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AVI PERSPECTIVE ISSUE: 2020, No. 07

Myanmar in the Global Geopolitics of Rare Earth Elements (REEs)

ISSUE 2020
No 07
Release 27 May 2020
By OO Zeyar*, Master in Public Administration and MA in English

Executive Summary

  • Rare Earth Elements (REEs) are all sources of today’s innovation and advanced technology that constitute a range of sophisticated and high-tech products for both civil and military use.
  • Growing demand for REEs by global nations such as the United States, Japan, the EU and some other technologically-advanced nations, has reinforced China’s legitimate domination of REEs in the global market and believed to have posed threats to global geopolitics in one way or another.
  • The changing perception of global nations on Chinese REE supply power has shifted to the cooperation with non-Chinese countries for REE production. At the expense of geopolitical conflicts of REEs, the global market gap may open up at any time in the future, providing opportunity for non-Chinese REE countries like Myanmar to fill in the gap.
  • In 2008, Myanmar became a net exporter of Chinese REEs, ranking as the world’s fourth highest position among the countries which are extracting REEs. However, Myanmar could not benefit properly from REEs mining and trading as it should have, due to domestic conflicts and inadequate laws, as well as the need for sound policy applicable to REE exploration and trading.
  • Thus, this paper studies the global geopolitics of REEs, entailing the market gap, and explores Myanmar REEs in global geopolitics and defines policy options for Myanmar to deal with REEs production in the future.

Introduction

In the era of advanced technology and growing energy transition, the global nations have accepted the usefulness of rare earth elements (REEs) which are very significant to the global innovation of high-tech products ranging from the civil use of smart phones, hybrid cars, and wind turbines to advanced military technology such as guided missile, surveillance equipment and so on. The REEs are a group of seventeen elements that consist of lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, and scandium that appear in low concentrations in the ground1 . There are two types of REEs; heavy rare earth elements (HREEs) and light rare earth elements (LREEs).

However, refining and purifying the REEs ores and concentrates is a technology-intensive process that requires heavy costs of production to meet international standards of environmental protection. Due to the immense consequences generally resulting from the refining process of REEs that severely affects the environment and ecosystem, most REE- consuming countries are quite reluctant to operate REE refineries in their own territory2 . Such backdrop has exposed China to have become the world’s top REE-processor and exporter, and to use its REE supply power as a strategic weapon while pursuing its national interest around the global geopolitics.

The recent trade tensions with the United States in 2019 and the diplomatic tension between China and Japan in 2010 are the best examples to prove that there is a potentiality that China may use the REE card against its rivalries whenever necessary for its strategic interest. In 2014, the World Trade Organization (WTO) ruled out restrictions on Chinese REE activities and forced the latter to remove all quotas and price adjustments, following the official complaint submitted by the United States, Japan and the EU3 . Subsequently, the high consuming countries have enforced themselves in the pursuit for cooperation with non-Chinese countries to track an alternative REE supplier and to keep a distance from the sphere of the China-dominated global REE market.

There have been precedents that whenever China makes adjustment with its REE import and export quotas in the global supply chain, the market gap for REEs has appeared to be filled by non-Chinese countries which are extracting REEs. Myanmar as one of those countries that export REEs ores the most is also expected to grasp such privilege, and therefore, Myanmar has become a net exporter for China that contributes to the global market.

Overview on the Global Geopolitics of Rare Earth Elements

The occurrences of REEs are generally found in many countries around the world, but the unique issue of REEs is how to process and purify such REE materials that require significant processing methods and extreme cost in production. With that reason, as mentioned above, the high consuming countries of REEs such as the United States, Japan, the European countries and some others have been hesitating for years to possess their own REE processing plants, advocating China to become the world’s top REE-exporting country ever since 1962. Currently, China is holding 90 per cent of the REE market portion, in which the United States is the top consumer with 78 per cent of Chinese REEs metals.4 That has kept the United States in a vulnerable position of heavily relying on China for the former’s increasing demand of the latter’s REEs. After having several launches of tariffs on Chinese imports conducted by the United States, a high-profile inspection tour of President Xi Jinping to a factory of REEs in Jiangxi Province was considered as a kind of political show-of-force to use REE leverage against the United States amid the trade tension5 . That has forced the United States to offer a viable alternative source of REEs to reduce its great dependencies on Chinese REEs in the future.

In November 2019, the United States and Australia signed the deal to formalise an ongoing partnership between the two countries to develop new sources of REEs, so as to decrease future reliance on Chinese REEs6 . Similarly, Japan, Australia, India and the EU also have come up with strong aspirations to balance China’s domination of REEs in the global market, compelling them to work with non-Chinese countries7 . Lynas Corporation, an Australian REE giant, declared in 2018 to expand its processing capacity, and plans to double their output of REEs in order to balance China’s domination in the global REEs market. Such attempts have provided a unique space for countries which are enriched with REEs including Myanmar, to jump into the global market gap8 .

