A Comparative Study on the Export Competitiveness of Rare Earth Products from China, the United States, Russia and India

Round 1

Reviewer 1 Report

I asked a trusted grad student to write a referee report. I think his report is excellent. Here it is. 

Review Report

 

This paper mainly compares competitiveness of rare earth products from China, the US, Russia and India in a dynamic view. In the first part, the authors use modified CMS model to decompose change of export values to determine the contribution of specific competitiveness effects of these four countries’ rare earth product export fluctuations. In the second part, they introduce weighted RCA index to evaluate and compare the competitiveness of these countries’ rare earth products. Policy recommendations are put forward according to the findings.

 

The contribution of this paper is that it provides a detailed comparison of competitiveness between four main rare earth export countries. Firstly, the model used by the authors allows them to distinguish different types of competitiveness effects. Secondly, they made a detailed investigation of the rare earth industries in the upstream, midstream and downstream sectors of the four countries during different periods separately. Thirdly, competitiveness indicators are selected comprehensively and objectively to obtain the weighted RCA index in this paper, which makes it more reliable.

 

However, some improvements could still be made. To begin with, after introducing the research questions in section 1, the authors may discuss more about what motivates them to answer these questions as well as why are these questions important and meaningful. In section 3, explanation of the possible reason why the exports of these four countries show such patterns respectively will be useful for readers to understand.

 

What’s more, section 4.1 contains very detailed discussion about the impact of competitiveness on exports and overall competitiveness of a country. But the readers might be more interested if certain patterns and characteristics could be emphasized and explained. For example, why does the competitiveness effect have only a limit role in the value of China’s rare earth exports? Why is it not the case for India’s exports? In addition, the WRCA analysis in section 4.2 shows the dynamic evolution of competitiveness of rare earth products in four countries. The competitiveness of rare earth products shows different trends in different periods, and there is a big gap between these countries. It will be interesting to discuss what factors account for these trends and what makes a country’s rare earth products competitive.

 

Finally, the policy recommendations given in section 5 may be more specific and practical. My suggestion is that give policy recommendation related to the evidence found in this paper and explain the relationship. For example, based on the findings of this paper, what kind of policies should be used to balance the development of upstream, midstream and downstream of rare earth products in China. Why are China's rare earth products less competitive in recent years, and what specific measures might be taken to stop this trend.

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I could not have done a better job with the report than he did. I particularly think the authors should stress specific policy recommendations and the logic behind them. The goal of international trade is to maximize welfare, not the quantity of exports. What welfare augmenting policies do the authors recommend for each country?  Anwering this would mean that the paper would have more practical significance. I think the authors should also state more forcefully why their study is important. I strongly encourage the authors to tell for each country one very specific policy change that they recommend.

I should mention that the article is carefully written with regard to the English language. There are few typos. In one case an author's name is not capitalized, but i did not notice any other typos.

Author Response

Please see the attachment.

 

Author Response File: Author Response.pdf

Reviewer 2 Report

Review of Rare Earths Article

I have a problem with this paper. In any study of rare earths, it makes sense to either look at reserves or current production. Exports are only the balance of production less internal demand, which is not addressed. And unrefined raw earth minerals may be exported and then re-imported. According to USGS, worldwide production in 2021 was 280 thousand tons. China had about 61% of production; the US 16%; Myanmar 9.4%; Australia 8%; and India and Russia about 1% each. (There are other countries between Australia and India or Russia.) So, up to now, India and Russia are rounding errors in production. Why focus on them? ( https://www.usgs.gov/centers/national-minerals-information-center/rare-earths-statistics-and-information ) I would think that production would be more relevant than exports, since the location of exploited RE reserves and their demand are often not highly correlated.

In terms of reserves the authors quote a USGS survey from 1998. But it is available each year. The 2022 on-line version shows worldwide just over 120 million tons of reserves, with China having 44 million tons; Vietnam with 22 million tons; Russia and Brazil with 21 million tons each; India with 6.9 million tons; Australia with 4 million tons; the US with 1.8 million tons and Greenland with 1.5 million tons. Russia and India have significant potential, but so does Vietnam and Australia, or even Greenland.

