
China's Minister of Industry and Information Technology Miao Wei said the export quotas were not trade protectionism and did not target any specific country, the official Xinhua news agency reported.
"We feel sorry for their decision to complain to the WTO," Xinhua quoted Miao as saying. "In the meantime, we are actively preparing to defend ourselves."
The EU, the United States and Mexico won a similar case against China in January concerning other raw materials. But a European official close to the case said despite this ruling, China had not removed wider export restrictions. In particular, the EU said in a statement, "the latest rare earth quota announcements are further tightening the restrictions and are a clear signal in the wrong direction."
Foreign companies pay up to twice as much as Chinese firms for rare earth metals, the EU says.
"These restrictions... benefit Chinese industry," the official said. "Therefore they are against WTO rules."
The EU directly imports 350 million euros worth of rare earths from China each year, and also brings in products of far greater value containing rare earths from Japan and elsewhere.
The damage done to European manufacturing runs into billions of euros, the official said because it was nearly impossible to diversify from Chinese supply.
The United States and the EU had long been expected to take China to the WTO over rare earths, but appeared to be awaiting the outcome of the earlier case.
"Despite this recent ruling, China has not sent any signals that it would remove its wider export restrictions," the EU said in a statement explaining the joint move.
The earlier ruling left open a loophole for export quotas if they were imposed to limit environmental damage, so long as they were matched by domestic restrictions.
China said its export policies stemmed from environmental concerns, but failed to prove its curbs helped conserve resources, cut pollution or improve public health in that case, the EU said.
Trade friction between the EU and China has been growing.
De Gucht said on a recent visit to Hong Kong that China needed to be sensitive to perceptions that its economy is a threat in Europe, even as EU-China trade has boomed to almost 400 billion euros in 2010.
EU complaints against Chinese dumping range from shoes to kitchenware and De Gucht has previously complained that China subsidizes "nearly everything".
Meanwhile China, along with the United States and Russia, recently complained about an EU plan to levy a carbon emissions charge on all airlines using EU airports. China has said it would not buy aircraft from European maker Airbus EAD.PA because of the emissions scheme.
Japanese worries over supplies of rare earths heightened in 2010 when China held back shipments after a territorial dispute.
In the United States, Obama recently created a new inter-agency trade enforcement centre, which is expected to start work in the coming months with a focus on Chinese honouring of WTO rules.
The Obama administration is also considering a WTO complaint against anti-dumping and retaliatory duties on U.S. auto exports that China imposed late last year.
(Additional reporting by Michael Martina and Ben Blanchard in Beijing, Jeff Mason in Washington; Editing by Luke Baker, Rex Merrifield and Philip Barbara)
This story corrects paragraphs 13-14 to show January case related to raw materials, not specifically rare earths