MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Later in the broadcast, when art and performance are in conflict with facts, "This American Life" and Mike Daisey and the resulting controversy. But first, he global trade in rare earth elements. The term rare earth is really a misnomer since they're not really all that rare and they're not really earths. Still, last week, Washington asked the World Trade Organization to settle a longstanding trade dispute with China over these exotic sounding elements.

MR. KOJO NNAMDILanthanum and neodymium may sound like substances from Dr. Seuss but they're critical components in a wide array of high tech gadgets from cell phones to hybrid batteries to wind turbines. And even though they're much less rare then gold or platinum, China currently produces more than 90 percent of the world's supply and says "It's curtailing it's exports" out of concern for the environment. Washington says "China is using its market power to force American companies to share trade secrets.

MR. KOJO NNAMDISo who's telling the truth and exactly what is rare earth? Joining us to have that conversation is Stephen W. Freiman, research scientist and president at Freiman Consulting. He's a member of the National Research Council Committee on Critical Material Impacts on the U.S. Economy. Stephen Freiman, thank you for joining us.

MR. STEPHEN W. FREIMANThank you for having me here.

NNAMDIAlso in studio with us is Richard McGregor, Washington Bureau Chief at the Financial Times and author of the book "The Party: The Secret World of China's Communist Rulers." Richard McGregor, thank you for joining us.

MR. RICHARD MCGREGORThank you.

NNAMDIIt's a conversation we're hoping you'll join by calling 800-433-8850. If you have any questions about what are known as rare earth materials, 800-433-8850. You can send email to kojo@wamu.org or simply go to our website kojoshow.org, join the conversation there. Steve, the term rare earth covers 17 substances and in many ways, it's a misnomer since these substances are not all that rare and they're not really earths. What are they?

FREIMANWell, that's correct. In terms of abundance, they are more abundant than gold, as you mentioned earlier. One of the issues, with respect to them, there are a series of minerals and in order to mine them economically, they have to be concentrated in certain amounts. And at present, the most important concentration of these exists in China, which includes the mining of the ore as well as the processing. And these materials are critical for a number of applications.

FREIMANPeople who have looked at the bright red color in their TV sets is due to europium and there's never been a substitute found that works as well as that. They are particularly important for high strength magnets which allows the miniaturization of laptop computers, et cetera. And a number of other applications that are just catalysts and so forth. So they really are critical for our modern technology.

NNAMDIThese were once obscure elements with exotic sounding names toiling at the bottom left side of the periodic table of elements. But the 17 elements known as rare earth share a couple of properties that make them extremely useful for advance manufacturing, apparently. They tend to be very good at boosting energy efficiency.

FREIMANThat's right. Well, they have particular electronic properties. In other words, the electronic properties of the elements themselves are not duplicated in other material. And so it means that in order to substitute for these in the applications that they are most important for, such as magnets, has been a very difficult proposition. There's ongoing research, but to date, we've never found a substitute for these because they have such special electronic structure to each of the elements.

NNAMDIRichard McGregor, so why is the U.S. asking the World Trade Organization to investigate China which produces most of these materials?

MCGREGORWell, the big clue is in your introduction. China produces about, more than 90 percent of these rare earths. It's not as Steve said, the fact that they're rare, it's a matter of producing them economically. And China can mine them cheaply because there's very low or there have been very low environmental standards in China. So they've taken over the way other countries like the U.S., for example, and Australia have dropped out. Now, the issues we're facing at the moment really has its genesis two years ago when China started to block exports of rare earth to Japan after the two countries had one of their perennial political disputes about some disputed islands in the East China Sea.

MCGREGORAnd, you know, the Japanese sort of rely on imports of rare earth more than anybody else, suddenly found they weren't landing on the docks. And the Chinese made a -- you know, everybody really knew it was for political reasons. I think the alarm bells went off at that stage. And the case we're seeing now is basically the U.S. combining with Japan and Europe.

MCGREGORIn other words, the big Western powers, quite symbolic, saying to China, you cannot restrict the export of these materials unless there's sort of national security. I can explain. There's certain national security self sufficiency grounds. But they say that Chinese attempts to put quotas on these are illegal under trade rules. And that's what's going to be fought out in Geneva at the WTO.

