MEMA Industry News Editor’s Note – This WTO decision is good news for motor vehicle parts manufacturers who rely on access to rare earth minerals to manufacture a number of parts. Access to these minerals has diminished in recent years, but this decision should allow access to a more stable supply of rare earth minerals. For more information, contact Dan Houton.
HONG KONG — The appeals panel of the World Trade Organization ruled on Monday that China must dismantle its system of export taxes and quotas for nine widely used industrial materials.
The legal setback for Beijing could set a precedent for the West to challenge China’s export restrictions on other natural resources, including rare earth metals that are crucial to many modern technologies, trade experts said.
In the closely watched case, the trade organization’s Appellate Body, its highest tribunal, ruled that China distorted international trade through dozens of export policies it maintains for bauxite, zinc, yellow phosphorus and six other industrial minerals.
The Appellate Body, reviewing an earlier decision by a WTO dispute settlement panel, said the panel had gone too far in defining why more than three dozen Chinese policies violated free trade rules. But the appeals group said on Monday that the overall effect of China’s export restrictions was harming international trade and the policies would have to be scrapped.
The case was filed in 2009 against China by the United States, the European Union and Mexico.
“This is a major win for the United States,” said James Bacchus, a former chairman and longtime member of the Appellate Body, who now helps lead the global trade practice in the Washington office of the law firm Greenberg Traurig.
Bacchus predicted that China would comply with the World Trade Organization ruling. Beijing has a strong record of adhering to adverse WTO decisions, recognizing that it needs the access to foreign markets that the trade organization provides.
China’s commerce ministry said in a statement on its Web site that it regretted the ruling but appeared to indicate it would accept it, saying that it would act in accordance with WTO rules to “achieve sustainable development.”
Ron Kirk, the United States trade representative, said in a statement that the ruling was “a tremendous victory” for the United States. “Today’s decision,” he said, “ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field.”
The case has been one of the most widely watched trade disputes in many years because of the precedents it could set for other, even more crucial natural resources. Those will almost certainly include China’s export quotas on rare earth metals, for which Chinese policies appear to have raised similar legal concerns.
Rare earths, however, were not part of the trade case on which the trade organization ruled Monday. Besides bauxite, zinc and yellow phosphorus, the other six industrial minerals are coke, fluorspar, magnesium, manganese, silicon carbide and silicon metal.
China is the largest or among the largest producers of each of these. The United States, European Union and Mexico accused China of using export taxes and quotas to force international chemical companies and other businesses to move their factories to China to tap these resources.
Those sorts of forced migrations are the reason international trade rules bar export quotas in many cases. Many non-Chinese companies have already been setting up factories in China, for example, to gain access to the crucial rare earth metals used in a wide range of modern technologies, since China began clamping down on rare earth exports in recent years.
China produces over 90 percent of the world’s rare earths, which are used in products including computers, cellphones, hybrid cars and wind turbines.
In defense of those rare earth quotas, China had cited a decades-old legal exception to the WTO’s predecessor, the General Agreement on Tariffs and Trade, known as GATT. That exception let countries levy export taxes and restrict exports if the limits were aimed at conserving a scarce natural resource or protecting the environment.
But when China joined the World Trade Organization in 2001, it agreed to dismantle virtually all export restrictions, including on industrial raw materials. That agreement superseded the GATT provisions, the appeals group ruled on Monday.
China’s agreement to join the WTO also bars it from imposing export restrictions on rare earths. Yet China has done so anyway for the last five years, invoking the same GATT exception.
While Appellate Body rulings do not form legally binding precedents under international trade law, Bacchus said it was very unlikely that the trade organization would let China use the environmental argument on rare earths after disallowing the same argument for industrial raw materials.
Indeed, a European Union trade official signaled that Europe might apply Monday’s ruling to pressure China to lift its export restrictions on rare earth metals.
“China now must comply by removing these export restrictions swiftly, and furthermore I expect China to bring its overall export regime — including for rare earths — in line with WTO rules,” said Karel De Gucht, the European Union’s trade commissioner.
International trade officials have said little on the record about why rare earth metals were not included when the United States and European Union filed the original trade case in June 2009. Mexico joined the case on the American and European side in August of that year.
Some of the explanations offered on background included the view that the United States was not worried because it had plans to reopen a rare earth mine in the Southern California desert, and that the European Union was not worried because its companies planned to depend on a mine under construction in Australia. There was also a Western perception in mid-2009 that rare earths were not controversial because they were relatively cheap.
But rare earth prices began climbing sharply less than two months after the filing of the WTO case, after word began to spread in August 2009 that China’s commerce ministry had considered a plan to halt exports entirely for some of the rarest of the rare earths — the so-called heavy rare earths — and to curtail exports for other rare earth metals.
Rare earth prices spiked in the autumn of 2010, after China suspended exports of the metals to Japan for two months as part of a territorial dispute over an uninhabited island. And China’s commerce ministry ended up sharply reducing its annual export quotas for 2010 and 2011.
Western governments have periodically considered filing an international trade case against nations in the Organization of the Petroleum Exporting Countries for limiting oil exports. But they have refrained from filing, having concluded that even an adverse ruling would be unlikely to prompt heavily oil-dependent countries to change their policies.
Source – New York Times / Motor & Equipment Manufacturers Association
Portland, Oregon – Owners Shane Medbery and Heather Bauccio are excited to
