>>this week on world business... >>rare, expensive and vital for the high tech world. china's reserves of rare earth metals are yet another revenue stream for this economic powerhouse. >>how kurdistan is pitching itself as the gateway to iraq >>kurdistan is a stable, secure part of iraq and has a friendly business environment, and i cannot think of a better place to set up a base to service this promising, emerging market of kurdistan and the larger iraqi market. >>and why high tech tyres and engines are causing a revolution in the world of wheels. >>this is one of our engineering vehicles

and as you can see one of the things that missing is the engine. this vehicle is a pickup truck, it's normally run with a 2.5 litre diesel, and with our drivetrain you remove all of that. as you can see there's also no gearbox as well, there's no transmission tunnel or axle as well. >>hello and welcome. i'm raya abirached and this is world business, your weekly insight into the global business trends shaping our lives. you may not have heard of them, but rare earth metals have a massive impact on your life. they are

the incredibly rare elements, crucial for the construction of high tech devices across the world. and 97 percent of the world's supply comes from china. >>reporter: saudi arabia has oil; while china has very valuable rocks. >>this is baiyun obo mongolia; mile upon mile of mineral rich craters - blasted, shovelled, shifted then processed to produce, from here alone, over half of the world's supply of rare earth metals. these elements like lanthanum and dysprosium are light, malleable and have strong electrical and magnetic properties. >>rare earths are essential to modern, tech-driven, urban life - in fact, your mobile phone or laptop could well contain a piece of northern china. >>anwen: as we entered the 21st century, it was clear that rare earth is the treasure of new materials. it's the key hi-tech material

- and in many sectors, there is no other metal substitute. >>reporter: and, for now at least, there's virtually no alternative to china - which controls 97 percent of the global rare earth supply chain. >>the us used to dominate the market. but in the mid 1980's, china ramped up production and undercutprices - rendering exploitation of north american reserves unviable. >>reporter: for most of the past 20 years, the developed world has allowed its own mines and processing plants to close, relying on low cost chinese supplies instead. but technology hasn't stood still. today, industries dependent on rare earth metals - including fibre optic cables that power the internet, flat screen tvs and alternative energy applications - account for an estimated five percent of the global economy. >>as the world embraces the green revolution developing alternatives to fossil fuel power demand for rare earths is expected to grow by 10 percent

annually; spurred on by governments offering incentives to low emissions products like cars. >>dekang: when the electric motor starts, the petrol engine stops. so no fuel consumption and no exhaust. compared with a standard engine car, this hybrid can save 41.7 percent on petrol. >>reporter: each toyota hybrid uses up to two kilogrammes of these key metals in their drive motor and rechargeable battery. and this carmaker alone plans to double production to one million units in2011. >>but from hybrid cars, to tech gadgets, to huge windfarms sprouting around the world, producing tomorrow's green technology is fraught with problems. >>first, the eco contradiction: mining and processing rare earth elements in china is a dirty business even in a large plant like this. many smaller plants don't bother to treat toxic chemical

laden run-off properly, instead dischargingwaste straight into rivers. >>and then there's the supply chain itself - which is now under pressure. and china has upped the ante. >>in a bid to control prices and consolidate a fragmented, industry, an export quota was introduced in 2004. this has decreased every year since, with an export tariff rising. 15 >>overseas demand now surpasses the quota - leaving downstream western manufacturers vulnerable. >>mackie: the us and the eu complain that china's rare earth production strategy - trade, taxation,investment and export policies - violates its world trade organisation commitments and distorts competition. the chinese, on the other hand, argue that if others want more rare earth metals, then they should exploit their own resources. >>reporter: so rare earths are now highly political. and especially so for the us military which, in a glaring example of supply chain

neglect, depends on imports of these metals for sophisticated radar and weapons. >>to bolster global supplies, plans are now in place to have two new rare earth projects - in california and australia - operational by 2014. however, baiyun obo will still be, by far, the world's biggest mine- though china wants to ensure that its output is used mainly to develop domestic tech manufacturing, especially as other countries, including south africa canada and brazil are sitting on reserves. >>anwen:they have their own resources, can develop their processing industries and they have their own market demands. why do they only depend on supply from china? it's unreasonable. >>reporter: china is of course cheaper. that aside, it's not out to totally deny others of more rare earths - the likes of which are used inthese eco-friendly washing machine motors. >>these low-noise, energy efficient components are made