NNAMDIThe U.S. is essentially claiming that the reason that China is limiting exports and selling them at a lower price to domestic manufacturers then they're selling them to companies abroad. But China has said that it has to limit production of these elements because of environmental concerns. And you are the former Bureau Chief for the Financial Times. In China, as a rule, it's sometimes hard to know exactly how or why China is making these kinds of decisions, right?

MCGREGORYeah, well, let me take a bit of a step back so we don't just turn this into a sort of big bad China diatribe. You know, there's been overproduction in China of just about everything, you know, cars, steels, aluminum, you know, coal and the like. And for a long time, the big planning ministry in Beijing has tried to consolidate industries in China to make them run more efficiently on the one hand and to create global national champions on the other hand.

MCGREGORAnd that, in some respects, is what they've tried to do with rare earth because, you know, China has all these wildcat mines like you would've had in the gold rush in the states in the 19th century. You know, once the price of iron ore goes up, people go and get a little mine and start digging it up. And that's the case with rare earth, where as Steve said, to produce it in its fine form, you've got to go out and pour chemicals and water into the landscape to get it out.

MCGREGORAnd, of course, you know, they're creating moonscapes in the process in China. So on the one hand, they have got a real reason for consolidating production, but on the other hand, once they start using it politically as they did against Japan, then they're breaking all the rules. And that's where we find ourselves at this point today.

NNAMDIIn case you're just joining us, we're talking about the global trade in rare earth elements with Richard McGregor. He is Washington Bureau Chief of the Financial Times and author of the book "The Party: The Secret World of China's Communist Rulers." Also in studio with us is Stephen Freiman, research scientist and President at Freiman Consulting. He's a member of the National Research Council Committee on Critical Material Impacts on the U.S. Economy.

NNAMDIThe number here is 800-433-8850. Does it matter to you if we're reliant on one country for 90 percent of a commodity? Call us at 800-433-8850 or you can send us a tweet @kojoshow. Steve Freiman, this is all happening against a backdrop of increasing reliance on these elements in a relatively tight supply. Even though there are a lot of deposits of these minerals around the world, they apparently take a long time to develop.

FREIMANIt takes a long time to develop the processing capability. The real value is the end product that comes out of the rare earths. And so when you take the ore out of the ground, first thing you have to do to get the high value ones which are what are called the heavy rare earths is you must separate them. And that separation process is a long and expensive one. And as Richard said, it involves harsh chemicals. One has to be very cautious about the environmental issues associated with the leftovers, the affluent from that process.

FREIMANSo it's not an inexpensive process and there has to be some view that there is a profit to be made. And I know for a number of years, China kept the price of their rares fairly low. So it meant that there was very little new exploration or process development. So, you know, when this happens, then all of a sudden, there's nobody else to compete. Ongoing now, there are a number of exploratory projects going on around the world to develop new mines and new processing. The Molycorp Corporation has recently reopened their mine at Mountain Pass, Ca. so there is some source of rare earths here in the U.S.

NNAMDII was about to say, the U.S. was once a major producer of rare earth. But in the 1990s, U.S. mines were shut down partly out of environmental concerns. Why are there environmental concerns?

FREIMANThey are environmental concerns for a couple of reasons, the liquid effluence that come out of the separation process or contain harsh chemicals, but also a lot of the byproducts of some of the ores of rares contain thorium, which is mildly radioactive. And while one can deal with this in a safe manner, at times, this is a concern if you're really on top of the environmental issue and you have to be very cautious about it.

NNAMDIA lot of these elements themselves are not particularly dangerous, but they're often found alongside some highly radioactive materials. One U.S. mining company recently announced plans to reopen a California mine for rare earth. Does this mean that there are now more effective ways to address the environmental concern?

FREIMANYes, that's right. That's the Molycorp Corporation at Mountain Pass. And, yes, they have found ways to control the leftovers from the processing of the rare earths. And I think they're now doing it in a safe manner. And that has to be looked at anytime anyone starts a new mining and processing capability.

NNAMDIRichard McGregor, can it also mean that these elements are just too important and that the U.S. is making the call that environmental concerns may, to some extent, be overlooked?

