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WTO Panel Finds Against China's Export Restraints on Raw Materials

07/05/2011

Washington, D.C. – U.S. Trade Representative Ron Kirk announced today that a World Trade Organization (WTO) dispute settlement panel has agreed with the United States, finding that export restraints imposed by China on several important industrial raw materials are inconsistent with China’s WTO obligations. China’s actions were not justified as conservation measures, environmental protection measures, or short supply measures. The raw materials at issue include various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus, and zinc, and are used in a multitude of downstream applications in the steel, aluminum and chemicals industries.

“Today’s panel report represents a significant victory for manufacturers and workers in the United States and the rest of the world,” said Ambassador Kirk. “The panel’s findings are also an important confirmation of fundamental principles underlying the global trading system. All WTO Members – whether developed or developing – need non-discriminatory access to raw material supplies in order to grow and thrive.”

“China’s extensive use of export restraints for protectionist economic gain is deeply troubling. China’s policies provide substantial competitive advantages for downstream Chinese industries at the expense of non-Chinese users of these materials,” said Kirk. “They have also caused massive distortions and harmful disruptions in supply chains throughout the global marketplace. WTO rules are designed to deal with precisely these kinds of problems. If left undisciplined, these types of policies could proliferate not just within China but around the world – at the expense of everyone’s growth and development.”

The export restraints challenged in this dispute include export quotas and export duties, as well as related minimum export price, export licensing, and export quota administration requirements. These types of export restraints can skew the playing field against the United States and other countries in the production and export of numerous processed steel, aluminum and chemical products and a wide range of further processed products. The export restraints can artificially increase world prices for these raw material inputs while artificially lowering prices for Chinese producers. This enables China’s domestic downstream producers to produce lower-priced products from the raw materials and thereby creates significant advantages for China’s producers when competing against U.S. and other producers both in China’s market and other countries’ markets. The export restraints can also create substantial pressure on foreign downstream producers to move their operations and, as a result, their technologies to China.

BACKGROUND

On June 23, 2009, the United States requested WTO dispute settlement consultations with China regarding export restraints maintained by China on various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus, and zinc. On the same day, the European Union also requested consultations with China. On August 21, 2009, a third WTO Member, Mexico, requested consultations with China. On December 21, 2009, a single WTO panel was established to examine the three complaints. Argentina, Brazil, Canada, Chile, Colombia, Ecuador, India, Japan, Korea, Norway, Saudi Arabia, Chinese Taipei, and Turkey joined as third parties in the dispute.

The United States and its two co-complainants challenged:

  • China’s imposition of export duties as inconsistent with China’s explicit commitment in paragraph 11.3 of its WTO Accession Protocol not to apply export duties to the raw material products at issue;

  • China’s imposition of export quotas, export licensing requirements, and minimum export price requirements as inconsistent with China’s obligations under Article XI:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) not to restrict exports;

  • China’s administration of the export quotas and minimum export price requirements at issue as inconsistent with China’s obligations under:

    • Paragraphs 5.1 and 5.2 of China’s WTO Accession Protocol, requiring China to give all foreign enterprises and individuals, as well as all enterprises in China, the right to export most products;

    • Article VIII:1(a) of the GATT 1994, which requires China to limit fees and charges imposed on or in connection with exportation to the approximate cost of services rendered;

    • Article X:3(a) of the GATT 1994, requiring China to administer its laws and regulations pertaining to restrictions on exports in a uniform, impartial and reasonable manner; and

    • Article X:1 of the GATT 1994, which requires that China publish its laws and regulations pertaining to restrictions or prohibitions on exports promptly in a manner that allows governments and traders to become familiar with them.

China argued in defense that its imposition of export quotas and export duties was justified under exceptions in the GATT 1994. Specifically, China argued that various export quotas and export duties are permitted:

  • Under Article XI:2 (a) of the GATT 1994, in order to prevent a critical shortage of the material at issue (bauxite);

  • Under Article XX(g) of the GATT 1994, as measures related to the conservation of exhaustible natural resources (bauxite and fluorspar); and

  • Under Article XX(b) of the GATT 1994, as environmental protection measures (coke, manganese, magnesium, silicon carbide, and zinc).

The panel found that the export duties and export quotas that China maintains on various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, and zinc constitute a breach of WTO rules and that China failed to justify those measures as legitimate conservation measures, environmental protection measures, or short supply measures. The panel also found that China’s imposition of minimum export price, export licensing, and export quota administration requirements on these materials, as well as China’s failure to publish certain measures related to these requirements, is inconsistent with WTO rules.

China has the right to appeal today’s panel decision to the WTO’s Appellate Body.