Complaints against China by the U.S., European Union and Mexico were bolstered by a World Trade Organization finding that the nation’s limits on raw-materials exports broke global rules and gave domestic companies an edge.
The ruling yesterday on the Geneva-based trade arbiter’s website was after an 18-month investigation of quotas, export duties and license requirements. China said it was evaluating the report. An appeal is highly likely, Mei Xinyu, a professor at a government trade institute, said today.
The restrictions have stoked tensions between China and its trading partners and boosted raw-material prices. The ruling may encourage the U.S. and the EU to now target Chinese restraints on rare earths, a group of 17 elements used in wind turbines, hybrid cars and guided missiles.
The finding is “a significant victory for manufacturers and workers in the U.S. and the rest of the world,” U.S. Trade Representative Ron Kirk said yesterday in an e-mail. The duties “have caused massive distortions and harmful disruptions in supply chains throughout the global marketplace.”
The commodities at stake in yesterday’s decision included magnesium, manganese, silicon carbide, fluorspar, silicon carbide and yellow phosphorus, used by the steel, aluminum, automotive and chemicals industries.
‘Expected to Appeal’
Mei, of the Chinese Academy of International Trade and Economic Cooperation, said “there’s a 95 percent chance China will appeal.” He was speaking in a phone interview in Beijing.
James Bacchus, a former chairman of the WTO appeals tribunal, told Bloomberg Television that “China can be expected to appeal.” Bacchus, a partner at Greenberg Traurig LLP and a former member of the U.S. congress, also said that China is likely to comply if it ultimately loses the case.
China is studying the report and will follow up as appropriate, the Ministry of Commerce said today, adding that the government “feels regret” at the findings.
China, the world’s second-largest economy, is the top producer of cadmium, gold, indium, iron ore, lime, lead, manganese, mercury, molybdenum, phosphate, salt, tin, tungsten, vanadium and zinc.
“The panel found that China’s export duties were inconsistent with the commitments that China had agreed to in its Protocol of Accession,” WTO judges said in a summary of a 315-page ruling. “Export quotas imposed by China on some of the raw materials were inconsistent with WTO rules.”
China said the restrictions are necessary to conserve exhaustible natural resources and ease overproduction and emissions of carbon and sulfur gases from furnaces. The U.S., the EU and Mexico said the curbs discourage the export of materials that are critical for their manufacturers, while keeping them cheaper and readily available in China.
The WTO panel said that China was “unable to demonstrate” that the export duties curtailed pollution. China’s government has the right to appeal the decision.
U.S. Senator Max Baucus, a Montana Democrat, called on China to end the export limits.
“This market manipulation costs American jobs and economic growth,” Baucus said in an e-mail. “As a WTO member, China has a responsibility to play by the rules and respect the rights of its international partners.”
Chinese limits have triggered sixfold increases in prices for some rare earths, souring ties with users including the U.S. and Japan. The government may further reduce quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said in May.
“I expect that China will now bring its export regime in line with international rules,” EU Trade Commissioner Karel De Gucht said in a statement. “In light of this result, China should ensure free and fair access to rare-earth supplies.”
China, supplier of 95 percent of global rare earths, has said the curbs protect the environment and meet its WTO commitments. The country’s Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, mostly in southern China, includes the elements dysprosium, gadolinium and terbium.