WTO Finds Chinese Rare Earth Export Restrictions in Violation of International Trade Law
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WTO Finds Chinese Rare Earth Export Restrictions in Violation of International Trade Law

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A World Trade Organization panel determined on Wednesday that China was in contravention of international trade law over its export restrictions on rare earth elements and other raw materials. These materials are used across a host of international industries for a variety of manufacturing purposes and the WTO found that Beijing’s use of export taxes, quotas, and bureaucratic delays effectively raised prices by creating an artificial shortage. The WTO panel’s formal conclusion was that “China’s export quotas were designed to achieve industrial policy goals.”

China, in its defense, argued that the rare earth export restrictions were geared towards preserving its environment — the WTO’s decision did not acknowledge that. In response to the ruling, China was noticeably disappointed. ”As a responsible WTO member, we respect relevant rules. But we regret that and we will continue our efforts to protect the environment and natural resources, and maintain our rights to argue,” Zhang Anwen, vice secretary-general of the Chinese Society of Rare Earths, told China’s Global Times following the decision.

The European trade commissioner, Karel De Gucht, said, “China cannot use export restrictions to protect its own industries or give them a helping hand on the global market at the expense of foreign competitors.” The WTO case was first filed by the United States in March 2012 and both Japan and the European Union came on board shortly afterwards. The United States remains almost entirely dependent on Chinese rare earth metals, so the case was particularly urgent for the U.S. government.

Rare earth metals are used in all sophisticated modern electronic devices including computers, smart phones, cars, magnetic devices, and turbines. China produces an overwhelming majority of the world’s rare earth metal supply — 90 percent of all rare earth metals used in global industry originate in China. Beijing has taken advantage of its near-monopoly power in the past. In 2010, Beijing cut export quotas by 40 percent, causing prices to skyrocket. That same year, China punished Japan for the detention of a Chinese fishing boat captain near the disputed Senkaku/Diaoyu islands by temporarily embargoing rare earth exports to Japan. Rare earth metals are critical to many of Japan’s largest industries and the economic damage prompted Japan to seek out a rare earth cooperation agreement with India in 2012.

The ruling may further convince Chinese observers that the WTO’s rules are detrimental to China’s interests. The perception that the WTO is unbalanced and tilted towards the West is common in China. One consultant for the Shanghai WTO Affairs Consultation Center notes that ”the rules of the WTO are not in [China's] favor.” ”The US, Japan and the EU formed a hunting party against China. They sued China in 2012 over the export of nine kinds of raw materials and this time they staged the same drama over rare earth,” notes one Chinese analyst cited by the Global Times.

Chinese indignation over the report is not unfounded. China has credibly demonstrated that its rare earth mining activities are hugely damaging to the environment. Further, the WTO does not prohibit export taxes across the board. The reason China’s activities came under scrutiny was because of a specific agreement between China and other countries that limited the amount of export duties that were practicable — rare earth metals were not included in that agreement.

So far, China’s intention to appeal the decision is unclear, but likely. A Chinese statement notes that they are “assessing the panel report and will follow the WTO dispute settlement procedures to settle this dispute.” This trade dispute will be one to watch in coming months and could have important ramifications for global rare earth prices.

Comments
12
Matahari
March 29, 2014 at 17:55

The first thought is that the WTO is under the thumb of Washington. Like the ICC and WCC in the Hague. Nothing can dispel that belief. It is just another instrument of control in the Empire’s System.

Ivan
March 31, 2014 at 03:05

Then why don’t countries just withdraw from it?

Andrew
March 28, 2014 at 19:27

Not just for rare earth prices, but the future of many of the technologies that China is trying to dominate in. One thing not mentioned in the report are tools China uses and is starting to use to force companies to locate high-technology industries inside China.

While the environmental impact is real and is very very grave, it is a pretext to help Chinese industries become a price maker and not a price taker. Like other industries in the energy and minerals sectors (oil and gas and most notably iron ore), China is not a price setter but a price taker. It want’s to be different in the rare earth sector given its global reserves and current output.

