The European Union's top trade official Thursday said the Group of 20 biggest economies needs to urgently agree a markets based framework on the supply of raw materials and criticised China's quota policy on rare earths.

Karel De Gucht, the European Commissioner for Trade, said the rapid development of emerging nations will squeeze the supply of raw materials and governments need to establish transparent trading rules.

"It is urgent," de Gucht said in an interview. "For a region like Europe, it is very important that markets in raw materials remain open."

De Gucht said there is a risk suppliers of essential raw materials will opt for country-to-country trade pacts rather than selling their exports on the open market. "We want to have a very formal, rules based, commercial system where markets can play their role," said the official.

The policy push is likely especially aimed at China, which produces 90% of the world's supply of rare earths and has been cutting export quotas. Rare earths are a suite of elements used in applications from high-powered magnets to fuel refining.

"China certainly has to play its role at the G20 table," said De Gucht, citing that country's changes to export rules. "These kind of sudden changes, we have difficulty accepting them."

Last October, shipments of Chinese rare earths to their major customer Japan dropped off amidst a diplomatic spat between the two countries, prompting concerns that Beijing was attempting to use its control of the commodity for strategic ends. China denied any relationship between the tightening of its export quotas, announced three months earlier, and the diplomatic dispute.

De Gucht noted the world's supply of rare earths deposits isn't just confined to China, citing Greenland's and the U.S. reserves.

Australia also has several large rare earths deposits, with the Mt Weld deposit operated by Lynas Corp. Ltd. (LYC.AU) in Western Australia expected to account for an extra produce its first refined rare earths by the end of this year and other deposits being developed by Arafura Resources Ltd. (ARU.AU) and Alkane Resources Ltd. (ALK.AU).

At present, China accounts for 103,300 tons of the world's 114,800 tons annual rare earths production, according to a Lynas Corp. presentation last month, but Mt Weld will account for a further 22,000 tons a year and 20,000 tons will also be produced by Molycorp Inc.'s (MCP) Mountain Pass mine from next year.

De Gucht discussed the topic of rare earths supply with Australia Trade Minister Craig Emerson Wednesday and said both parties will engage in talks on common research and development and the legal structures but deals will be done between private companies.

"The actual deals are the responsibility of the private companies concerned," said De Gucht

-By Enda Curran and David Fickling, Dow Jones Newswires; 61-2-8272-4687; enda.curran@dowjones.com
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