Japan

Two years after China’s Rare Earths embargo on Japan and subsequent supply shortages put the until-then largely obscure group of critical minerals on the map, tensions between the two countries are reaching new heights, with the specter of war looming.

At the heart of the current tensions lies a territorial “tug-of-war” over five tiny – and uninhabited – islands known to Japan as the Senkaku Islands, and Diaoyu to China. Whoever controls the islands, has possessive rights to 40,000 square kilometers of the East China Sea, including the seabed beneath under the Exclusive Economic Zone (EEZ) rules of the Law of the Sea Treaty.

Our very own Daniel McGroarty has examined what is at stake in the current dispute in his latest piece for Real Clear World. Here are the key points from his column entitled “Tiny Isles at Frontline of Resource Wars:”

• “[The current dispute is] a scenario the world will need to get used to, as the East China Sea is simply one front in the larger Resource Wars that look likely to emerge as the defining global conflict of the 21st Century.”
• China is driven by “resource imperatives” – and may be “the first economic power in the world to see resource access as a strategic necessity” in its efforts “to bring hundreds of millions of Chinese from subsistence-level living onto the bottom rung of the middle class ladder.”
• The increasing recognition of “resource imperatives” by other nations is fueling a two-phased competition:

- Phase 1: Pursuit of seabed deposits of oil and natural gas to extend current petroleum-based energy regime.
- Phase 2: Attempt to secure seabed rights to broad range of metals and minerals.

• Beyond the current East China Sea dispute, the “maritime theater of Resource Wars” is unfolding elsewhere, too, such as over territories in the South China Sea, the Arctic, and even islands as tiny as Hans Island, between Canada and Denmark.

McGroarty’s bottom line:

“[A]s technology brings within our reach more and more of the seabed in the 70 percent of our planet that’s covered by water. It’s there we’ll find the metals and minerals that will literally fuel 21st Century economies (…).
And it’s the battle to determine who controls a scattering of barren rocks that will determine who holds the rights to the seabed, and what lies beneath.”

China’s suspension of Rare Earth shipments to Japan in the fall of 2010 kicked off a firestorm and has largely contributed to the extensive media coverage Rare Earth supply issues have received in recent months.

While shipments were since resumed, reports that Japan is diversifying its supply sources have surfaced from time to time. But tensions may soon reach another high point over the issue of REE magnet shipments: Here’s what is happening, according a Rare Metal Blog story from this past weekend:

· Citing intellectual property security reasons and stressing that this is not a trade policy issue, the Japanese Ministry of Economy, Trade and Industry (METI) has thwarted Japanese companies’ plans to manufacture magnets in China.

· Effectively, METI’s move may prevent companies like Hitachi Metals, TDK Corp. and Showa Denko from building their planned factories in China, with planned projects having been delayed “indefinitely.”

In the wake of China’s export restrictions and Japanese companies’ efforts to circumvent these barriers by planning to move manufacturing sites to China (which in turn raised the issue of China wanting to get its hands on Japanese technological secrets), Rare Metal Blog’s Robin Bromby predicts “another impasse between the two countries over METI’s to-be-implemented new trade rules:”

“According to the Nikkei, companies that want to export those will need to show the end products will not be used to make weapons of mass destruction – patently, something that will be near impossible to achieve. After all, are the Chinese going to provide written guarantees along those lines? And even if they did, it would be impossible to check.

The Nikkei says the Chinese may have got wind of the METI plan. Partly completed magnets sent to China for final processing, as well as finished magnets being sent to Japan, are now being held up by Chinese customs.”

Similar problems may well arise for U.S. manufacturers, some of which have decided to go the same route as some of their Japanese peers and build manufacturing sites in China – problems that could be avoided entirely if the U.S. focused on exploration and development of the domestic critical mineral resources we have at our disposal.

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