TWN Info Service on WTO and Trade Issues (July11/08)
18 July 2011
Third World Network

WTO ruling sets off reactions in China
Published in SUNS #7187 dated 11 July 2011

Beijing, 8 Jul (Chee Yoke Ling*) -- The World Trade Organisation (WTO) dispute panel ruling against China's export restraints over several raw materials used for manufacturing high technology products has triggered a spate of reactions in the country.

An official statement was posted on the website of the Ministry of Commerce and the China Mission to the WTO in Geneva issued an English version to journalists on the day of the ruling (5 July) stating its "regret" at the WTO dispute panel's decision.

China said that "although these measures have certain impact on domestic and international users, they are in line with the objective of sustainable development promoted by the WTO and they help to induce the resource industry toward healthy development."

It said that for the purpose of protecting the environment and exhaustible natural resources, the Chinese government in recent years has reinforced its administration on certain resource products, especially the high pollution, high-energy consuming and resource-dependent products.

The statement also noted that the panel had made findings in favour of China in many aspects, such as those on export quota allocation and administration, and the issuance of export licences. In addition, it noted that the panel stated that China has withdrawn its minimum export price requirement and sympathized with China's comprehensive administrative measures on bauxite and fluorspar.

However, China regrets that the panel finds its relevant measures regarding export duties and export quotas to be inconsistent with China's obligations under its Accession Protocol and the relevant WTO agreements, and are not justified pursuant to the general exceptions relating to the conservation of exhaustible natural resources and the protection of human health.

It said China will implement scientific management for resource products in accordance with the WTO rules, safeguard fair competition, and promote sustainable development. It will study the panel report and properly follow up in accordance with the WTO dispute settlement procedures.

[The dispute concerns China's use of certain export restraints on the export of certain forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc, all of which are referred to as the "raw materials" in the case.

[The complainants (the United States, the European Union and Mexico) identified the following as four types of restraints that China imposes: export duties; export quotas; export licensing; and minimum export price requirements.

[According to the panel ruling, China's invocation of the General Exception provisions of GATT 1994 is limited by the terms of Paragraph 11.3 of its Accession Protocol. The panel acknowledged that by this ruling, China is in a position unlike that of most other WTO Members who are not prohibited from using export duties, either via the terms of their respective accession protocols or their membership to the WTO at the time of its inception.

[The panel said that the situation created by China's Accession Protocol provision taken in isolation may be perceived as imbalanced, but went on to say that it can find no legal basis in the Protocol or otherwise to interpret it as permitting resort to Article XX of the GATT 1994.

[Among the exceptions permitted in Article XX are trade restraining measures "necessary to protect human, animal or plant life or health" and "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption." For details of the panel ruling, see SUNS#7185 dated 7 July 2011.]

According to a Xinhua news report (6 July), Zhao Jinping, Deputy Chief of the Division of Foreign Economics of the State Council Development Research Centre, said that the ruling not only poses tremendous challenges for China's export of primary materials, but also disturbs China's effort to reduce greenhouse gas emissions and other major pollutants, and consequently influences global environmental changes.

He said that the elimination of "backward" production capacity inevitably reduces export of related products; this is not "resource protectionism" as alleged by outsiders, but is a necessary control measure that the government takes for an economic and development paradigm shift. It is beneficial for improving environmental governance in China and globally, he added.

Zhao also said that the EU and US cannot ask China to protect the environment and reduce pollution, while criticising China's efforts to implement policy adjustments for the related industries.

Another comment by Professor Tu Xinquan, Deputy Dean of the School of WTO, University of International Business and Economics, was published in the 7 July issue of the National Business News.

Tu said when China entered the WTO, it listed a range of resource products for which export taxes are allowed. Looking at it today, the products listed are not only a few but also do not include those that are necessary to be controlled such as rare earths. He added that export taxes generally were set at a very low level.

Professor Zhao Zhongxiu, from the School of International Trade, University of International Business and Economics, in the same National Business News issue, said that in the past many years, China did not pay sufficient attention to environmental protection in the process of resource exploitation, and caused waste, excessive development, and many conflicts. The State can only quickly mitigate through trade policies, but the core spirit of the WTO is targeted at policy adjustment, and not the result of the adjustment.

He believes that if the Chinese government thoroughly adjusts its rare earth-related policy, and makes sure of the consistency between domestic and foreign policy, then it should be reasonable if Chinese companies reduce exports based on market incentives. In the past year, there has been considerable discussion within China on the urgent need to address the fact that minerals are exhaustible, and that the intense mineral extraction around the country is causing serious environmental and workers' health problems.

In anticipation of the WTO ruling, the Wall Street Journal (WSJ) on 5 July had stated that the WTO decision will help steelmakers and other industrial producers (outside China), but, more importantly, will set a precedent for the US and the EU to file another complaint against China over its quotas on the export of rare-earth materials, 17 minerals used in the high-tech industry.

The WSJ cited US and EU trade officials as saying that the WTO victory will pave the way for a case on rare earths, and quoted EU trade commissioner Karel De Gucht's speech at a recent conference on raw materials in Brussels that the raw-materials case "will considerably strengthen the position of the European Union" for a case on rare earths.

(Rare earth minerals are necessary for many industrial applications, with China having about 30% of the world's supply and accounting for more than 90% of the world's production, much of which is exported. Global reserves are also found in Russia and other former Soviet countries, and the US. Companies in developed countries are reportedly opening up old mines and exploring for new reserves, including in the Pacific deep seabed.)

As the source of a considerable part of the world's supplies of important minerals demanded by high technology and strategic industries, pressures on China are expected to continue.

(* With inputs from Xu Chengcheng.) +