Coupled with the aggressive demand of REEs in the global innovation of high-tech products and energy transition, the dominant of Chinese REEs will continue to be very critical to global REEs market. Against this backdrop, the potential conflicts of REEs between China and high- consuming countries which are also powers, might take place in the future for various reasons. Three causes are considered for the occurrence of potential conflicts of REEs in the future. First, increasing demand of the REEs by technologically-advanced nations. Second, continued dominant position of China in global REE supply chain that can, at any time, shake the global REE market. Third, the increase in geopolitical competition between China and powerful countries such as the United States and Japan.

Rare Earth Elements in Myanmar

Myanmar is a well-known resource-rich nation which is famous for its precious stones such as ruby, sapphire, jade and emerald, and its minerals such as copper, gold, silver, zinc, lead and tungsten and tin, and its natural gas such as oil and gas9 . This is in addition to Myanmar being abundant in heavy rare earth elements (HREEs). Peculiarly, Myanmar expanded the exploration and extraction of REEs in 1963, and reopened in 2013. Most REE deposits occur in northern and north-eastern parts of Myanmar, most of which are dominated by the ethnic armed organisations (EAOs) and share a border with China. Myanmar REEs are very similar in features with the REE clays explored in the southern province of China, and most are composed of three elements such as dysprosium, terbium and gadolinium which are key HREEs. Such HREEs are very useful and essential in global innovations of advanced technology, especially those in producing permanent magnets in the most high-tech products such as smart phone, hybrid vehicles, wind turbines and so on. Considered as a home to natural resources, Myanmar has developed a series of mining laws which should be abided by the government-owned enterprises (GOE), mining companies, firms and operators. Myanmar is also keen on rectifying and amending those mining laws to be consistent with the current developments, mining systems and environmental protection. Currently, there are fourteen laws which are governing all sorts of mineral mining activities in Myanmar that include: four documents related to mining; two on state-owned economic investments, another two for gemstone exploration, two for pearl exploration, and four for environmental conservation10. Those rules, regulations and laws are intended to govern and regulate mining-related activities, ranging from application and registration to exploration, extraction and environmental conservation. Practically, those laws are deemed to miss certain aspects of the governance of REE mining, due to its distinctive features that need complex technical processing methods and heavy costs of environmental protection.

Compared to other mineral mining, the exploration and extraction of Myanmar REEs have not been very popular and are unknown, as it should have been since the reintroduction of REEs production in 2013. Little knowledge of the REE production is earned for the people in Myanmar. The dominance of China in the global market and the accumulation of illegal activities of Myanmar REEs in border areas, has resulted in Myanmar’s heavy reliance on China.

Myanmar Rare Earth Elements in Global Geopolitics

According to the United States Geological Survey (USGS), Myanmar ranked fourth in REE- extracting countries with 5,000 tons of REEs after Australia and the United States in 201811 . Following China’s adjustment of Japanese import quotas in the wake of diplomatic tension, Japanese Parliamentary Vice Foreign Minister Makiko Kikuta launched a cordial visit to Myanmar in 2011. During her visit, Japan eyed possible cooperation for REE production in the future12. As a globally-responsible country and with its own growing demand, China may need to adjust its REE export quotas for global nations and keep REE reserves for its high domestic demand in the coming years.

Along this line, it is assumed that there would be potential conflicts of REEs in the global arena if Chinese REE export quotas do not meet the demand of the global nations. On the other hand, China as the dominant country in the global REE market would also continue to maintain its position that would lessen its REE reserves and therefore need to import from other countries, especially resource-enriched countries like Myanmar. Therefore, Myanmar has become China’s net exporter accounting for one third of domestic consumption of REEs that has given Myanmar a market space in the global REEs market13. Thus, it can be said that by exporting REE materials to China, Myanmar is sharing a role of responsibility in the global REE market. But the effect of its political condition and lack of government policies on exploring, extracting and exporting REEs, Myanmar is still limited for direct access to the global market, and expected to continue its reliance on China for REE exports.

