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Rare-Earths Spat With China Could Be 'Slam Dunk' for U.S. Firms

Updated from 9:30 a.m. ET. Correction: China argued Article XXXVI of GATT at the July WTO Panel, not in the January Appellate Body decision

NEW YORK ( TheStreet) -- Companies trading on American exchanges could be due for a sweet slam dunk on China.

Businesses that sell advanced batteries, wind turbines, hybrid cars and more advanced technologies received some promising news from Barack Obama Tuesday when the president announced the United States would challenge China's export quotas on rare-earth elements.

"If China would simply let the market work on its own, we'd have no objection," Obama said. "But their policies currently are preventing that from happening. And they go against the very rules that China agreed to follow."

China produces about 97% of the rare-earth exports exchanged on the world market, according to think tank Institute for the Analysis of Global Security, which is stunning when you realize that companies like Apple (AAPL - Get Report), Boeing (BA - Get Report) and Toyota (TM - Get Report) depend on these 17 chemical elements for their products.

The United States, the European Union and Japan all requested on Tuesday consultations with China concerning rare earths tungsten and molybdenum, according to the World Trade Organization .

The claim, essentially, is that China has deliberately limited exports of rare-earth materials to artificially raise the price on those materials, which has forced companies -- many of them American -- to pay much higher prices.

A September 2011 government report found that China had severely under-reported its rare-earth elements quota for 2010. The Chinese government claimed to have produced some 89,000 metric tons of rare earths, but the U.S. Geological Survey found the actual number at about 130,000 metric tons.

White House press secretary Jay Carney rejected the idea at a Wednesday press briefing that the rare-earth dispute was a political move during an election year and said the move was consistent with Obama's policy since he became president.

Donald Lewis, a Stanford Law School research fellow who teaches Chinese law and international economic law, said that the president's speech was probably about both politics and sound policy.

"We don't live in a political vacuum, we all know that an extremely important presidential election is around the corner ... but there are the economic issues too," Lewis said. "There have been very substantial complaints made to the U.S. government, to the U.S. Trade Representative Office [and] the Department of Commerce by American companies regarding these trade practices."

There's a real chance that the WTO will hear this complaint, which could result in formal action by the organization or a Chinese settlement.
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