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WTO Rules Against Chinese Measures Restricting Exports of Rare Earth Metals

Thursday, March 27, 2014
Sandler, Travis & Rosenberg Trade Report

A World Trade Organization dispute settlement panel has ruled that China’s export duties and quotas on 17 rare earth elements, tungsten and molybdenum are in violation of WTO rules and cannot be justified as legitimate conservation or environmental protection measures. The panel also found that China’s export quota administration requirements are inconsistent with WTO rules. The Office of the U.S. Trade Representative states that the WTO’s decision “builds on and expands” a 2011 WTO ruling against China’s use of export restraints on a different set of raw material inputs used in the steel, aluminum and chemicals industries (bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorous and zinc).

The metals at issue are key inputs in a range of products, including hybrid car batteries, consumer electronics, wind turbines, energy-efficient lighting, steel, medical and water treatment equipment, automobiles and chemicals. China produces more than 90% of the world supply of rare earths and tungsten and more than one-third of all molybdenum.

The U.S. had claimed that China’s export measures artificially increase prices outside of China while lowering them in China, thus creating significant advantages for domestic producers in both the home and foreign markets. The U.S. further argued that these restraints can create substantial pressure on U.S. and other non-Chinese downstream producers to move their operations, jobs and technologies to China.

A press release from the European Union, which was also a participant in the case along with a number of other countries, notes that neither the complainants nor the WTO panel contested China’s right to put in place environmental and conservation policies. “However,” the EU said, “as unequivocally confirmed by the WTO panel, the sovereign right of a country over its natural resources does not allow it to control international markets or the global distribution of raw materials. 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.”

According to a statement from China’s Ministry of Commerce, the WTO panel rejected an EU claim that China’s export performance requirement on enterprises applying for molybdenum export quotas discriminated against foreign companies.

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