EU free trade deal with Vietnam could increase Chinese rare earths smuggling

By IM Staff
Published: Friday, 07 August 2015

Vietnam hosts a number of rich but largely undeveloped mineral resources and a new FTA with Europe is expected to see more resource investment flow into the country. One expert has warned that the deal could also ease the export passage of minerals smuggled from China.

By Keith Nuthall and Mandy Kovacs

A new free trade agreement (FTA) struck this week between the European Union (EU) and Vietnam could increase the smuggling of rare earths mined from southern China to Vietnam, an international rare earths expert has warned.

 Ha Long Bay_Alex Kahn
The new FTA between Vietnam and the EU could make it easier to smuggle Chinese minerals out of through the country to European markets (source: Alex Kahn). 
Consultant Jim Hedrick, a past US Geological Survey (USGS) rare earths specialist, told IM that south China’s rare earths mines, which are a rich source of ion-adsorption clays containing valuable heavy rare earth elements, are close to the border with northern Vietnam and are in prime position to duck official export channels and send material out of the country illegally.

The region is mountainous and hard to patrol, Hedrick said, noting that local miners could be encouraged to sell their product illicitly to Vietnamese traders.

Vietnam has its own sources of rare earths, such as the Dong Pao mine the northwest, close to the border with China’s Yunnan province. This means that the Vietnamese can credibly claim to have produced the minerals themselves, when in fact they have been smuggled from China, Hedrick explained.

Illegally traded Chinese minerals and metals could now find an easier passage into Europe, using the FTA to access to EU markets, said Hedrick.

South China’s heavy rare earth elements, which include europium, dysprosium, terbium and yttrium, used in applications such as phosphors, lasers and alloys, command higher prices than light rare earths and China has sought to control their export in the past through the use of production curbs, export taxes and quotas.

Although export restrictions were lifted earlier this year, production limits remain in force and the Chinese government has since implemented a 27% resource tax on their extraction, compared to levies of 7.5-11.5% for light rare earths.

Smuggling material sidesteps both production restrictions and taxes, however. With an FTA in place, this practice could grow, Hedrick said.

"There is a huge list of companies in Europe who have demand for rare earth elements like yttrium, terbium, dysprosium, for magnets. Some of that is available in south China clays. To have that come in free [of duty] – that would be spectacular for Europe and provide a lot of funding for Vietnam as an 'intermediate' sourcer," he told IM.

"They have the technology in Europe to be able to separate some of that metal and purify it to the point that it needs to be purified to be used in magnets and generators and high-tech ceramics."

EU-Vietnam FTA

The EU generally already allows most of Vietnam’s minerals into its markets duty free, but the latest agreement goes further, including Vietnamese and EU commitments to simplify customs and import-export procedures.

All remaining EU duties on Vietnamese exports will be scrapped within seven years, according to the texts agreed by EU trade Commissioner, Cecilia Malmstrom, and Vietnamese industry and trade minister, Vu Huy Hoang.

Furthermore, once the deal is ratified, EU companies will be able to bid for public contracts with Vietnamese ministries, including for infrastructure such as roads and ports, and in the national railway operator, which would likely make it easier to export minerals from Vietnam.

It also gives EU companies more rights to offer maritime shipping services to and from Vietnam.

As for supply deals with Vietnamese commercial and state-owned operators, the agreement commits Vietnam to being more transparent over the payment of government subsidies.

The agreement will additionally allow EU companies to make investments in Vietnam’s production of ceramics and construction materials.

"This finely balanced agreement will boost trade with one of Asia’s most dynamic economies," said Malmstrom.

Vietnamese minerals

Whether the FTA leads to more direct investment or sourcing of rare earths from Vietnam remains to be seen.

Hedrick stressed that investors would want to see solid data on reserves and potential output before getting involved in Vietnamese production. And with rare earths recycling developing, the pressure to find new sources is easing slightly.

According to the latest data released by the USGS in October 2014, Vietnam has seen an increase in foreign investment in its mineral industry since the country’s new Mineral Law came in to effect in 2011, which updated exploration, mining, usage, exportation and licencing provisions.

While the output value of its mining and quarrying sector decreased between 2010 and 2011 by 7.6%, it increased by 3.5% between 2011 and 2012 to an estimated total of $11.2bn. The USGS report says the greatest increases in mineral production in 2012 were for salt (up by about 36.7%) and zirconium (which increased by an estimated 11.4%).

In addition, an increase in fluorspar, rare earths and bauxite production is expected in the next few years, said the USGS in a recent minerals yearbook on Vietnam.

Vietnam has several deposits of fluorsparthat are currently being developed, as well as exploration sites for rare earths.

The USGS says the Dong Pao rare earths mine, which is located in Lai Chau Province, "is considered one of the largest rare earth mines in the country; it covers an area of 11km2 and has a reserve estimate of 5m tonnes."

The current operators of the mine – Lai Chau-Vietnam National Minerals Corp-VIMICO Rare Earth Joint Stock Co and the Japanese Dong Pao Rare Earth Development Co – signed a memorandum of understanding for the exploitation and processing of rare-earth oxide from the mine in 2012, according to Vietnam government bulletins noted by the USGS.

These companies began extracting ore from the site in 2013, and hope to produce 10,000 tpa rare earths, according to the Vietnam Investment Review in 2014. However, Vietnamese newspapers have highlighted difficulties with illegal exploiters, who visit the mine at night with shovels and picks to dig ore, according to local authorities. Workers have now been assigned to guard the mine from thieves.

Vietnamese government studies have also estimated Vietnam’s bauxite reserves to be between 10bn and 11bn tonnes, and as a result, the government has invested in infrastructure support, including new roads, to make it easier to export bauxite and alumina.

With the recent completion of two major bauxite and alumina mining and refining facilities, the Tan Rai complex, located in in Lam Dong province in the country’s Central Highlands, and the Nhan Co complex in Dak Nong province, the country was expected to produce about 1.25m tpa alumina at full capacity, according to the USGS.

Vietnam’s Prime Minister, Nguyen Tan Dung, pledged support for the complex in February this year and asked for it to be expanded, according to local news sources. He said the complex produced alumina worth Vietnamese Dong (D) 3.5 trillion ($166m*) annually and could produce more than D4.5 trillion ($214m) at full capacity.

In addition, Vietnam produces 1% of the world’s barite (barytes), according to the USGS report, based on 2012 data. 

The report also mentions Vietnam has one of the world’s largest antimony ore resources and the Vietnam Institute of Geosciences and Mineral Resources (VIGMR) recently announced the start of the construction of a 200,000-300,000 tpa antimony processing plant in Quang Ninh province.


*Conversions made August 2015




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