Technology can be carried by investment – it does not have to reside in the country with reserves. Vietnam could produce RE in quantity by mobilizing FDI if it wanted to.  I cannot see any sense in limiting the study to four countries. China and the US due to being the top two producers – ok. But then look either at places that produce a lot now or have a lot of reserves for the future. Australia should definitely be included, and arguably Myanmar or Vietnam. India and Russia do not produce much now but could – with enough knowledge and investment.

From US sources ( https://www.rpc.senate.gov/policy-papers/protecting-americas-supply-of-rare-earth-elements ) my understanding is that the environmental standards as then enforced in China on small scale RE production were weak and that gave China an ability to undersell US producers. (Is China’s low cost production a sign of competitiveness if its environmental laws are not enforced?) By or shortly after 2000, China dominated RE production. When China restricted rare earths exports to Japan in 2010, and imposed subsequent export controls, it set off an effort to diversify production due to concerns about supply security. Therefore, revealed comparative advantage or comparative market share analysis after 2014 may be tainted by decisions based more on strategic availability than the usual cost and price considerations. US production jumped from 5900 tons in 2015 to 28000 tons in 2019, for example, and this was during a time when most rare earth prices and technology were relatively stable. However, others – like neodymium – jumped from around 400,000 yuan per ton up to 2020 to 1.5 million in March 2022 before falling to 800,000 in August. This may reflect changing demand in China. However, this kind of instability drives consumers to look for alternative sources. (It may also reflect China’s export restrictions for domestic demand.)

I find the analysis using normal trade theory tools to be competent but possibly not valid if buyers are not responding simply to the lowest prices but thinking in terms of reliability of supply. I think an analysis that takes account of these political realities – not simply refer to them – is needed.

The editors will have to decide if the tools used for analyzing normal market trade apply to this situation. My sense is that they do not, and therefore the validity of the findings are insecure.

Author Response

Point-by-point responses

 

Dear editors and reviewers.

Thank you very much for all you have done for our manuscript (197409). We are very grateful for your time and effort. We have carefully revised the manuscript in the light of your valuable comments and those of the reviewers. All responses are shown below. If you have any further questions, please do not hesitate to let us know so that we can further improve the manuscript. Thank you very much.

Reviewer#2

1.I have a problem with this paper. In any study of rare earths, it makes sense to either look at reserves or current production. Exports are only the balance of production less internal demand, which is not addressed.

Answer:Thank you very much for your comments, we value them and consider them very important to improve the thesis.

Firstly, please allow us to comment on the reasons for choosing exports as the subject of our study. We believe that the issue of sustainability, i.e. the export of rare earths, which is the subject of this study, is a worldwide issue and, as explained in the introduction, rare earths are of great importance to industrial development. By studying exports, we can indirectly increase our understanding of the impact of the countries studied on the supply of rare earths to the rest of the world (the criteria for the selection of the countries studied will be answered in the next question), rather than just focusing on the supply of rare earths to a few specific countries. The analysis of the supply of rare earths to a few countries.

Also, on the question of re-importation. rare earths, in fact, double counting seems to be an inevitable problem under current trade statistics, which is why some scholars prefer to use a value chain perspective to analyse the problem, but unlike high-tech industries, rare earth trade is mainly inter-industry (Liu et al., 2017), and inter-industry trade has a more limited impact on research findings, while as current data on the value chain of mineral products data are more limited, many papers that have analysed the trade in rare earths have chosen to base their analysis on traditional trade statistics (Yu et al., 2022; Fernandez, 2017; Mancheri, 2016; Mancheri, 2011), and this study is no exception to the errors introduced by inter-industry trade, which we will description. In order to rationalise the logic of the article and add academic rigour, we have added an explanation of why the study was conducted on the export issue in the introduction section and a discussion section before the conclusion section to clarify the limitations of the paper; changes have been highlighted in yellow in the manuscript and the additions are as follows.

(1) Introductory section.

Rare earth is an important raw material for the sustainable development of all countries in the world, and the supply of rare earth is particularly important. Therefore, it is necessary to conduct research on the export of several major rare earth supply countries.

