Study On The Effects Of Rare Earth Export Regulation And Its Alternative Policy

March 2012, America, EU and Japan filed a trade complaint to WTO on Chinese exports restrictions of rare earth and some other raw materials. On August 7,2014, World Trade Organization announced that China lost "rare earth case". Accordingly, how effective is China’s rare earth regulation and what we should do to adjust our policy is an issue urgent to be solved.Chinese government launched regulation policies on the Rare Earth export in order to keep the sustainable development. This paper analyzed the impacts of the regulation rules on the Rare Earth international market employing the price elasticity of both supply and demand. The results show the regulation rules increase the price of Rare Earth due to the lower price elasticity in the short run. While the regulation rules function in different ways due to the higher elasticity of price in the long run. The regulations increase the supply from other countries and drive the price down. The evolution of Rare Earth international market provides the evidence for the hypothesis above.The long-term efficiency loss of rare earth export regulation and the losing of "rare earth case" requests an urgent adjustment of the rare earth management system in our country. Firstly, we analyze the effects of tariffs on export prices both theoretically and empirically. Then we analyze the impacts of resource tax on export prices by employing the price transmission model in imperfectly competitive vertical markets. Based on the analysis above, we explore the alternative resource taxes to tariffs. The results show that if elasticity of foreign demand doesn’t change, the higher the elasticity of supply is, the bigger the scale of tariff transfer will be. The resource tax rate which is equivalent to the existing tariffs policy is relevant to elasticity of foreign demand, the elasticity of supply, market power of production and export. With other things being equal, the stronger the domestic rare earth supply monopoly power is, the higher the resource tax rate equivalent to export tariff will be, the stronger rare earth exporters’ monopoly power is, the higher the resource tax rate equivalent to export tariff will be. Rare-earth manufacturers’ weak monopoly power will lead to the low resources tax rate equivalent to the export tariff.We suggest substituting the export regulations for domestic environment taxes, raising the level of rare earth industrial concentration and vertical integration, subsidizing the rare earth application technologies. And we also recommend implementing "going global" strategy to ensure the economic security.