Chinese Regime’s Raw Materials Restrictions Ruled Illegal

July 7, 2011 4:05 am Last Updated: October 1, 2015 4:17 pm

The World Trade Organization (WTO) ruled on Tuesday, July 5, that the Chinese regime’s export restrictions on raw materials are illegal.

According to a Southern Metropolis Daily report the next day, a WTO Panel ruled in favor of the United States, the European Union and Mexico who complained in 2009 against China for the latter’s export restrictions on raw materials, including bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus and zinc.

The July 5 edition of the Wall Street Journal also said the WTO’s ruling “will set a precedent for the U.S. and the European Union to file another complaint against China over its quotas on the export of rare-earth materials.”

The Journal also indicated that the WTO is preparing to publicize a formal ruling that China has no rights to restrict the export of nine materials including zinc and coke.

Export restrictions limit the amount of a product or commodity that can be sold outside a country. The WTO states that with a highly-interdependent global economy, and given that no single country is self-sufficient in resources, the Organization views any abuse of export restrictions as a distortion of the multilateral trade system.

In an interview with the Southern Metropolis Daily, Ms. Zhao Yumin, Director of the Department of International Commodity Market Studies in the Chinese Academy of International Trade and Economic Cooperation, said that China is aware of the information, that it is a serious matter, and the government will deal with it prudently. So far, no official response has been made available.

Zhao believes that if the ruling is an absolute decree the Chinese authorities have no choice but to obey and relax their policy of export restrictions, such as reducing export duties.

The report also mentioned that China can appeal the raw materials ruling under the current WTO framework. If China does not appeal or it is denied, China must revoke the export restrictions; otherwise it would face trade retaliation from the three plaintiffs.

The WTO report shows that the trade dispute is closely linked with China’s policy on export quotas and customs duties. The plaintiffs argued that this policy creates scarcity and higher prices for many raw materials used in commonly found and high technology items. The policy also unduly favors Chinese domestic industry, the panel found.

After entering the WTO, China was expected to eliminate export duties and to not apply any export quotas. The WTO Panel ruled that China’s current export duties (that a company has to pay to export, thus raising the price) are inconsistent with the agreed-upon entry protocol.

China tried to argue that some export restrictions were justified on the grounds of conservation. This argument did not convince the panel because there had been no simultaneous restrictions on domestic production or consumption.

China is now the country which produces the largest amounts of cadmium, gold, indium, iron ore, lime, lead, manganese, mercury, molybdenum, phosphorous, tin, tungsten and zinc, many of which are critical to advanced technology products and green energy devices.

In 2010, China halted shipment of rare earth metals to Japan because the latter country detained a trawler ship captain who had collided with Japanese Coast Guard vessels in disputed waters. These metals are crucial to the manufacture of many modern machines and weapons and China is believed to mine 93 percent of the world’s supply. Since China had not formally issued an export restriction law, Japan could not complain to the WTO, but no shipments arrived in Japan after Chinese customs had blocked them.

The captain was later released as tensions around the world escalated and Beijing’s actions were viewed as a disproportionate, even bullying, response. The export restrictions continued for several more weeks as the free world took stock of how China is willing to flex its economic muscle.

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