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The case was initiated by the EU and the US, in June 2009, amid concerns over access for their high-tech industries to key raw materials, such as bauxite and magnesium, used to produce steel, aluminium and chemical products.
The reports by the WTO expert panel show that China has not respected commitments made upon its accession to the organisation in 2001, when it undertook to eliminate all export duties - except for a number of products listed separately – and promised not to apply export quotas.
The trade body is therefore requesting China to make sure that its measures conform with its international obligations.
No green excuse
China argued in its defence that export restrictions are necessary to conserve exhaustible natural resources and reduce harmful emissions from furnaces.
Meanwhile, the EU and the US say the Chinese export taxes and quotas discourage the export of minerals, create scarcity and cause higher prices, while keeping them cheaper and readily available for Chinese domestic industry.
The trade panel noted yesterday that export restrictions on trading these materials do not provide effective environmental protection, because the production or domestic consumption of these materials in China is not similarly restricted.
According to the WTO, it is thus not possible to shield domestic producers from foreign competition in the name of conservation.
EU, industry welcome ruling
EU Trade Commissioner Karel De Gucht welcomed the WTO ruling as "a clear verdict for open trade and fair access to raw materials," which will "take us one step closer to a level playing field for raw materials".
"I expect that China will now bring its export regime in line with international rules," he added.
European chemical industry lobby Cefic welcomed the WTO decision as "a good starting point towards other export restrictions and violations of WTO law that continuously take place worldwide".
The group stressed that importance of "free and undistorted access to raw materials" for the industry, adding that any distortions in pricing and access to materials "have a direct adverse impact on the competitiveness of our sector, given that feedstock can reach beyond half of production costs".
China expected to appeal
According to the WTO's dispute settlement rules, both sides have the right to appeal within 60 days of distribution of the panel's report.
The Chinese Ministry of Commerce (MOC) said today (6 July) that it was looking into the panel's findings and would take proper follow-up action in line with WTO practices.
Chinese and WTO trade experts told Bloomberg that there is a strong chance that China will appeal.
Meanwhile, vast deposits of rare earth minerals have been found on the floor of the Pacific Ocean and can readily be extracted, Japanese scientists said earlier this month.