MCGREGORI don't think it's the later. Certainly, they're too important. As Steve says, it's an issue of lead times. For example, if China is producing 90 percent of these rare earths -- oh, let me put it another way. I mean, imagine if the China stopped exporting plastic toys. Well, the U.S. and Japan, if they needed them, could quickly replace them. But in rare earths, if it takes two to three years to get a mine going and we have in Japan, the famous Sir Just-in-time manufacturing process, then really, you know, you can't wait two to three years for it.

MCGREGORSo yes, I think the U.S. and Japan and Europe are putting down a marker about the importance of these rare earths. They're also putting out a political marker as well in the U.S., importantly in election year, at a time with the Obama administration, of course, is being bashed by Mitt Romney for being weak on China. So it's a signal, I think, on many different levels. It's important in itself. It's important that China be held to global trading rules. It has important domestic political implications in the U.S. and I would say in Japan as well. So it's, you know, it's multifaceted in that respect.

NNAMDIHere are now, onto the telephones. Here is Chris in Hagerstown, Md. Chris, you're on the air. Go ahead, please.

CHRISYeah, I was just curious about the recyclability. In other words, if we are held to political issues on this type of natural resource, are we losing significant amounts to the scrap yards because most of the materials are now found in our newer technological equipment that we use?

NNAMDISteve, it's my understanding that the Japanese have begun investing in something called urban mining which involves the issue Chris is raising, recycling elements from discarded and obsolete electronics. How does that work?

FREIMANWell, Chris raises a good point. And, yes, the Japanese and the Koreans have started a program in urban mining in which they're trying to extract rare earths and other elements from discarded electronic components. And I think, for the future, that's going to be an important, at least secondary, source of these materials. But at present, that's a very expensive process and the question would be right now, is it economically viable to do that? So I think there has to be some changes in public awareness and other economic issues, which will drive that in this country as well as both in Japan and in Europe who are much more in-tune with this kind of recycling of critical materials.

NNAMDIBut does that also not raise some designing questions as well? Is it possible to design electronics so that their components can be more easily separated and recycled after the life cycle of the product?

FREIMANThat's an important point. I think that would make the economics a whole lot more interesting if you can reduce the cost of taking these things back apart when you go to the recycling. And of course you have to encourage people to bring these or take these to some place where they can be recycled in an easy manner.

NNAMDIGot to take a short break. When we come back, we'll return to our conversation on global trade in so-called rare earth elements. But you can still call us. Chris, thank you for your call. The number is 800-433-8850. If you have any questions about rare earth materials or if you are concerned about the U.S. being reliant on one country for 90 percent of a commodity, especially if that country happens to be a rival like China. 800-433-8850. I'm Kojo Nnamdi.

NNAMDIWelcome back to our conversation on the global trade in rare earth elements. We're talking with Steve Freiman. He's a research scientist and president at Freiman Consulting. He's also a member of the National Research Council Committee on Critical Material Impacts on the U.S. Economy. Also joining us in studio is Richard McGregor. He is the author of the book, "The Party: The Secret World of China's Communist Rulers." He's the Washington bureau chief of the Financial Times.

NNAMDIWe're taking your calls at 800-433-8850 if you'd like to know anymore about rare earth elements. Steve, at the beginning of the book, as I talk about lanthanum and neodymium. Exactly what are they and what do they do?

FREIMANWell, they are two of the components of the whole series of rare earths. And one could look at -- lanthanum is a particularly important element in coloring of glasses and other materials. It's also used in nickel and metal hydride batteries, which you find in the Prius, it's used in capacitors. Neodymium is used in high-strength magnets and lasers. Each of the rare earths is a very, you know, exotic materials, if you will, had their own very special uses. And each of them depend on their very particular atomic structure.

NNAMDIAnd a lot of their uses have to do with many of the things we're excited about in the future, like technology.

FREIMANThat's right. A great deal of the rare earths are going to be needed for wind turbine technology. It will require a large quantity in terms of total mass of rare earths, because these require very high strength magnets to run these large turbines or wind technology. So we can see in the future the demand for rare earths if this technology grows. It's going to be very large.

NNAMDIOnto the phones again. Here is Jay in Frederick, MD. Jay, your turn.

JAYHi, Kojo, how's it going?

NNAMDIGoing well.

JAYI was interested in, you know, the national debt is extremely high. China is responsible for a lot of the way we loan money from them and everything. I just think it's interesting that we were going to allow this to make up 90 percent of the rare earth mines. I don't understand how we can allow that to happen when we could mine our own earth mines.

