US, EU File WTO Challenges Against Chinese Export Restrictions on Raw Materials

21 July 2016

Over the past week, the US and the EU have both filed requests for consultations – the first step in WTO dispute settlement proceedings – with China over alleged export restrictions on select raw materials used in industrial manufacturing.

The US announced its complaint (DS508) on 13 July, along with an update to the consultations request on 19 July. The EU confirmed it was filing its own case (DS509) on Tuesday as well.

The raw materials initially raised by the US included antimony, cobalt, copper, graphite, lead, magnesia, talc, tantalum, and tin, which are inputs into the aerospace, automotive, electronics, and chemical industries, among others. The 13 July complaint specifically faults alleged Chinese export duties on these materials.

Washington then said on 19 July that it was expanding this list to cover export duties on chromium along with export quotas on antimony, indium, magnesia, talc, and tin. The US also alleged that China has restricted the trading rights of exporting enterprises and appears to have improperly administered those export restrictions. 

The EU is targeting the same types of export restrictions on the same list of raw materials, some of which Brussels cited in a 2013 document as being among a list of 20 “critical raw materials” whose value for industry and the environment have made them “crucial to Europe’s economy and essential to maintaining and improving our quality of life.”

For some of these minerals, such as graphite, China is the largest global producer; in other instances, such as copper, the Asian economy is responsible for approximately 10 percent of world supply, according to EU statistics.

The US and EU will now hold consultations with China in an effort to reach a mutually agreed solution in the disputes.  In each case, if the parties fail to reach a solution within 60 days, the complainant can ask the WTO to form a panel to examine the case.

Export restrictions

Both the US and EU have raised the terms of China’s accession protocol – in other words, the terms under which the Asian economy joined the WTO in 2001 – in their respective consultations requests.

While the General Agreement on Tariffs and Trade 1994 (GATT) does not explicitly prevent WTO members from imposing duties on exports, China’s accession protocol requires it to “eliminate all taxes and charges applied to exports,” unless they are specifically provided for in an annex to the protocol, or are charged in conformity with the GATT provision on “fees and formalities connected with importation and exportation.”

In its 13 July consultations request, the US alleges that China is contravening its accession terms because it has not eliminated export duties on these raw materials. The US says that China applies and administers these export duties, which range from five to 20 percent ad valorem, through various government instruments including trade and customs laws. 

Regarding the issue of quantitative restrictions, the US said on 19 July that these seem to violate both its accession commitments on trading rights, as well as Article XI:1 of the GATT.

That GATT provision says that WTO members cannot impose “prohibitions or restrictions other than duties, taxes, or other charges, whether made effective through quotas, import or export licences, or other measures,” on any imports or exports.

The US has also cited GATT Article X:3 along with a separate section of China’s accession protocol in its follow-up complaint, arguing that these export policies have been put in place “in a manner that is not uniform, impartial, or reasonable.”

Similarly, the EU has cited both China’s accession protocol as well as other WTO rules in its own complaint, sources say. While the US consultations requests are publicly available, the EU request was not yet published at press time. The EU has also cited among its concerns the administration and allocation of the alleged Chinese export quotas.

According to US Trade Representative Michael Froman, the export duties are an attempt by China to “game the system,” giving Chinese manufacturers a “substantial competitive advantage” by making the materials more expensive for downstream American manufacturers that rely on them, while keeping prices lower for domestic Chinese manufacturers.

In response to the US’ claim, officials from China’s Ministry of Commerce have defended the export restrictions on the grounds that they are a part of “overall measures to strengthen environmental protection and accord with WTO rules,” particularly in light of the “daily worsening pressure on resources and the environment.”

Earlier cases

Previously, the WTO’s Appellate Body found in separate disputes that certain Chinese export restrictions on different raw materials and rare earths were inconsistent with its international trade obligations, and that China could not invoke the “general exceptions” listed under Article XX of the GATT 1994 to justify export duties contravening its accession protocol.

That GATT article outlines a set of justifications under which WTO members may put in place measures that would otherwise violate global trade rules in order to address greater public policy goals, such as conserving exhaustible natural resources. Such measures must not be “disguised” trade restrictions nor serve as “arbitrary and unjustifiable discrimination” between WTO members.

Both the US and EU were among the complainants in those earlier WTO cases. (See Bridges Weekly, 10 September 2014 and 1 February 2012)

“The past two WTO rulings on Chinese export restrictions have been crystal clear – these measures are against international trade rules,” said EU Trade Commissioner Cecilia Malmström. “As we do not see China advancing to remove them at all, we must take legal action.”

ICTSD reporting; “U.S. challenges China raw material export duties in trade enforcement push,” REUTERS, 14 July 2016.

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