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WTO Upholds Ruling Against Chinese Measures Restricting Exports of Rare Earth Metals

Tuesday, August 12, 2014
Sandler, Travis & Rosenberg Trade Report

The World Trade Organization Appellate Body has upheld a dispute settlement panel ruling 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 Appellate Body also found that China’s export quota administration requirements are inconsistent with WTO rules.

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, auto parts and chemicals. China produces more than 90 percent of the world supply of rare earths and tungsten and more than one-third of all molybdenum.

The U.S., along with the European Union and Japan, claimed that China’s export measures on these goods artificially increase world prices while artificially lowering prices for Chinese producers, creating significant advantages for them in both the home and foreign markets. In addition, the U.S. said, the export restraints can create substantial pressure on foreign downstream producers to move their operations, jobs and technologies to China. The complainants argued that China was violating its WTO commitments not to apply export duties to these goods, not to restrict exports, and to give all foreign enterprises and individuals, as well as all enterprises in China, the right to export most products. China countered that its measures are permitted under WTO exceptions for protecting the environment and conserve exhaustible natural resources.

According to a press release from the Office of the U.S. Trade Representative, the Appellate Body (a) confirmed that China may not seek to justify its imposition of export duties pursuant to the exceptions claimed and (b) with some modification of the dispute settlement panel's original reasoning, affirmed the panel's finding that China failed to demonstrate that certain of its export quotas were justified as conservation measures. The European Union added that the Appellate Body confirmed that China cannot invoke its conservation policy to justify export restrictions if it places the burden of that policy on foreign users while ensuring sufficient supplies of raw materials at lower prices to its domestic industry.

A statement from China’s Ministry of Commerce asserted that the Appellate Body ruled in favor of China on several accounts. For example, the ministry said, the Appellate Body (a) held that WTO members seeking to invoke a conservation exception do not need to prove that the burden of conservation is evenly distributed (e.g., between foreign consumers and domestic producers or consumers) and made clear that export quotas are not per se incapable of justification as conservation measures and that WTO rules simply prescribe the multiple conditions that must be satisfied for such justification.

The WTO is now expected to adopt this decision within 30 days and to call for China to bring its measures into compliance with its WTO obligations. MOFCOM said that China “will carefully assess this ruling, continue to improve its management of resource-consuming products in a WTO-consistent manner, facilitate the protection of natural resources, and maintain fair competition with the objective of achieving sustainable development.”

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