NNAMDIFirst to you, Steve.

FREIMANWell, at present, we don't a large number of sources of rare earth ore in the United States. As I said earlier, the one place where it's mined is in Mountain Pass, Ca. I don't believe there are other known sources of rare earths within the continental United States. It doesn't say there are in neighboring countries. There's a lot in Canada and so forth. But at present, we don't mine our own material.

NNAMDIBut this brings me to this, Richard McGregor, and I guess the question being why does China have such market dominance. In doing research for the show, we came across a quote from Deng Xiaoping, the former head of the Communist Party of China in the early 1990s. The quote is, "There is oil in the Middle East and there is rare earth in China." Do you think China arrived at this position of dominance from long-term strategy or just plain luck?

MCGREGORWell, it's a spooky quote, isn't it? I've heard that and I've always wondered whether it was actually true that Deng would've been -- he had a lot of other things on his plate actually to think about rare earth that way. I'm not sure they engineered this. You know, it's a question of price. The U.S. dropped out. Australia and other countries stopped mining rare earths because they couldn't make a profit.

MCGREGORThey didn't have state-driven economies like they did in China. But certainly China ended up with that dominance and then ended up with an ability to exploit that if they wanted to strategically. And that's what they're trying to do with Japan. But I think they made a big mistake, because China is a massive exporter. It's totally part of the global trading system. So if they start playing friends and enemies like that, I think they could be in trouble because remember they are big importer of oil.

MCGREGORThey depend on foreign countries for a whole bunch of resources. So, I don't think it's in their interest to sort of say, you know, we'll keep our rare earths unless you, you know, give us the East China Sea or whatever. You can't make a trade off like that. So I think they'll back away from this one.

NNAMDIHow about the trade off that some people are speculating, China wants a lot of exporters to relocate in China. They've got all kinds of problems with intellectual property laws. This could be a way of using their muscle to get an advantage in that area.

MCGREGORThat's an interesting question. I think they could definitely be something to that. It's a way -- you know, China is still probably one if not the high tech manufacturing capital of the world, along with Taiwan, South Korea, to some extent parts of the U.S. And if China has certainly has a stated national goal of bringing as much on shore as they can, it's jobs, it's technology. And if they can use that as leverage, I think they will. And they might have succeeded in a few cases. I think that's a much more plausible way of looking at it.

NNAMDIJay, thank you very much for your call. We move on to Urduja (sp?) in Silver Spring, MD. Urduja, you're on the air, go ahead please.

URDUJAYes. Hi, Kojo, how are you?

NNAMDII'm well.

URDUJAI enjoy your program.

NNAMDIThank you.

URDUJAI enjoy your show. Okay, I'm going to take a different (unintelligible) to this, Kojo. I think China should do whatever is in their interest. If they were smart enough to get all these resources that they (unintelligible)...

NNAMDIIf this was a part of the Great Leap Forward, go ahead, please.

URDUJAWhat is wrong with them using it to their benefit? We do it ourselves. We restrict sales of products to countries we don't like. Why is it wrong when China do that, use them to their benefit?

NNAMDIRestricting sales to countries we don't like, Richard McGregor. How would the WTO feel about that?

MCGREGORWell, it's against the rules that China signed up to. I don't want to sound sort of prim and proper. But, you know, that's the way the world goes round. And I think it benefits everybody. You know, if you have an argument like that, well maybe Saudi Arabia should cut off oil sales to the U.S. when they're concerned about how the U.S. behaves. You know, Australia and other countries can cut off sales of iron ore to China and so the steel industry there dries up. So every petty political dispute you have you can then sort of turn in to a tit for tat on trade. And I think that would be a very disastrous approach for anybody to encourage.

NNAMDIThank you very much for your call, Urduja. I'd like to go back to the issue of China and the Japanese for a second, because the Japanese are bringing this case before the WTO along with the European Union. And you mentioned earlier this standoff that China had with Japan a couple of years ago over rare earth. But Japan is also the biggest importer, along with the U.S., of these elements for the high tech and auto sector. This is crucial to their economy.

