The EU said China is violating WTO rules with restrictions on exports of key materials such as graphite, cobalt, chromium and magnesia which help Chinese industry at the expense of European companies and consumers.
“We cannot sit on our hands seeing our producers and consumers being hit by unfair trading practices,” the EU’s top trade official Cecilia Malmström said in a statement.
The EU launched similar successful actions against China in 2012 and 2014 over rare earths and raw materials like bauxite, zinc and coke. The new challenge targets export restrictions on graphite, cobalt, copper, lead, chromium, magnesia, talcum, tantalum, tin, antimony and indium.
“The past two WTO rulings on Chinese export restrictions have been crystal clear — these measures are against international trade rules,” Malmström said.
“As we do not see China advancing to remove them all, we must take legal action,” she added.
China lost an appeal at the World Trade Organisation on Monday (30 January) in a case about its export restrictions of raw materials. The WTO's final ruling in the case was welcomed by the EU's trade chief and business leaders in Europe.
China defends curbs
But China’s trade authorities defended the curbs, saying they were meant to protect the environment and comply with WTO rules.
“China’s controls such as export duties and quotas over relevant raw materials are based on the need to protect the resources and the environment,” Beijing’s commerce ministry said in a statement Tuesday.
“They are part of the comprehensive measures to strengthen the protection of the ecological environment and are in line with WTO rules,” it said.
It added China “regrets” the EU action and will handle the case following the WTO’s dispute settlement procedures.
In filing a similar action last week before the WTO, the US government said that when China joined the WTO in 2001, it agreed to eliminate such export duties but had failed to follow through on the commitment.
The US said Tuesday (19 July) it had expanded its complaint to include all the same materials covered in the European action.
These raw materials are essential for a broad range of industry, from aerospace and car manufacturing to electronics and chemicals.
In Washington, the US trade representative’s office said China’s export duties ranged from 5 to 20%, raising prices for overseas buyers while Chinese companies paid much less and had more secure supplies.
In addition, the export duties put pressure on non-Chinese manufacturers to shift production, technologies and jobs to China, it said.
“The restraints we challenged last week, along with the ones we have included today, are part and parcel of the same troubling policy — one that provides advantages for China in important manufacturing sectors at the expense of the rest of the world,” US Trade Representative Michael Froman said in a statement Tuesday.
As with the US challenge, the EU action launches formal consultations with China as a first step to settle the dispute. If the two sides fail to reach a settlement in 60 days, the EU may decide to ask the WTO to establish a panel to determine whether China’s measures are compatible with the Geneva-based body’s rules.
The European Commission, the executive arm of the 28-nation EU, is due Wednesday to review trade links with China ahead of a December deadline whereby, under the terms of its WTO accession, the country should be regarded as a normal market economy, not one where the state plays a central role.
Earlier this month, during an EU-China summit, European Council president Donald Tusk cautioned China to respect the international system on global trade practices.
the European Steel Association Eurofer welcomed the coordinated moves by the EU and the US against China at the WTO. The Director General of Eurofer, Axel Eggert, said, “Chinese export duties and export quotas have had a massive distortionary impact on both US and EU manufacturers. These industry players rely on access to the strategic resources in order to compete globally.”
Eurofer said tin and cobalt in particular were important inputs in some steel production. According to European steelmakers, China’s export duties "provide an unfair competitive advantage" to producers there at the expense of free and fair international competition.
“It is incumbent upon US and EU policy makers to do what they legally can to prevent international competitors from taking advantage of the world trade system. The EU and US move is thus both welcome and significant,” said Eggert. “China's lack of progress on its WTO commitments and its recalcitrance in implementing the necessary reforms is yet more evidence that the country has a long way to go until it can be granted Market Economy Status.”
EU relations with China were established in 1975 and are governed by the 1985 EU-China Trade and Cooperation Agreement and seven other legally binding agreements.
When China joined the WTO in 2001, it was considered a centrally planned economy, and the terms of its accession required the country to be treated as a "non-market economy" for 15 years.
In a nutshell, prices and costs were regarded as artificially low and unreflective of normal market forces due to state subsidies that its domestic industries enjoyed. As a result, it was easier for other countries to launch anti-dumping probes and impose high duties on Chinese exports.
Beijing has long interpreted the accord to mean that it would automatically be given MES at the end of 2016. Already, more than 90 countries, including the ASEAN states, recognise the MES of China. Australia and New Zealand have agreed to an FTA with China. However, the US, the EU and Japan have not given their say yet on the MES. They would need to pronounce themselves by the end of the year.