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EU And US Challenge Chinese Export Restrictions

by Mike Godfrey,, Washington

26 June 2009

The European Union and the United States have requested World Trade Organization (WTO) dispute settlement consultations with China regarding its alleged use of export restraints on numerous important raw materials.

The European Commission said on June 23 that it has heard concerns for a number of years from European industries about Chinese export restrictions, namely quotas, export duties and minimum export prices, which China applies on key raw materials, such as yellow phosphorous, bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide and zinc – many of which cannot be sourced elsewhere.

EU Trade Commissioner Catherine Ashton said: "The Chinese restrictions on raw materials distort competition and increase global prices, making things even more difficult for our companies in this economic downturn.” Ashton is hopeful however, that “an amicable solution” to this issue can be reached through the consultation process.

Europe argues that restrictions on raw materials give Chinese companies an unfair advantage, as downstream industries in China have access to cheaper materials than their competitors outside China. The chemical, steel and non-ferrous metal industries, as well as their downstream clients, are the main sectors concerned.

The United States government announced similar action on the same day, noting that the Chinese measures appear to part of a “troubling” industrial policy aimed at providing “substantial competitive advantages” for Chinese firms using certain raw materials.

“The Obama Administration has been clear with our trading partners: we wish to work together to keep global trade flowing and provide economic opportunities for all,” commented US Trade Representative Ron Kirk. “But we will always, always, expect our trading partners to play by the rules.”

“We are initiating formal consultations with China in the WTO, because we see a major problem,” he added. “The United States believes that China is unfairly restricting exports of raw materials. USTR is very concerned that China appears to be restricting the exports of these materials at the expense of US industries that need these materials, and their workers. And we are deeply troubled that this appears to be a conscious policy to create unfair preferences for Chinese industries... by making raw materials cheaper for China's companies to get.”

“Now, more than ever, we must fight against this kind of domestic favoritism,” Kirk continued. “Earlier this month, I told the US-China Business Council that the United States wishes to work cooperatively with China to advance our economic relationship. This is particularly true with regard to trade. But I also said, we will not yield on enforcing the right of American businesses and exporters to compete on a level playing field with China.”

The US has previously brought seven cases against China, while Beijing has brought four against Washington.

The EU and US consider that Chinese measures are in violation not only of general WTO rules, but also of specific commitments that China signed up to as part of the WTO Accession Protocol, which set out either prohibitions against the use of export duties or strict caps on a limited number of products, as well as disciplining the use of export licensing and binding minimum export prices.

With their call for formal consultations the EU and US are first attempting to find a negotiated solution to the issue. If this fails, both are entitled to request a WTO panel to examine the matter.

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