MCGREGORYeah, Japan is resource poor. I mean, remember they import about 95 percent of their energy, I think. They are like Korea, no oil and the like. And, you know, Japan and China, 50, 60 years after the war still have a very fractious and tense relationship. Things aren't settled between those countries. And they're much more likely to have the political issues get tied up in economic issues. That's why I think for Japan it's very good to take a case like this with the U.S. and Europe to sort of, you know, spread the burden if you like.

NNAMDIOn to the phones again, here's Michelle in Silver Spring, MD. Michelle, you're on the air, go ahead, please.

MICHELLEHi, great show as usual. And I was just wondering, I had read, I don't know, about a year ago or something that the Chinese have been involved in the steal of rare earth elements for a long time. And they have an institute, a scientific institute, that only studies and researches rare elements. So I think this has been an ongoing thing for them economically.

NNAMDIAny idea about that, Steve Freiman?

FREIMANI'm not aware of the name of the institute. I wouldn't be surprised at all. And the caller is right they have been involved in involved in rare earths and supplying rare earths for a very long time. And they're serious about doing research on these kinds of materials, so I suspect there is such a thing and I just can't tell you the name of it.

MCGREGORYeah, and they're serious generally. And part of the reason why sort of exports slowed for a while in China is because they've been consolidating into one big group, which is I think the Inner Mongolia Baotou Steel Rare Earths Group or something like that, which is responsible for 50 percent of production. So, they're serious about everything in science in China. So I'm sure they do have such an institute.

NNAMDIMichelle, thank you very much for your call. Steve, the U.S. imports a whole lot of raw materials for manufacturing not just rare earth. And that is not necessarily a bad thing for strategic vulnerability. It's not necessarily a strategic vulnerability, at least not on its face. You've participated in a broader strategic look at critical materials which encompasses more than rare earth. Can you talk about that a little bit?

FREIMANYes, that's right. The NRC committee that I was part of looked at a broad variety of materials and tried to understand what determines critical and we came to the conclusion that critical varied with time. What may be critical today may not be tomorrow and vice versa. As technology changes, the need for particular elements changes as well. I think a good illustration is the computer chip industry, which in the 1980s used about 12 elements.

FREIMANToday, they use over 50. And most of the elements that we now import come from overseas. And in probably 90 percent of the cases, there is no issue. There are normal trade relations. For a few materials, and rare earths are one, the platinum group metals are another, indium. For various reasons, there are limited supplies for either because of production or because production and supply is controlled by just a few countries where there can be an issue.

FREIMANAnd those are ones where criticality can become important, because they're important in use and there's a potential for supply restriction. And that was the end result of what the committee concluded. And we formed a matrix where one could see with time, you know, what criticality looked like. The idea is we have to plan ahead in the United States and look to see what is likely to become critical certainly in the near future and perhaps for the long term as well.

NNAMDIIs it possible or plausible for us to design our way out of this?

FREIMANDesign our way out of rare earths is going to be very difficult because, as I said earlier, they are very hard to replace. There are ways to do this perhaps. This concept of nanotechnology, where we use very small amounts of material can of course reduce the quantity of rare earths that we need. That could help a lot. And there is ongoing research within the Department of Energy who has a special program looking at the possibility of substitution and so forth. But it's going to be a very difficult one to replace these materials, which have very special properties with something else that performs as well.

NNAMDIIn the meantime, we'll be looking at the WTO process. Richard McGregor, any timeline on how that's likely to go forward?

MCGREGORThey can take some time. There's no deadline for that. I'd say at least a year. But remember, the U.S. and other countries won a case on restrictions of raw material exports from China. They won that case in January this year, sets a precedent. So I think they think they're on pretty firm ground with this one.

NNAMDIRichard McGregor is Washington bureau chief with the Financial Times and author of the book, "The Party: The Secret World of China's Communist Rulers." Thank you for joining us.

MCGREGORThank you.

NNAMDIStephen Freiman is a research scientist and president at Freiman Consulting. He's a member of the National Research Council Committee on Critical Material Impacts on the U.S. Economy. Steve Freiman, thank you for joining us.

FREIMANThank you.

NNAMDIWe're going to take a short break. When we come back, when art and performance conflict with the facts, "This American Life," Mike Daisey and the resulting controversy. If you'd like to join that conversation, you can call now at 800-433-8850. I'm Kojo Nnamdi.