WTO Rules for EU Against China’s Hoarding Raw Materials

February 5, 2012 Updated: February 6, 2012

BRUSSELS: The Appellate Body of the World Trade Organisation (WTO) confirmed this week the findings made by a Panel in July 2011, that China’s export restrictions on several industrial raw materials are in breach of WTO rules. The WTO found that China’s export restrictions are not justified for reasons of environmental protection or conservation policy. Monday’s final ruling was welcomed by Europe’s trade chief.

“This final ruling is a great success in our efforts to ensure fair access to the much needed raw materials for EU industry. Today’s decision has confirmed that China’s export restrictions on these raw materials are incompatible with the WTO rules. It sends a clear signal that such measures cannot be used as a protectionist tool to boost domestic industry at the expense of foreign competition,” said EU Trade Commissioner Karel De Gucht. “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.”

The Appellate Body confirmed the clear findings made by the Panel in its report last summer. The Panel found that the export duties and quotas imposed by China on various raw materials [various forms of bauxite, coking coal, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc] are protectionist measures in breach of WTO rules, and that China failed to justify them. The Appellate Body in particular upheld the finding that China has committed unconditionally in its Accession Protocol to the WTO not to levy export duties, and that this commitment cannot be reduced by reverting to the general exceptions of the General Agreement on Tariffs and Trade (GATT).

In a press release, the EU welcomed the decision as a significant recognition of the interdependence of all WTO Members – whether developed or developing – when it comes to non-discriminatory access to raw material supplies as a fundamental principle underlying the global trading system.

According to the statement, the EU supports and encourages all countries to promote environmentally friendly and sustainable production of raw materials. However, the EU strongly believes that export restrictions do not contribute to this aim, and that there are more effective environmental protection measures that do not discriminate against foreign industry.

Background

China applies export restrictions on key raw materials, some of which cannot be sourced outside of China.
Export restrictions create serious disadvantages for foreign producers by artificially increasing China’s export prices and driving up world prices. At the same time, such restrictions artificially lower China’s domestic prices for the raw materials due to significant increases in domestic supply. This gives China’s domestic downstream industry significant competitive advantages and puts pressure on foreign producers to move their operations and technologies to China.

As dialogue had not proven successful, the EU decided to have recourse to the WTO dispute settlement mechanism for an important set of raw materials. Restrictions on these materials have caused concerns for European industries, such as the chemical, steel and non-ferrous metal industries, as well as their downstream clients, including producers of beverage cans, CDs, electronics, automotives, ceramics, refrigerators, batteries, medicines and many more.

The export restrictions challenged include mainly export quotas (on bauxite, coking coal, fluorspar, silicon carbide and zinc) and export duties (on bauxite, coking coal, fluorspar, magnesium, manganese, silicon metal, yellow phosphorus and zinc) as well as some claims related to technical aspects of China’s administration of export quotas and licences and to a minimum export price.

The WTO dispute settlement case was initiated in June 2009 by the EU and the US, followed by Mexico. Consultations were held with China, but no amicable solution was found. A WTO Panel was established in December 2009, and a first ruling by a WTO Panel was issued in July 2011 upholding most of the EU’s claims. 

Following China’s appeal, the Appellate Body upheld all the main claims raised by the EU. For procedural reasons, the Appellate Body was not in a position to rule on some additional claims on technical aspects of China’s administration of export quotas and licences and to a minimum export price.

In terms of next steps, the EU (and the co-complainants) will request the adoption of the reports by the WTO Dispute Settlement Body within 30 days. China will then have to bring its measures in compliance with the rulings within a reasonable period of time.