EU wins WTO battle against China over raw materials

Raw materials Reuters.JPG

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.

In a statement, China's Ministry of Commerce said it "deeply regrets" the decision but would abide by the ruling, although it considered it had acted legitimately.

The United States, European Union and Mexico had all launched WTO legal cases in 2009, challenging China's right to restrict exports of materials including bauxite, coke, magnesium, manganese and zinc.

Many countries also later accused China of choking off global supplies of rare earth metals, causing prices to rocket for crucial ingredients in many high-tech products, but rare earths were not part of Monday's ruling.

China's export restrictions helped to bolster domestic supplies of raw materials, cutting prices for local users. As well as giving an advantage to Chinese industry, it encouraged foreign firms to set up within China to give them a leg-up over competitors who faced higher costs for raw materials.

"Today's report is a tremendous victory for the United States – particularly its manufacturers and workers," US Trade Representative Ron Kirk said in a statement.

"The Obama administration will continue to ensure that China and every other country play by the rules so that US workers and companies can compete and succeed on a level playing field."

EU rejoices

EU Trade Commissioner Karel De Gucht said the decision would force China to drop export restrictions for the materials mentioned in the case and for rare earths.

"This final ruling is a great success in our efforts to ensure fair access to the much needed raw materials for EU industry," he said in a statement.

Although China had promised to eliminate export restrictions when it joined the WTO a decade ago, it cited an exemption in WTO rules that allowed it to restrict exports for environmental reasons.

But the WTO ruling found that China's terms of accession to the WTO specifically barred it from using the exemption.

The complaints against China were watched by 13 countries, including Brazil, Canada, Norway, Japan and Saudi Arabia, each of which had declared a substantial interest in the outcome to gain observer status in the case.

Although WTO law does not rely on previous cases as a precedent, trade experts say the case breaks new ground in an important but largely unexplored area of trade law and could be threaten similar export regimes around the world.

BusinessEurope, representing the EU's leading industries and employers' organisations, welcomed the WTO final ruling, saying it paved the way for freer trade in raw materials globally.

The ruling, it said, "clearly states that the exceptions allowable under GATT 'to prevent critical shortages of products and protection of human, animal or plant life or health and to conserve exhaustible natural resources' cannot be used as a pretext to shield domestic industry from competition or to undermine the rules of the multilateral trading system."

Philippe de Buck, BusinessEurope's director general, said: “At the eve of the EU-China Summit, the EU should call on China to immediately implement the WTO findings by removing export duties and restrictions on all raw materials.”

In a joint effort with the United States and Mexico, the EU took action against China in June 2009, initiating a WTO dispute settlement case for restricting exports of industrial raw materials.

In July, a WTO legal panel dismissed China's claim that its system of export duties and quotas on raw materials – used in the production of steel, electronics and medicines – served to protect its environment and scarce resources.

The decision was seen as a potential precedent against China's stance on its exports of 17 rare earth minerals, of which China produces about 97% of the world's supplies.

China has cut exports of rare earths to the dismay of importers, which use the minerals in producing high-tech products and defence applications.

  • 14 Feb. 2012: EU-China summit scheduled to take place in Beijing.

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