The world’s biggest economies are joining forces to oppose China’s policies on domestic rare earth elements as the risk of a global shortage looms closer to reality.

The United States joined the European Union and Japan to file a complaint with the World Trade Organization (WTO) on Tuesday against China’s export restrictions and duties on rare earth elements. Rare earths are used in electronics and high-tech products and help power products such as hybrid cars and cell phones.

This latest round of posturing highlights the possibility that a rare earth shortage may indeed become a reality. The dispute concerns Chinese policies that effectively limit the rest of the world’s access to rare earth elements from China. Over the past year, China has suspended the issuance of new licenses for rare earth prospecting and mining, imposed production caps and export quotas, and announced tougher environmental standards for rare earth production.

“American manufacturers need to have access to rare earth materials – which China supplies,” U.S. President Barack Obama said in a speech in Washington on Tuesday.

In response, China stated it will defend its policies at the WTO, according to Minister of Industry and Information Technology Miao Wei. Miao said some rare earth metals would last only 20 years if China does not stop excessive mining.

The Minister stressed that China’s rare earth export restriction is not against any specific country, nor is it a kind of trade protectionism. Instead, the policy was established out of concern for the environment and the sustainable use and development of resources.

Prior to the WTO action, China announced it will establish two or three large rare earth enterprises by consolidating companies in the sector. During a press conference at the annual national legislative session that China, Miao Wei said China will retain limits on rare earth export quotas after the industry rationalization. Miao said the first large rare earth enterprise had already been created in the Inner Mongolia autonomous region by consolidating 14 related companies under the leadership of Baotou Steel Rare-Earth Hi-Tech Co.

Although a timetable was not given for the nationwide restructuring, the Minister previously indicated the reorganization would likely take place over a five-year period and that China would continue to regulate the industry to ensure “reasonable exploration and orderly production“.

The dispute has been beneficial to rare earth junior miners. Quantum Rare Earth Developments (Stock Profile – TSXV:QRE & OTC:QREDF.PK), Ucore Rare Metals (Stock Profile – TSXV:UCU), and Rare Element Resources (Stock Profile – AMEX:REE & TSX:RES) are among the top weekly gainers on the MiningFeeds Tech Metals Index posting gains of over 20 percent.

Saskatchewan based Great Western Minerals Group (Stock Profile – TSXV:GWG), which has its sights set on becoming the next integrated rare earth producer, is currently halted. We contacted the company and management confirmed the halt was connected with the recently announced debenture financing that is currently being offered by GMP Securities, ISM Capital and Byron Capital Markets.

Great Western’s integrated rare earth production strategy may have been conditionally validated last week with Molycorp’s (Stock Profile – NYSE:MCP) proposed 1.3 billion dollar takeover of Neo Material Technologies (Stock Profile – TSX:NEM). About the Neo Material acquisition, Daniel Kim, an analyst at Paradigm Capital Inc. in Toronto said, “I view Neo as really a crown jewel within the rare earth industry and it’s a real shame from my perspective to see it being sold to another entity in this manner.”

Also in the news, Quest Rare Minerals (Stock Profile – TSX:QRM & AMEX:QRM) recently graduated to Canada’s senior board – the company’s shares are currently trading at $2.84 on the TSX Exchange.

For the MiningFeeds list of publicly traded rare earth companies – ranked by market cap – CLICK HERE.