WASHINGTON — It’s a long way from Sullivan, Mo., to Beijing, but the red-hot trade dispute over “rare earth minerals” has the potential to have an impact on both places.

This week, President Barack Obama — joining Japan and the European Union — announced a major World Trade Organization challenge to China’s restrictions on exporting rare earth minerals. That move drew praise from U.S. firms that need the expensive materials to make high-tech and defense products.

But the focus on China’s rare-earth exports — which are close to cornering the world market — failed to address what experts describe as the underlying issue: Why can’t this country, with plenty of sites where unprocessed rare earth ore is discarded, produce the valuable metals? That problem worries the Pentagon and industries that need rare earths to make items ranging from smart bombs to smart phones.

That’s the potential connection to the old Pea Ridge mine in Washington County. During the four decades that Bethlehem Steel and others mined iron ore there, tons of discarded “tailings” containing “heavy” rare earth elements were dumped into the tailings lake there.

But, even though rare earths aren’t really all that rare, there is a big problem for firms that want to develop the minerals -- at Pea Ridge and elsewhere. “There is no place to process it in this country,” said Ladue businessman James C. Kennedy.

Kennedy is president of ThREEM3, a St. Louis-based company, that he says owns the rights to the rare earths at Pea Ridge. The mine was bought in January by a Canadian firm, MFC Industrial Ltd., and Alberici Constructors of Overland, that are mainly interested in developing its iron ore.

In an interview, Kennedy dismissed this week’s WTO complaint as “meaningless. The Chinese are just out-maneuvering us.” While his firm and others try to develop processing for rare earths in this country, he said, the Chinese have “suppressed more internal supply so that their production matches their internal use. And they can’t be forced to export material that they need internally.”

The Chinese control between 90-97 percent of the world market in the 17 rare earth elements, many of which have applications in high-tech and “green” products, from wind turbines to cruise missiles.

While rare-earth elements are found in many countries, China has dominated the market by processing the minerals more cheaply than other countries and by manipulating prices in a way that makes it uneconomical for mines elsewhere to keep producing. Rare earth prices have risen sharply since China took actions to control its supply starting in 2010.

The goal of the WTO case — announced Tuesday by Obama in the Rose Garden  — is to force China to make more rare earth minerals available to manufacturers in this country, Europe and Japan.

Asserting that “being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing,” Obama said, “We can’t let that energy industry take root in some other country because they were allowed to break the rules” on rare earths. “We want our companies building those products right here in America.  But to do that, American manufacturers need to have access to rare earth materials — which China supplies.”

The Chinese dismissed the complaint as unfounded. China's minister of Industry and Information Technology, Miao Wei, told the Chinese news agency Xinhua that China’s rare earth export policy reflects its concern for the development of resources and environmental damage. Some rare earth metals would last only 20 years if China does not stop excessive mining, Miao said, asserting that China’s rare earth export restrictions are not targeted at any specific country, nor do they represent trade protectionism.

But the Pentagon worries about too much of the world’s production being in China. That’s because vital military equipment such as lasers, avionics, radar systems, precision-guided munitions, night vision equipment and satellites require certain rare earths. For example, yttrium, which withstands intense heat, is used to coat jet exhaust; samarium, which resists radiation, is used for magnets in missiles.

The Pentagon’s “industrial capabilities report” for 2011 estimates that the defense sector uses about 7 percent of the global rare earths market.

With China capping its exports and increasing the price of rare earths, the report said, “It is essential that a stable non-Chinese source of [rare earths] be established so that the U.S. [rare earths] supply chain is no longer solely dependent” on China’s exports.

The Pentagon is not alone in that assessment. GlobalSecurity.org, a think tank that reports on challenges to national security, also reported last year that “the lack of a domestic supply of rare earth minerals could severely affect the U.S.'s ability to manufacture advanced-technology products.”

Challenges in developing U.S. rare earths

Before the demand for such materials soared with the high-tech boom, the United States used to be self-sufficient in satisfying the market for such elements.

But after its largest rare earths mine, in Mountain Pass, Calif., closed a decade ago, and the demand for rare earths grew, U.S. manufacturers like Boeing Corp. have relied increasingly on Chinese imports.

The Mountain Pass mine has been reopened by its owner — Colorado-based Molycorp Inc. — which this month paid $1.3 billion for a Canada-based rare earth processor, Neo Material Technologies Inc., to create what the company called “one of the most technologically advanced, vertically integrated rare earth companies in the world.”

Some industry analysts assert that Molycorp’s “mine-to-magnet” strategy will pose real competition to China. Karl A. Gschneidner Jr., an Energy Department rare earths expert, told the New York Times that the Mountain Pass mine and a new Australian-owned mine promise more production outside of China. But many firms that use rare earths already have built production facilities in China for ready access.