in the us with rare earth metals from china.the finished parts are then shipped back to this factory in china's qingdao for assembly. >>sheng: they are good at producing parts. and in partnership, we make the job easier. the two companies are responsible for design and development, but our suppliers produce the components. >>reporter: but by cutting its export quota, china - with its near monopoly of rare earths - is in effect strong-arming parts makers to move production here in order to guarantee supply. >>for foreign companies, this presents a considerable sovereign risk. for the chinese, such investment would help realise the goal to move the economy further up the value chain. rare earths are of such high strategic value, that tensions between the key players will certainly not be in short supply. >>the semi autonomous region

of kurdistan, in northern iraq is, by the standards of the area, relatively stable and a good foothold for investing in the country. but like any frontier market, opportunities always come with challenges. >>reporter: in the city of london, a two-day conference promoting trade in the kurdistan region of iraq attracted around five hundred people. among those attending were iraqi kurds who in earlier times had taken shelter in the united kingdom fleeing persecution by saddam hussein. now business and political leaders in their own semi-autonomous region, they were back with a message ---- kurdistan is a haven of peace and the gateway to iraq. >>salih: kurdistan is a stable, secure part of iraq and has a friendly business

environment, and i cannot think of a better place to set up a base to service this promising, emerging market of kurdistan and the larger iraqi market. >>reporter: anyone taking up the invitation would be joining some big names already there >>rahman: i would like to encourage those of you who haven't yet been to kurdistan to go and see for yourselves what is possible, to see for yourselves why brands like pepsi, coca cola, lafarge, rotana, lufthansa are investing and doing trade with kurdistan and iraq. >>reporter: but despite the promise of a bright future, the dark past was also present. >>bakir: the people of kurdistan have survived a difficult and tragic history. under the previous regime we suffered what has now been recognised as genocide. our people were forced to flee their homeland many times over the past several decades. >>reporter: after chemical attacks and the destruction of more than 4,000 villages

and agriculturalland, it's a remarkable story of survival and rebirth: >>garner: i don't think you can find an example in history where a group of people, an ethnic groupof people, have risen that far in that short a period of time. >>reporter: but issues still persist with the current baghdad regime, including disputes over territory and how to unblock the export of crude oil and pay oil companies. >>lee: in the oil and gas sector, they have one very big problem at the moment, and that is that the central government in baghdad regards the oil and gas contracts that have been signed in kurdistanas illegal. >>reporter: with an estimated 45 billion barrels of oil reserves and three to six trillion cubic metres of gas in the area, there's a huge amount riding on negotiations with the central government. the prime minister is hopeful: >>salih: we recently submitted a detailed proposal by which we would solve this issue of oil contracts, and the iraqi cabinet has

endorsed those proposals by the krg , and we hope that we will be able to put that behind us. >>reporter: for some, it's a case of reconciling two completely different philosophies: >>garner: in the republic of iraq, everything is still thought of kind of like when saddam hussein ran it, everything was centralised, it was government controlled, and that's the way they're runningthe oil industry there. in the north, in kurdistan, it's entrepreneurial ... and capitalism is far more profitable for the people. >>reporter: in the meantime, oil companies have to choose between the north and south of iraq: >>said: right now and historically over the last couple of years, the federal government in baghdadhas said that they have blacklisted companies that are working in the kurdistan region. >>lee: the potential projects in southern iraq around basra were simply so huge the oil majors, the bps and exxon mobils and chinese national petroleum corporations couldn't afford to upset the baghdad government but there is significant investment from a number

of small and mid-size companiesin kurdistan. >>reporter: one foreign entrepreneur, in the embryonic tourist industry, has achieved the dream of making kurdistan a gateway for business to iraq. babel tours, in the regional capital erbil, recently hit the headlines with the first tour of southern iraq >>debbasch: in erbil i had no doubt from the very beginning that it was possible to take people because erbil, and all kurdistan, there is no problem to go and discover the country with perfect security. >>reporter: security remains a key issue not only within iraq but because of its geographic position at the heart of the volatile middle east. >>despite kurdistan's growing ties to close neighbour iran, us businesses are ramping up their presence in this resource-rich, needs-hungry area. >>schweitzer: we've had an iraq business initiative since late 2008, but we are re-energising it and really launching a very aggressive program in the united states

