A couple weeks ago, former Appellate Body Member Jim Bacchus had an op-ed in the W$J, talking about China's export restrictions on raw materials:
The international trading system is about to encounter an entirely new challenge. The global hunger for natural resources is inspiring a surge in restrictions on exports of crucial raw materials.
As with so much else in trade nowadays, the focus of this emerging conflict is on China. The Chinese stand accused by some trading partners of hoarding rare elements and other raw materials that are essential to many globally traded products.
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The first test will likely come from a pending lawsuit in the WTO by the United States, the European Union and Mexico, challenging alleged Chinese export restrictions on nine key raw materials such as coke, bauxite, fluorspar and magnesium. These are vital to the production of steel, aluminum and certain chemicals. China produces 60% of the world's coke, and is a major producer of the other raw materials.
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The General Agreement on Tariffs and Trade prohibits all measures that restrict the quantity of exports of a product unless they are applied as export duties, taxes or other charges. Thus, WTO member states are free under the current rules to impose export taxes instead of bans, quotas or other quantitative export restrictions.
However, as a condition of membership in the WTO, China agreed to eliminate taxes and other charges on all exports except those on a list of 84 products included in its WTO accession agreement. Neither the nine raw materials in the current WTO case nor the 17 rare earth elements are among the products that China listed.
The GATT permits measures that would otherwise violate WTO rules if they are "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption," and if they are not applied as a means of "arbitrary or unjustifiable discrimination." This is likely to be China's defense in the raw materials case, and, should there be one, a rare earth elements case as well.
The WTO dispute is now under way. The first U.S. submission is here. I had thought about summarizing the legal arguments, but many of them are a bit technical, and perhaps not good blog material. I'll just mention two things from the submission.
First, I thought this argument under GATT Article XI:1 was interesting, in that it illustrates how this provision is broader than it may appear at first glance:
1. China’s Minimum Export Price Requirement Is Inconsistent with China’s Obligations under Article XI:1 of the GATT 1994
349. ... China effects a minimum export price requirement for bauxite, coke, fluorspar, magnesium, silicon carbide, yellow phosphorus, and zinc through: (1) a system of “self-discipline” among exporters; (2) penalties imposed by MOFCOM; (3) China’s export license issuing entities; and (4) Customs. This requirement prohibits the exportation of bauxite, coke, fluorspar, magnesium, silicon carbide, yellow phosphorus, and zinc below the price coordinated by the CCCMC and its Branches. The minimum export price requirement thus restricts the exportation of these products and is inconsistent with Article XI:1 of the GATT 1994.
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f. Conclusion362. As a result of China’s minimum export price requirement, the exportation of coke, bauxite, fluorspar, magnesium, silicon carbide, yellow phosphorus, and zinc are prohibited if the export price does not meet the industry coordinated export price. This constitutes a restriction on the exportation of these materials in contravention of China’s obligations under Article XI:1 of the GATT 1994.
363. The reasoning of a General Agreements on Tariff and Trade 1947 (“GATT 1947”) panel supports this analysis. In EEC – Fruits and Vegetables, that panel examined a minimum price requirement imposed on the importation of tomato concentrates by what was then the European Economic Community (“EEC”). The minimum import price requirement at issue in that dispute consisted of a regulation providing for the annual establishment of a minimum import price for tomato concentrates, which was enforced by an associated security system. The associated security system conditioned the issuance of import certificates for tomato concentrates on the lodging of an additional security in order to guarantee that the free-at-frontier price of imports plus the customs duty for the good together equaled or exceeded the minimum price that had been set for that year. In any case where tomato concentrates were imported at a price lower than the established minimum import price, the security would be forfeited.446 The EEC – Fruits and Vegetables panel found that “the minimum import price system, as enforced by the additional security, was a restriction ‘other than duties[,] taxes or other charges’ within the meaning of Article XI:1.”447
Second, there was no mention in the U.S. submission about a possible GATT Article XX(g) defense by China. Such a defense is referred to in the Bacchus article, and hinted at by China itself at the DSB meeting where the dispute was first discussed:
82. ... During the consultations, China had clarified relevant Chinese administrative measures and had specified that its policy objectives were to conserve the environment and exhaustible natural resources, which were recognized by the United States, the EC and Mexico.
Presumably the U.S. wants to see China's legal arguments before addressing the issue itself. This is the issue that strikes me as the part of the case with the broadest appeal, so I think I'll wait to see that discussion before getting into more substance from the case.
