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WTO cases Brussels, 5 July 2011

EU welcomes WTO report on China’s export restrictions on raw materials

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The WTO today ruled against China’s export restrictions of certain raw materials backing a case jointly brought by the EU, US and Mexico. The WTO Panel has found that China’s export restrictions were not justified on environmental grounds and should be removed. Today’s WTO decision was welcomed by Europe’s trade chief.

"This is a clear verdict for open trade and fair access to raw materials. It sends a strong signal to refrain from imposing unfair restrictions to trade and takes us one step closer to a level playing field for raw materials", said EU Trade Commissioner Karel De Gucht. "I expect that China will now bring its export regime in line with international rules. Furthermore, in the light of this result China should ensure free and fair access to rare earth supplies."

The Panel's report clarifies the WTO rules on export restrictions. The findings do not question a country's right to set environmental standards or to conserve their natural resources. Such aims can justify trade restrictions under certain circumstances.

However, the Panel is convinced that export restrictions on trading these materials are not effective to ensure environmental protection because the production of these materials is not similarly restricted. Without effective domestic measures to manage the supply of its natural resources in a sustainable and environmentally friendly way, the Panel considers that a country cannot rely on the exceptions allowed under WTO law. The Panel states that such exceptions cannot justify measures that shield domestic producers from foreign competition in the name of conservation.

The EU supports and encourages efforts to promote a cleaner and sustainable production of raw materials. However, the EU believes that export restrictions cannot and do not contribute to this aim. There are much more effective environmental protection measures that do not discriminate against foreign industry. These include investment in more environmentally friendly technologies, increasing environmental standards, pollution control and effective production and consumption restrictions, as well as promoting recycling.

The panel's findings constitute a significant recognition of the interdependence of all WTO Members – whether developed or developing – when it comes to raw material supplies as a fundamental principle underlying the global trading system. All countries will benefit when access to raw materials is ensured on a level and non-discriminatory basis.

Background

China applies export restrictions on key raw materials, such as bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorous and zinc. Some of these resources cannot be found outside China.

The export restrictions are mainly quotas (bauxite, coke, fluorspar, silicon carbide and zinc), export duties (bauxite, coke, fluorspar, magnesium, manganese, silicon metal, yellow phosphorus and zinc), a minimum export price system, as well as additional requirements and procedures for exporters.

These have caused concerns for European industry such as the chemical, steel and non-ferrous metal industries, as well as their downstream clients, ranging from producers of beverage cans, CDs, electronics, automotives, ceramics, refrigerators, batteries and medicines and many more.

Export restrictions can create serious disadvantages for foreign producers by artificially increasing China’s export prices and driving up world prices. At the same time, such restrictions artificially lower China’s domestic prices for the raw materials due to significant increases in domestic supply. This gives China’s domestic downstream industry significant competitive advantages and puts pressure on foreign producers to move their operations and technologies to China.

The WTO dispute settlement case was initiated on 23 June 2009 by the EU and US, followed by Mexico. Consultations were held with China regarding various export restrictions on the exportation of certain raw materials but no amicable solution was found. A WTO Panel was established on 21 December 2009.

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