to support american companies investing in kurdistan and iraq in general. >>reporter: incentives to foreign businesses in kurdistan include property ownership, tax breaks and profit-repatriation. with $13billion of foreign investment to date, and an economy growing faster than the rest of the country, the signs are the region could prove a safe economic haven while iraq sorts itself out. >>still to come on world business... >>a motor at each corner and low resistance tyres - new wheel design is slashing carbon emissions inthe car business. >>in europe the regulations say that by 2012 we've all got to produce cars that produce an average of about 130 grams

of co2 per kilometre. now to put that into context it's a drive cycle measured thing, at the moment most cars are about 150, perhaps even 200, and certainly the big sports cars and luxury cars are up to 400 & even 500 in same cases, so it's going to be a big change. >>and two wheeled madness in the mountains of scotland at the fim motorbike trials. >>indoor is a very good spectacle. conditions are pretty much fixed, outdoors you're dealing with elements, different types of ground, different types of soil, rock, weather - a lot more variables ...you have to be vastly experienced in all conditions to be an expert rider outdoors. >>wet and wild ... and the rest in just a moment on world business...

>>since 1914, when the first mass-produced cars rolled off the assembly line, the industry has seen some astounding changes. rising fuel prices and the global recession have hit the sector hard, but far from putting the brakes on, manufacturers are turning to futuristic technology to make their carsdo more for less and keep the wheels of industry in motion. >>reporter: it's been more than a century since the michelin brothers first fitted a passenger car with pneumatic tyres and the technology has evolved almost beyond recognition. today's cars have better handling, safety, noise reduction & even increased fuel efficiency.

>>for example, up to 15% of fuel can be wasted overcoming rolling resistance. modern tyres designedto combat this energy drain can reduce that figure by a third. >>but there is still a long way to go, especially when it comes to reductions in co2 emissions. >>morgan: in europe the regulations say that by 2012 we've all got to produce cars that produce an average of about 130 grams of co2 per kilometre. now to put that into context it's a drive cycle measured thing, at the moment most cars are about 150, perhaps even 200, and certainly the big sports cars and luxury cars are up to 400 & even 500 in same cases, so it's going to be a big change. >>reporter: the biggest change could come from a fundamental rethink of how cars are powered. >>russell: when you open up the bonnet of your car,

you expect to see one of these: a dirty great big, fossil fuel guzzling, internal combustion engine. wouldn't it be nice if you could just make it disappear? >>watts: this is one of our engineering vehicles and as you can see one of the things that missing is the engine. this vehicle is a pickup truck, it's normally run with a 2.5 litre diesel, and with our drive train you remove all of that. as you can see there's also no gearbox as well, there's no transmission tunnel or axle. >>reporter: instead the vehicle is driven directly by 4 motors mounted inside the wheels. this technology makes the car much more efficient and could even extend the range by up to 30% - by recapturing energy when braking through a kinetic feedback system. >>one of the biggest problems has traditionally been electric motor's lack of power. but applying torque directly to the wheels is more than twice as efficient than

traditional drive system. suddenly even a big suv becomes pretty nimble. >>watts: we've got a volvo c30 that does 0-60 in 4.5 seconds with 4 of these motors - it goes on tojust over 100mph, and the 50-70 timing is 3 and a bit seconds. so that's a standard family car, 3-door hatch back and yet it's got almost ferrari-like performance. >>reporter: losing so much metalwork and frame structure also has massive implications for design. that extra space could be used for more batteries or to make the car smaller and more efficient; there are implications for improving safety with room for more crumple zones. and there's a strong business case as well. >>knight: parts and complexity run hand in hand, parts and cost run hand in hand. so if you reduce parts

and you reduce complexity, you reduce cost - so ultimately cost is the most important consideration for the consumer as well as for the auto mobile manufacturer. >>reporter: the company expects to start putting cars on the road in the next 6 months, but as promising as the technology looks, with all that extra weight in the wheels there's one place it's not going to go down well... >>morgan: what we've decided to do is go for a really low carbon car - and in order to achieve thatwe've got to be quite clever, and it's going to be unlike anything that's currently on the market in 2010. it's going to be what we call an extreme hybrid, so it's basically a generator on board thatproduces your own electricity. >>reporter: it's not new technology - diesel electric engines have been used in trains for years but on the road it can increase the range of the lifecar dramatically. >>morgan: this is a pure electric car if you want it to be, and of course you can plug it in, but producing your own electricity with a conventional diesel tank means that instead

of having a range of 100 miles we're going for a range of 1000 miles. >>reporter: and with algae based biodiesels increasingly looking like they might be able to supply a real alternative to conventional fuel, we could soon see vehicles like the lifecar being used as apersonal power plant sitting on every drive, providing an essential back up should your local powerstation be unable to cope with demand. >>motorcycle trials is one of the world's most demanding motor sports. for two days in june the top riders, and a few wannabes, descended on scotland's nevis range to test their ability on one of the toughest - and wettest - outdoor courses in the sport.