(2) Discussion section.

and the trade data currently used based on traditional statistical methods has a large number of double counting problems, and trade methods such as processing export and processing import also Included in the trade volume, although we use the WRCA model that considers a wider range of factors, the interpretation of the comparative advantage theory still has certain limitations.

Modified sections are highlighted in yellow.

2：And unrefined raw earth minerals may be exported and then re-imported. According to USGS, worldwide production in 2021 was 280 thousand tons. China had about 61% of production; the US 16%; Myanmar 9.4%; Australia 8%; and India and Russia about 1% each. (There are other countries between Australia and India or Russia.) So, up to now, India and Russia are rounding errors in production. Why focus on them? ( https://www.usgs.gov/centers/national-minerals-information-center/rare-earths-statistics-and-information ) .I would think that production would be more relevant than exports, since the location of exploited RE reserves and their demand are often not highly correlated.

In terms of reserves the authors quote a USGS survey from 1998. But it is available each year. The 2022 on-line version shows worldwide just over 120 million tons of reserves, with China having 44 million tons; Vietnam with 22 million tons; Russia and Brazil with 21 million tons each; India with 6.9 million tons; Australia with 4 million tons; the US with 1.8 million tons and Greenland with 1.5 million tons. Russia and India have significant potential, but so does Vietnam and Australia, or even Greenland.

Technology can be carried by investment – it does not have to reside in the country with reserves. Vietnam could produce RE in quantity by mobilizing FDI if it wanted to.  I cannot see any sense in limiting the study to four countries. China and the US due to being the top two producers – ok. But then look either at places that produce a lot now or have a lot of reserves for the future. Australia should definitely be included, and arguably Myanmar or Vietnam. India and Russia do not produce much now but could – with enough knowledge and investment.

Answer:Thank you very much for your comments on the manuscript. With regard to your question about why we limited the scope of the study to China, the United States, Russia and India, we will answer it in the following ways.

Firstly, the factors we took into account in selecting the scope of the study are various and are listed below.

(1) Overall reserves and production. As you mentioned, reserves are an important basis for selecting the scope of our study as they are related to a country's production potential and our study period is from 2000 to 2020, so this study must consider the overall situation of rare earth reserves in each country during this period. As you note, according to the USGS, the countries or regions with high rare earth reserves in 2022 are China, Vietnam, Russia, Brazil, India, Australia, the USA and Greenland. It should be noted that the rare earth industries in Vietnam, Brazil and Greenland have only started to develop in recent years and the main minerals in these regions were not proven until after 2010, e.g. before 2014. Brazil's rare earth reserves were only 36,000 tonnes or 48,000 tonnes until 2014 when Brazil's rare earth mines jumped to 22,000,000 tonnes due to the discovery of new deposits, and even more so in Vietnam and Greenland, where rare earth reserve data was confirmed until 2016, and it was not until 2016 that specific rare earth reserves were confirmed for Vietnam and Greenland, and the same was true for Myanmar The USGS did not obtain their production data until 2018, and reserves have been missing, which has resulted in these four countries and regions not only not developing a more mature rare earth industry (this is reflected in lower production volumes, with Brazil producing 1,000 tonnes of rare earths in 2020, Vietnam 1,000 tonnes, and Greenland missing data, all well below the lowest values for our selected countries: Russia's 2,700 tonnes, and Myanmar, which has higher production but its reserves are consistently missing), and would also present a significant data deficit problem. It is undeniable that Australia is also a significant producer and reserve holder of rare earths, but when the quality of the deposits is taken into account, Australia's reserves will be lower than India's. In the notes to the USGS document on rare earth reserves, you can see that between 2014 and 2020, only 2.1 million tonnes to 2.8 million tonnes of Australia's rare earth reserves will meet the Joint Ore Reserves Committee regulations This is much lower than the reserves of China, the US, Russia and India, and for the next reason we have excluded Australia.

