WTO Rules In Favor of US, Europe and Mexico and Against China's Raw Material Export Restrictions

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Back in November of 2009, MetalMiner published a piece on how China picks and chooses the products and industries it will support by way of its export tax rebate schemes as well as those it chooses to protect via export restrictions (when it wants to discourage particular exports). MetalMiner readers will recall this first case brought to the WTO by the US, Europe and Mexico over China’s export restrictions on a range of products including bauxite, magnesium, coke, fluorspar, manganese, silicon metal, silicon carbide, yellow phosphorus and zinc. A World Trade Organization dispute settlement panel has come out in favor of the US, Europe and Mexico, “finding that export restraints imposed by China on several important industrial raw materials are inconsistent with China’s WTO obligations, according to the Office of the United States Trade Representative.

This Case Sets the Precedent for Rare Earth/Cleantech Case

This panel finding, closely watched by international trade experts and supported by the AISI creates a precedent for the clean-tech case involving a number of rare earth metals. According to Alan Price, Head of the International Trade Practice of Wiley & Rein LLP, “This was a huge win. It certainly strengthens the positions that want to challenge China’s rare earth restrictions.

The steel industry currently relies on a number of the raw materials in question including zinc and manganese. The aluminum industry relies upon fluorspar, currently in short supply.

China’s Defense

“When China joined the WTO it agreed to eliminate most of its export tariffs except for 84 items, ” according to Price, “the panel looked at the export quotas as generally WTO inconsistent. In its defense, China argued export quotas and duties for these raw materials fall within several exceptions, justified under GATT 1994 rules. Specifically, the Chinese argued:

  • Under Article XI:2 (a) of the GATT 1994, in order to prevent a critical shortage of the material at issue (bauxite);
  • Under Article XX(g) of the GATT 1994, as measures related to the conservation of exhaustible natural resources (bauxite and fluorspar); and
  • Under Article XX(b) of the GATT 1994, as environmental protection measures   (coke, manganese, magnesium, silicon carbide, and zinc).

In short, the panel felt “that China failed to justify those measures as legitimate conservation measures, environmental protection measures, or short supply measures.   The panel also found that China’s imposition of minimum export price, export licensing, and export quota administration requirements on these materials, as well as China’s failure to publish certain measures related to these requirements, is inconsistent with WTO rules.

China has three options according to Price appeal to the appellate body, implement the changes to current practices or decide not to implement any changes and pay compensation to the affected parties.

MetalMiner has long published posts around both this WTO case as well as the cleantech case. We have even posted the China point of view. Readers can view some of these earlier posts here:

International Trade Policy Breaking Point Public Policy Overview and Debate

2011 Begins: Oil Price Increases, China Rare Earth Export Quotas and Trade Wars

China Looking to Better Manage Reserves of Rare Earth Metals

–Lisa Reisman

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