>>reporter: the spea fim trial world championship. finding the 'roll of the rocks' the world's elite trial riders strut their stuff on the scottish mountains of the nevis range. >>one of the sport's biggest stars -12 time world champion dougie lampkin was there hoping for his 100th grand prix win. he made it to the podium on the first day but didn't make the final cut. >>lampkin: i've always been very hungry for success i've never been satisfied with what i've already achieved ...i don't like losing - i really don't like losing - people may say it but they don't really mean it. >>reporter: forget losing the championships, in these conditions it's surprising more riders don't lose their heads. this is no sport for the faint hearted... >>the bikes have no seat, riders must stand on the pedals, testing their balance and throttle control. each time they touch the ground - called a 'dab' -

a point is scored against them. a clean round scores a zero - the maximum penalty score is five - and they have just one minute to complete each section. >>muriel: riding the river here at scotland's nevis range sixty of the world's top trial riders attempting the seemingly impossible. for many of the competitors, staying on top on this testing courseis only one of the challenges they face. finding the funds to stay in the sport can be just as tough. >>reporter: among those struggling in this poor, but exciting relation of motorsport - five times scottish trials champion, gary macdonald. he has the support of his family but has to fund himself. >>macdonald: every last penny goes into my trials. i don't have anything to spend on anything else because i enjoy doing this sport. i'm only young once - i'm 26 now. i've probably only got six yearsat this kind of level left so i've got to make the most of it. >>reporter: out on the course macdonald certainly does that, negotiating the river sections with all the skill of a champion. his bike -

a single-cylinder, lightweight kit model - costs under nine thousand dollars - compared to the 50-thousand dollar machines ridden by the top-sponsored riders, like dougie, whose success has attracted sponsorship deals from bike-maker beta and energy drink company, red bull. championship in my first adult year and that got me a factory contract and then obviously the results started coming but it's the same as a lot of sports breaking in to that level to get noticed really - it's as tough in england as it is anywhere. >>reporter: winner of the uk leg of this year's world championship - japan's takahisa fujinami - affectionately known on the circuit as fuji-gas. encouraged by his father - also a trials rider - and with respsol-montesa-honda's backing, fujigas has been on the podium ten times in the last ten seasons. there's no prize money for winning - but fujigas is sure to benefit from an incentive bonus from his sponsors. >>fujinami: i am lucky

because i am from honda - and good image and many sponsors coming to sponsor- but difficult also. >>reporter: the fim world championship itself is sponsored by italian electronic testing firm spea.company president luciano bonaria has been involved in motorcycle trials for more than thirty years. but won't be drawn on the size of his investment in the event. >>bonario: the amount is confidential of course, we cannot mention it. the reason because i am sponsoring this is three reasons, first because it is my sport, second because my company that is going well has to do some social return and this sport fits for what spea is doing it is always a challenge like the trial. >>reporter: trials biking is hugely popular in spain where some of the world's best riders can be found. the uk leg of the championship drew

a crowd of five and a half thousand spectators bringing in around 30-thousand dollars for the organisers. the sport is growing in popularity thanks to increasing television coverage, and features both indoor and outdoor championships. >>miller: indoor is a very good spectacle. conditions are pretty much fixed, outdoors you're dealing with elements, different types of ground, different types of soil, rock, weather - a lot more variables ... you have to be vastly experienced in all conditions to be an expert rider outdoors. >>reporter: as the scottish rain came down that much was obvious ... although it wasn't enough to put off young fans of the sport. >>i've been here the whole few days and i think it looks really hard - i'll may be do it someday. >>reporter: for many fans a major attraction is the ability to get up close and personal with theirsporting heroes. >>everyone gets involved so it's not just for the elite people. my son did the scottish six days trial at the beginning of may and he was riding beside dougie lampkin and alex wigg some of the top boys and it

inspired him. >>reporter: and the amazing feats of the world's best riders on display here were undoubtedly an inspiration to the next generation of trials champions. >>that's it for this week's world business. thanks for watching. we'll see you again at the same time next week.

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