7. China’s Export Curbs Challenged

7 September 2009

After months of rumination, the EU and the US have initiated a formal WTO complaint against China's export restrictions on key industrial inputs, mainly used in the steel sector.

The complainants filed identical consultation requests on 25 June, alleging that China's quotas, duties and other fees on the export of nine raw materials1 commonly used by the steel, aluminium and chemical industries violate both GATT rules and specific commitments in China's Accession Protocol.

US Trade Representative Ron Kirk stressed in a press release that China's measures distorted competition and gave Chinese manufacturers an unfair advantage in the global market place "despite strong WTO rules designed to discipline export restraints." EU Trade Commissioner Ashton echoed this view, contending that the restrictions were "in clear breach of international trade rules." The consultation requests alleged violations of GATT Articles VIII (fees and formalities concerned by importation and exportation), X (publication and administration of trade regulations) and XI (elimination of quantitative restrictions).

These claims, however, may prove hard to sustain. Contrary to Mr Kirk's assertion, WTO rules on export restrictions are in fact quite weak. As trade lawyer Daniel Crosby has noted, export duties have never been found inconsistent with Article XI, nor has their application been found to confer a ‘financial contribution' from government to domestic industry in the sense of the Agreement on Subsidies and Countervailing Measures (Bridges Year 12 No.5 page 3).

However, the case is likely to succeed on the grounds that in its WTO Accession Protocol China promised to eliminate ‘all taxes and charges applied to exports' (apart from customs-related fees), except on 84 specific products listed in an annex. The nine compounds targeted by the complainants do not figure on that list, and legal precedent exists for considering accession commitments an ‘integral part' of the WTO Agreement (see page 7).

Race against ‘Resource Nationalism'?

Nothing in general WTO rules explictly prevents Members from restricting or even banning exports. Developing countries in particular often limit raw materials exports in order to encourage inward processing in order to capture greater value-added from their natural resources.

In September 2008 then EU Trade Commissioner Peter Mandelson predicted that the next phase of globalisation would be defined by pressure for access to basic resources and argued against what he called ‘resource nationalism'. The EU would try to counter such threats through negotiating prohibitions on raw materials restrictions in all its free trade agreements and bilateral WTO accession agreements, as well use WTO litigation to enforce China's accession commitments on export restrictions for raw materials, he said (Bridges Year 12 No.5 page 5). Litigation against China is now underway, but the EU's attempts to eliminate partner countries' export duties in its Economic Partnership Agreements have met with stiff resistance. The latter insist that export duties are an essential tool of their industrial development policies.

Chinese officials have questioned the motivation behind the double complaint, asserting inter alia that the measures at issue are meant to protect the environment and natural resources. Taking a more commercial approach, Fu Li, vice president of manganese and silicon producer Chongqing Trust-Glory New Metals Co, said: "The US and EU are not happy about China's policy to keep resources at home and increase the competitiveness of products with high added value ... I don't think there's anything wrong with China's policy."

The complainants may request a dispute settlement panel as of 25 August if consultations fail.

endnote

1 Bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.

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