Kennedy argues that Molycorp is playing what looks like a shell game with its rare earths, which are mostly lower-value “light” rare earths rather than the more valuable “heavy” rare earths at Pea Ridge and other mines. He said Neo Material has links to Chinese processors, and the combined firm will be “shipping their [rare earth] material right back to China” for processing.

His goal is to find a way to reclaim the rare earth minerals at Pea Ridge — both under the tailings lake and in a separate ore deposit underground — and to work with university researchers to develop a new way to process that material “which will be inexpensive to build and is environmentally friendly.”

But Kennedy said the Chinese are so far ahead of other producers that there are doubts about whether they can catch up. “The Chinese are three steps ahead of us, and there is a legitimate argument that this WTO thing actually helps them,” he said, “because it’s going to be a drawn-out legal process while they deal in the real world.”

Appealing to Congress for help

For the last three years, Kennedy has been trying to convince members of Congress — from Missouri and elsewhere — to help develop a legislative solution to what he views as the key issue that hampers U.S. production of rare earths:

Thorium.

A radioactive byproduct of most rare earths production, the naturally occurring isotope thorium-232 is regarded as a potential source of energy but also as an environmental threat to human health.

“There are dozens of mines in this country that produce a primary product like iron or aluminum or copper or heavy mineral sands — and every one of these mines is throwing away valuable rare earths because there is thorium associated with it,” Kennedy said.

“If you solve the thorium problem, the United States will have 100 percent or more of its annual needs every year without ever opening a new mine.”

But solving the thorium problem is extremely complex. For one, the Environmental Protection Agency, which is involved in thorium waste cleanups, contends that inhaling thorium dust “causes an increased risk of developing lung cancer and cancer of the pancreas.”

And even though Kennedy and others believe that thorium can be used as a fuel for a new breed of nuclear reactors — based partly on research conducted in this country a half century ago — that concept has been a tough sell in Washington.

At the end of 2010, Kennedy convinced Sens. Christopher “Kit” Bond, R-Mo., and Evan Bayh, D-Ind., to introduce a rare earths bill, but it went nowhere. He thinks Congress should adopt legislation to create what he calls a “rare earth cooperative” to “process all the rare earths and pass the thorium liability on to another company.” He adds that the White House is “fully aware” of the proposal.

But there are no sponsors so far. U.S. Sen. Roy Blunt, R-Mo., told reporters on Thursday that “Missouri happens to have some capacity to compete [in rare earths], and I’m looking at what we can do to encourage that competition.” He added that he has “been trying to figure out for a long time how we make this marketplace really work in a way that allows others to get in and compete with the Chinese.”

In the meantime, Blunt said he thinks the Critical Minerals Policy Act, a bill sponsored by Sen. Lisa Murkowski, R-Alaska, “would promote the development of rare earths” in this country. Blunt is a cosponsor, as is Sen. Claire McCaskill, D-Mo., who said in a news release this week that the critical minerals approach would help “boost domestic production of rare earth minerals, reducing our reliance on China.”

The bill, which mainly deals with other critical minerals, would require that “the existing resource information for rare earth elements to be updated” and would direct the energy secretary to study “technical, economic, and policy issues associated with the establishment of a licensing pathway for the complete thorium nuclear fuel cycle.”

But Kennedy contends that Murkowski’s legislation, which has languished in Congress so far, is “a complete waste of paper. Why are they proposing studies while China moves forward with real-world solutions?”

A year ago, Missouri’s congressional delegation was studying rare earths and even considered taking a joint field trip to Pea Ridge. While she admits that the delegation “toyed with the idea” of backing legislation that would help develop rare earth production in the state, U.S. Rep. Jo Ann Emerson, R-Cape Girardeau, whose district includes the Pea Ridge mine, told the Beacon last month that “there were a whole lot of extraneous issues that complicated things,” including the thorium issue.

Another potential sponsor was U.S. Rep. John Shimkus, R-Collinsville, who is interested in rare earths and thorium as a GOP leader in the House Energy and Commerce Committee. But a spokesman told the Beacon this week that Shimkus has “no present plans” to sponsor legislation related to rare earths or thorium.

In the meantime, Kennedy keeps attending conferences, talking with lawmakers and trying to drum up support for developing thorium-powered nuclear reactors and establishing a cooperative to solve the problem of thorium liability.

“Two or three or four times our annual [rare earth] needs are currently being thrown away as tailings every year because of the thorium issue,” Kennedy said. “And the Pea Ridge mine was one of them. It dumped all of its rare earths into the tailings lake because it had thorium in it.”

Why would a company invest in his proposed thorium cooperative and accept the attached liability? “You fund [the cooperative] by inviting Toshiba, Hitachi, Siemens, Boeing, Martin-Marietta and other companies to own part of it,” he said. “If a firm owns 10 percent, then they are guaranteed 10 percent of the” rare earth production.

“So it would create jobs, bring some technology jobs back to the U.S., wouldn’t cost taxpayers any money and — most importantly — would solve the ‘heavy rare earth’ problem.”