(2) Geopolitics. As mentioned above, rare earths are a strategic mineral resource and geopolitics largely influences national policies on rare earth development, which can affect the cost of production. Given our need to understand the stability of the global rare earth supply chain, we should select countries that have been at the centre of the geopolitical maelstrom in recent years for our study, which we believe are mainly China, the US, Russia and India. China's trade dispute with the US has received much attention in recent years, as has Russia's long-standing conflict with the West, and India's conflicts with other countries, such as China, have had a large enough impact on its rare earth development policies, such as China's 40% cut in rare earth extraction in 2012 to reduce production and increase costs. Unlike Australia, whose political environment has remained stable over the study period, and whose rare earth production and exports have not had much impact on the world rare earth supply chain over the study period, for the time being we cannot see that Australia's rare earth supply will show a trend towards strong changes that would affect the world's supply of rare earth products. We believe it is more relevant to focus on those countries that have a greater impact on the global rare earth supply chain, as you can see in the manuscript, the fluctuations in export values are more pronounced in the four countries selected (we would like to provide additional clarification on this point with the data set we have used).

(3) Technology and investment. Due to the strategic resource attributes of rare earths, many countries with rare earth deposits have strict restrictions on foreign investment, for example, China's Interim Regulations on the Administration of Foreign Investment in the Rare Earth Industry explicitly prohibit foreign investors from establishing rare earth mining enterprises in China and do not allow wholly foreign-owned rare earth smelting and separation projects (National Development and Reform Commission of China, 2002), as does Russia, which in 2008 In 2008, Putin signed a federal law on "Procedures for Foreign Investment in Industries of Strategic Importance to National Defence and Security", in which the development, production and sale of special metals and alloys are restricted to foreign investment. This is also true for other countries. Rare earth extraction and development technologies are also subject to technology export restrictions in a number of countries, for example, rare earth extraction, processing and utilisation technologies are listed in the Chinese Catalogue of Prohibited and Restricted Export Technologies.

Overall, we have chosen the countries we have studied based on a combination of factors, and we believe that China, the US, Russia and India are the four countries that have a greater influence on the world market for rare earth products. It is a great pity that we did not fully reflect these factors when writing the introduction, and to ensure the logical flow of the text, we have changed the description of the four countries in the introduction to read as follows.

According to the distribution of the world's rare earth reserves respectively published by the U.S. Bureau of Minerals 2022, the three countries ranked fourth, fifth and seventh in the world in terms of rare earth re-sources reserves in 2021 and have an important position in the world rare earth market. In addition, all three countries have high rare earth production and reserves between 2000 and 2020, and, like China, are at the centre of a geopolitical maelstrom. In recent years, the behaviour of these major powers has given rise to a number of turbulent events. Examples include the SinoIndian Donglang border issue, the US-China Taiwan Strait issue, the US-China trade friction issue and the Russia-Ukraine conflict. As a sensitive strategic resource, these events have had varying degrees of impact on the development policies of the rare earth industry and rare earth production in various countries. For example, China promulgated the "Several Opinions of the State Council on Promoting the Sustainable and Healthy Development of the Rare Earth Industry" in 2011 to protect China's rare earth resources by enhancing industrial concentration and other measures, and in 2008 Putin signed the "Regulations on Foreign Investment in Indus-tries of Strategic Importance to National Defence and Security The federal law on "Procedures for Foreign Investment in Industries of Strategic Importance to National Defence and Security", which prohibits foreign in-vestment in the development and production of special metals and alloys such as rare earths, have affected the global rare earth supply chain to varying degrees. In the context of the increasingly complex factors affecting the production and export of rare earths and the increasingly fragmented rare earth producing areas, a retrospective analysis of the export competitiveness of rare earth products from China, the US, Russia and India is useful for gaining a deeper understanding of the status of the four countries in the rare earth trade, as well as for understanding the evolution of the international competitiveness of rare earth products in each country.

Changes have been highlighted in yellow in the manuscript.

