WTO Finds Against China’s Raw Materials Export Restraints

by Mary Swire, Tax-News.com, Hong Kong

02 February 2012

A World Trade Organization (WTO) Appellate Body has upheld a previous panel's ruling, made in July last year, against the duties, quotas, and price and licensing requirements, that China imposes on its exports of raw materials.

With complaints from a number of sources, including the United States and the European Union (EU), the dispute concerns the restraints that China imposes on the export of a number of raw materials, including bauxite, coke, fluorspar, magnesium, manganese, silicon and zinc.

The complainants have argued that the use of export restraints creates scarcity and causes higher prices in global markets, and provides Chinese domestic industry with a significant advantage by way of a sufficient supply, and lower and more stable prices, for the raw materials. It has been pointed out that, upon its accession to the WTO, China undertook to eliminate such controls.

Following an appeal by China, the WTO has now definitively sided with the complainants, and found that, contrary to China’s defence that some of its measures were justified because they related to the conservation of exhaustible natural resources, it had not been able to demonstrate that it imposed these restrictions for that reason.

For some of the raw materials, China claimed that its export quotas and duties were necessary for the reduction of pollution, but the WTO panel found that China had also been unable to demonstrate that its measures would have such an effect in the short or long-term.

In a subsequent statement, a representative of China’s Ministry of Commerce reiterated that the country has tried to tighten its controls over its resources recently to reduce energy consumption and the impact on the environment. It was confirmed that China would evaluate the WTO's ruling, but that it would continue, within WTO rules, to manage its resources based on sustainable development.

It has also been reported that the Chinese government is concerned that the application of the WTO’s present ruling will encourage, at a later date, requests for similar rulings on the quotas it applies to the export of rare earths.

On the other hand, the United States Trade Representative, Ron Kirk, looked on the WTO’s ruling as a victory. “The Obama Administration will,” he stated, “continue to ensure that China and every other country play by the rules so that US workers and companies can compete and succeed on a level playing field. Today’s decision ensures that core manufacturing industries in this country can get the materials they need to produce and compete.”

With EU imports reaching EUR1bn (USD1.32bn) a year from China in terms of the raw materials covered by the WTO ruling, and with EU general dependence (reliance on imports v consumption) being more than 60% for more than half of the resources mentioned (more than 90% for bauxite, manganese and magnesium), EU Trade Commissioner Karel De Gucht added that "this final ruling is a great success in our efforts to ensure fair access to the much needed raw materials for EU industry”.

The ruling, he continued, “sends a clear signal that such measures cannot be used as a protectionist tool to boost domestic industry at the expense of foreign competition. China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime – including for rare earths - in line with WTO rules."

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