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WTO Rules Against China In Rare Earth Trade Dispute

by Mike Godfrey,, Washington

28 March 2014

On March 26, 2014, a World Trade Organization (WTO) dispute settlement panel agreed with claims, from the United States, the European Union and Japan, that China's imposition of export restraints on rare earths, tungsten, and molybdenum breach international trade laws.

Rare earths, as well as tungsten and molybdenum, have a wide range of uses in advanced electronic and environmental goods (including flat-screen televisions, hybrid car batteries, wind turbines and energy-efficient lighting), chemicals, and steel, and non-ferrous metal industries.

Chinese export restrictions over rare earths have been mainly export duties or export quotas, as well as additional requirements and procedures for exporters. They are said to have created serious disadvantages for foreign industries, by artificially increasing China's export prices and driving up world prices, and have lowered China's comparative domestic prices for raw materials. That has given Chinese industry a competitive advantage and put pressure on foreign producers to move their operations and technologies to China, they claim.

The EU, together with the US and Japan, launched a WTO dispute settlement case in March 2012, after China severely cut its export quotas for rare earths, causing a spike in world prices and considerable disruption to the global rare earths market. As initial consultations with China did not bring an amicable solution, the WTO set up a dispute settlement panel in June 2012.

That panel has now found that that China's export duties and quotas are in breach of China's WTO commitments and were not justified for reasons of environmental protection or conservation policy. In particular, export restrictions cannot be imposed with the expressed intent to conserve exhaustible natural resources, if domestic use of the same raw materials is not limited for the same purpose.

The European Commission contended that, "a WTO Member may decide on the level or pace at which it uses its resources, but once raw materials have been extracted, they are subject to WTO trade rules. The extracting country cannot limit the sales of its raw materials to its domestic industry, giving them a competitive edge over foreign firms."

United States Trade Representative Michael Froman added: "China's decision to promote its own industry and discriminate against US companies has caused US manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths. WTO rules prohibit this kind of discriminatory export restraint and this win today demonstrates that clearly."

All parties now have 60 days in which to appeal against the WTO panel's report. A statement from China's Ministry of Commerce merely expressed "regret" at the panel's decision. It said that it is currently making its own evaluation of the decision, and that it will follow-up the case according to WTO dispute settlement procedures.

TAGS: environment | tax | European Commission | export duty | energy | law | tariffs | World Trade Organisation (WTO) | China | United States | trade | Japan | Europe

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