3.From US sources

(https://www.rpc.senate.gov/policy-papers/protecting-americas-supply-of-rare-earth-elements) my understanding is that the environmental standards as then enforced in China on small scale RE production were weak and that gave China an ability to undersell US producers. (Is China’s low cost production a sign of competitiveness if its environmental laws are not enforced?) By or shortly after 2000, China dominated RE production. When China restricted rare earths exports to Japan in 2010, and imposed subsequent export controls, it set off an effort to diversify production due to concerns about supply security. Therefore, revealed comparative advantage or comparative market share analysis after 2014 may be tainted by decisions based more on strategic availability than the usual cost and price considerations. US production jumped from 5900 tons in 2015 to 28000 tons in 2019, for example, and this was during a time when most rare earth prices and technology were relatively stable. However, others – like neodymium – jumped from around 400,000 yuan per ton up to 2020 to 1.5 million in March 2022 before falling to 800,000 in August. This may reflect changing demand in China. However, this kind of instability drives consumers to look for alternative sources. (It may also reflect China’s export restrictions for domestic demand.)

I find the analysis using normal trade theory tools to be competent but possibly not valid if buyers are not responding simply to the lowest prices but thinking in terms of reliability of supply. I think an analysis that takes account of these political realities – not simply refer to them – is needed.

The editors will have to decide if the tools used for analyzing normal market trade apply to this situation. My sense is that they do not, and therefore the validity of the findings are insecure.

Answer: Thank you very much for your comments, each and every one of them will be taken seriously. Our answer to your question as to whether trade in rare earth products applies to traditional comparative advantage analysis is as follows.

Although trade in rare earths is influenced by a number of factors, the trade in rare earths in the scope of this paper is ultimately conducted within the framework of the WTO, which now includes the vast majority of countries in the world, and the four countries studied in this paper are not exempt from this, and in the framework of the WTO, the rare earth products of the four countries can be traded freely, and the traditional trade theory still applies in this case, even for China, a The traditional trade doctrine still applies in this case, even for China, which is a relatively special WTO member country, where trade in rare earth products is free. China implemented a policy of export quotas for rare earths for a period of time, but the quotas set by China were so high that China did not meet all of its export quotas for rare earths during the study period and on 26 March 2014, the WTO ruled that China's export restrictions on rare earth materials were in breach of international trade rules and ruled that China must allow the free export of rare earth materials. Since then, China has abolished its rare earth export quota policy. This has made trade in rare earths generally consistent with the circumstances in which traditional trade theory applies.

In addition, the traditional comparative advantage tool has been used by many scholars to analyse the trade in rare earths with remarkable results and wide recognition, e.g. Shuai et al. 2022; Leng et al. 2021; Zhü et al. 2016; Pothen and Fink 2015. the first three papers were published in the major SSCI journal of resource studies, Resources Policy, and all have achieved some citations, and these are only a small fraction of the papers that have used comparative advantage to study rare earth trade.

Of course, the role of the comparative advantage tool in this area is still limited due to the different factors that affect the trade in rare earths, and for this reason we have added a separate discussion section to ensure academic rigour. The added sections are as follows.

This paper uses the CMS model and the WRCA method to discuss the role and changing process of the competitiveness of rare earth products in the export trade of China, the United States, Russia and India. But the disadvantage is that the research idea of this paper is based on the traditional theory of comparative advantage. Although the international trade of rare earth is mainly based on inter-industry trade, and rare earth products can be freely traded under the WTO framework, the Trade also depends on many other factors, such as Wubbeke (2013) arguing that the main drivers of China's rare earth trade policy formulation are domestic attention to resource conservation and environmental protection, as well as the development of competitive downstream industries. Kilby (2014) believes that China's rare earth trade policy encourages the illegal mining and smuggling of rare earth resources. Although we use the WRCA model that considers a wider range of factors, the interpretation of the comparative advantage theory still has certain limitations. Further, through the industrial chain or other trade theories may further extend the results of this study.

Changes have been highlighted in yellow in the manuscript.

We deeply appreciate your consideration of our manuscript, and we look forward to receiving comments from the reviewers. If you have any queries, please don’t hesitate to contact me at the address below.

Thank you and best regards.