Dilemma in the Production of the Myanmar Rare Earth Elements

However, the occurrences of REEs are unpopular and less beneficial for Myanmar due to some particular reasons. First, most of Myanmar mining areas are generally located in ethnic inhabitant areas where the prevailed rules and regulations are merely regarded and practised by the local people upon un-arrival of the government’s bureaucratic power at the expense of EAO’s domination. That has led to an increase in illegal activities of REE production, in which most involved parties are Chinese who come to hunt Myanmar REEs. Last December, there was a report released by the Mining Department of Kachin State (MDKS), mentioning that the mining officials had spotted Chinese citizen and workers and illegal mining plots with thirty vehicles carrying the REEs in Panwar region in Kachin State14. The reckless REEs operators, both Chinese and locals do not fully practise the international standards of environmental protection in REE mining, causing serious environmental erosion. Once China implemented stringent environmental controls in southern Chinese in 2016, approximately 15,000-16,000 Chinese people migrated from Ganzhou, Jiangxi province, to Myanmar to exploit REE resources and supply materials back to the Chinese market15. Thus, it can be assumed that the illegal and unregulated exploration, extraction and trading of Myanmar REEs arose due to the absence of rules and regulations emerging from the un-reach of the government’s bureaucratic power.

Second, Myanmar is supposed to suffer from the environmental damages amid the REE-related illegal activities which would impact the integrity of the existing legal instruments of Myanmar, related to mining and environmental conservation sectors. It is presumed that Myanmar mining laws are not fully regarded for REE mining and related activities including environmental protection, and therefore Myanmar may need to check with the existing laws, rules and regulations if they are consistent with the present situation. However, the weaker the laws, the more the REE operators will engage in illegal activities, resulting in poor national interest and greater environmental erosion.

Third, it is observed that there is a need for policy coordination between Myanmar and China to address the turbulence in the flow of exports and imports of REEs between the countries that has caused global market uncertainty. China is a net consumer which imports REEs from Myanmar. Since China started combating illegal REE mining in 2018, REE production decreased by 50 per cent, and the consequent market gap was filled by other countries, in which Myanmar has become an important source of HREEs for Chinese magnet and alloy industries16. Due to lack of cooperation and coordination at the governmental level, illegal REE activities have become a dilemma for Myanmar to handle that has finally engaged in the issue of environmental erosion.

Looking at other events occurring in 2019, it is clearly seen that the two countries would need a culture of coordination for REE deals at various layers, especially at the governmental level. When China banned the import of Myanmar REE ores in the earlier days, the market presented a shift in price of REEs17. Later on, in 2019, Myanmar also blocked REE mining and exporting to China due to unregulated operators and not befitting from the REEs that also caused market uncertainty in the region, through which the global market has become vulnerable18 . Consequently, that might have forced Myanmar to consider new partners such as the United States, Australia and Japan for REE cooperation in the future.

Conclusion

Observing all those points mentioned above, the strategic importance of REEs will be very crucial in global geopolitics. The growing demand of REEs by the global nations would reinforce China’s legitimate domination in the global REE market and that provides China with strategic power in projecting its position in global geopolitics. There might be a possibility for China to use its REE supply power as a strategic weapon in the course of strategic competition with the United States. Thus, the continued domination of Chinese REEs would introduce potential conflicts of REEs with other nations such as the United States, Japan, India, Australia and the EU, forcing them to set up an alternative market for REEs. That has already exposed powerful countries to find cooperation with non-Chinese countries, especially those that are highly producing REE ores and concentrates.

At the expense of geopolitical conflicts of REEs, Myanmar would be privileged to expand its market and accordingly contribute to the global REE market. However, to effectively and efficiently explore, extract and mine the REEs and to contribute to the global REE market, the government of Myanmar should consider the following policy options. First, since most REE mining is located in the ethnic-controlled areas, the government should establish a close contact and proper coordination with the locals in enforcing prevailed rule, regulations and laws. Second, since the REEs are embedded with the peculiar features that relatively affect the environment, the government should review the existing legal instruments and if necessary should consider amendments or separate laws for REE mining. Third, the government should also consider setting up a mechanism that includes actors from different backgrounds such as the representatives from related departments, EAOs, local communities and environmentalists to ensure that the operators are abiding by the laws, rules and regulation, as well as to protect REE mining activities. Fourth, the government should consider to practise active policy in engaging with other countries for REE cooperation, especially with China to protect national interest, the environment and contribution to the global market.

Having gone through the whole picture, there is potentiality for geopolitical conflicts of REEs among the global nations, especially those which will remain or become superpowers in the future. The high pursuit for REE cooperation among those countries such as the United States, Japan, Australia, India and the EU will constitute market gaps that will confer a great opportunity to non-Chinese countries including Myanmar. However, Myanmar is likely to continue to suffer from REE mining and related activities, if proper action is not taken. In the absence of policy review for REE mining, Myanmar may face potential impacts in the future, to some extent, in economic, social, and political sectors.

The opinions expressed are the author’s own and do not reflect the views of the Asian Vision Institute.