Moreover, these minerals will help determine the future of the Chinese economy. If China can come to dominate the entire supply chain of rare earths, it can dictate terms on a whole host of industries in high-technology. This is the real reason behind China’s rare earth policies.

Exocet
March 28, 2014 at 17:31

China isn’t capitalist, they are mercantilist. They only signed the WTO for their convenience and will only follow it when it suits them. China is run by people who have become extremely wealthy from state run monopolies. Don’t expect this to change in the near future.

Ivan
March 28, 2014 at 22:22

PRC-Beijing is barely able to keep its head above water holding onto the command and control of nuclear weapons and a few policy areas.

Their clout in enforcing a trade deal against powerful “local” governments even if they are willing is practically nil.

Fortunately, most of the time, they are not willing anyways.

PRC-Beijing is as toothless as the Ching in 1880.

MYK
March 28, 2014 at 15:07

It’s totally laughable that China says they were curbing Rare Earth Minerals in order to preserve the environment, as the WTO stated that the pollution and environment situation in China didn’t improve, but the environment actually got worse in China from their REM mining operations.

Perhaps China might have won the WTO ruling if they had equally applied the restrictions and taxes on their domestic firms, but they didn’t. Maybe China might have won the WTO ruling if they had been able to show that they were able to improve the ‘environment’, but they couldn’t! Then, maybe China could have won the WTO ruling if they hadn’t have attempted to provide ‘unlimited’ Rare Earth Minerals access to their State-Owned Enterprises, while at the same time, the cheatin’ Chinese were ‘limiting’ those same REM resources to countries abroad.

Once again, China proves they can’t even follow WTO trade rules and regulations, similar to the way China can’t even follow the UNCLOS Agreement that they signed.

Ivan
March 28, 2014 at 17:08

An export tax that is applied equally to all exporters would be perfectly legal under WTO.

Likewise if the domestic supply was not rationed to favored firms for industrial policy reasons.

Alerjo
March 28, 2014 at 18:39

I was going to mention UNCLOS but your ending was perfect

Exocet
March 28, 2014 at 18:45

China is run by people who’ve become rich through state run monopolies like these and as usual China signs all these agreements and treaties and only follows them when convenient. China’s response will be the usual combination of ignorance, paper thin excuses or bellicose criticism of external parties.

Exocet
March 28, 2014 at 19:24

“Once again, China proves they can’t even follow WTO trade rules”

It’s not that they can’t, it’s that they won’t. They want the benefits of the WTO in that it allows their export based economy access and ability to flood foreign markets with cheap goods. But they themselves don’t want their own SOE’s and firms with CCP shareholders to be undercut by foreign firms, same goes with their rampant IP theft. They don’t want to be subject to the rules that everyone else follows but they want all the benefits of those that do and the CCP will lie cheat and steal as much as needed to maintain this.

faccts
March 28, 2014 at 12:35

Currently China owns the deposits, China does the mining, and China gets the bash for not sell enough of it (cheap) to other industrialised countries.

Not much you could argue, except maybe for the point that other countries have grown accustomed to China exporting it Cheap and put alot of their eggs in China’s basket. China’s new policy of discontinuing the low profit margin raw mineral exports came too quick for other countries to adjust thus their related industries are suffering to their Chinese peers?

That is an understandable position, but China’s concern isn’t unfounded as well. Thoguh, I do not see why other countries can’t start a crash program to boost their own mining sector to secure their supplies, especially US and W. Europe. Both has the technology technological infrastructure and the reserves to jump start it. In one to two years they should no longer worry about this if they devout energy to it. The freed up supplies from these two giants should help Japan and other countries in turn.

So the only problem I could identify, is how much headway Chinese industries gain during these two years.

Ivan
March 28, 2014 at 09:20

Participation in the world economy and enjoying its benefits come with it both benefits and costs.

PRC cannot elect to take all the benefits, but assume none of the obligations.

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