Yours sincerely,

Corresponding author:

Name:Qing Guo

E-mail:[email protected] & [email protected]

 

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

I appreciate the authors' deep knowledge of the subject. The question is, if in the time period they are studying, the output (in US) quadruples with no big change in prices; and the price of neodymium swings wildly; and if we are headed into (unfortunately) a world where different spheres of influence determine where and how much RE minerals are exploited - what analysis and policy proposals are relevant? The forward- looking policy recommendations, sensible for a WTO world, will not make as much sense if RE are "strategic" and produced with less attention to least costs and more to security of supply. Since RE, even if more expensively produced, are not a large fraction of battery costs (leaving out lithium), it seems to me a discussion of a "WTO" world and a "Security" world with different production choices is more to the point. I completely agree that a Security world is not pareto optimal, but the fact that China (and now both the US and EU) are putting tens or hundreds of billions of public dollars into chip production suggests that Security world is growing more dominant. You have made comments about this but leave your basic "WTO" world analysis in place. 

Author Response

Point-by-point responses

 

Dear editor and reviewer.

Thank you very much for all you have done for our manuscript (197409). We are very grateful for your time and effort. We have carefully revised the manuscript in the light of your valuable comments and those of the reviewer. All responses are shown below. If you have any further questions, please do not hesitate to let us know so that we can further improve the manuscript. Thank you very much.

Reviewer #2

I appreciate the authors' deep knowledge of the subject. The question is, if in the time period they are studying, the output (in US) quadruples with no big change in prices; and the price of neodymium swings wildly; and if we are headed into (unfortunately) a world where different spheres of influence determine where and how much RE minerals are exploited - what analysis and policy proposals are relevant? The forward- looking policy recommendations, sensible for a WTO world, will not make as much sense if RE are "strategic" and produced with less attention to least costs and more to security of supply. Since RE, even if more expensively produced, are not a large fraction of battery costs (leaving out lithium), it seems to me a discussion of a "WTO" world and a "Security" world with different production choices is more to the point. I completely agree that a Security world is not pareto optimal, but the fact that China (and now both the US and EU) are putting tens or hundreds of billions of public dollars into chip production suggests that Security world is growing more dominant. You have made comments about this but leave your basic "WTO" world analysis in place.

Answer: We are very grateful for your efforts and contributions to the revision of the manuscript. We value each of your comments and make corresponding improvements as much as possible.

We agree with your notion that the "Security world" is becoming increasingly dominant, and believe that there is a need for a supplemental analysis of this point in the paper, so we have added a brief analysis of rare earth trade under the strategic resource trade model to the Discussion section , and provides two policy recommendations on "Security world" in the Policy Recommendations section. The additions are as follows, and the relevant changes can be seen in the review mode under MS Word.

Discussion section:

In addition, given the strategic nature of rare earth products, it is also necessary to in-clude the supply security motives of exporting countries in the study of trade in rare earth products. In this regard, it is of profound significance to analyse the trade in rare earths from the perspective of pricing power, as the pricing power of strategic re-sources can determine the pattern of sovereign states in the distribution of power in international trade relations. For example, Song et al. discuss the theoretical and insti-tutional explanations for the lack of pricing power in China, arguing that the key rea-son for the lack of pricing power in China is that the rare earths export market is characterised by a buyer-monopoly market structure In conclusion, with the new epi-demic and the increasingly volatile political situation in the world, the issue of rare earth trade will become more complicated due to more political factors, and therefore, it is possible to take into account the characteristics of the industrial chain and the supply security motive. Trade theory and measurement methods that take into account factors such as chain characteristics and supply security motives could be a focus for future research.

Policy Recommendations Section:

(4) Considering the volatile political situation in the world and the impact of the new crown epidemic, security and political factors may greatly affect the rare earth trade in the future. Countries around the world have an obligation to maintain the original intention of maximising the welfare of world trade, and it is necessary to strengthen the economic dependence of countries around the world, increase the de-gree of cooperation among countries, and promote the healthy development of rare earth trade and the sustainable development of countries by constructing a broader framework of cooperation, formulating fairer trade agreements and creating a broader global trade cooperation organisation.

We deeply appreciate your consideration of our manuscript, and we look forward to receiving comments from the reviewers. If you have any queries, please don’t hesitate to contact me at the address below.

Thank you and best regards.

Yours sincerely,

Corresponding author:

Name:Qing Guo

E-mail:[email protected] & [email protected].

Author Response File: Author Response.pdf