WTO Report on China's Export Restrictions on Raw Materials

Originally published July 13, 2011

Keywords: China, export restrictions, raw materials, export duties, WTO

On July 5, 2011, a World Trade Organization (WTO) dispute settlement panel (Panel) ruled against China's export restrictions on various raw materials.1 The Panel was created after a 2009 complaint filed by the European Union, the United States and Mexico against Chinese export duties and restrictions on certain forms of yellow phosphorus, bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide and zinc (hereinafter "raw materials"). These raw materials are commonly used in the chemical, steel, and aluminum industries, and are used in a variety of everyday items (e.g., beverage cans, compact discs, electronics, automotives, ceramics, refrigerators, batteries and medicines).

The decision itself has been celebrated on both sides of the Atlantic for its impact on China's raw materials export restrictions. More importantly, however, the decision may force China to amend its current export policies regarding "rare earth" minerals, which are very important to high-tech industries around the globe. These rare earth minerals include cerium, dysprosium, erbium, europium and lanthanum. It is estimated that China produces more than 95 percent of world's rare earth minerals. Accordingly, this report creates an important precedent, as China will almost certainly face a future challenge on its export restrictions applicable to rare earth minerals.

With respect to the panel report on raw materials, the complaint was brought against four types of export restraints imposed by China, specifically:

Temporary export duties; Export quotas; Export licensing; and Minimum export price requirements. Other claims in the complaint concerned the allocation and administration of China's export quotas and the alleged non-publication of certain measures. The complainants claimed that the export restrictions were inconsistent with China's obligations under General Agreement on Tariff and Trade (GATT 1994) and with China's Accession Protocol to the WTO. In its defense, China claimed that the export restrictions were necessary for the protection of human health and the conservation of exhaustible natural resources (Article XX(b) and (g) of GATT 1994 respectively).

This report is significant because for the first time a Panel had to interpret the provisions of Article XI:2(a), which allows the application of restrictions or prohibitions on a...