U.S.-EU TRADE COMPLAINTS AGAINST CHINA WITH WTO
July 26, 2016
On July 19th, the European Union launched its third legal challenge to China’s unfair export restrictions on 11 key metals and minerals. Chinese export restrictions on raw materials have been a major trade obstacle in previous years. China imposes a set of export restrictions—export quotas, export duties, and additional requirements that limit access to rare earths for companies outside China. The specific issue is with Chinese export duties. Organization for Economic Co-operation and Development defines export duties as “general or specific taxes on goods or services that become payable when the goods leave the economic territory or when the services are delivered to non-residents; profits of export monopolies and taxes resulting from multiple exchange rates are excluded.”
Chinese export restrictions create serious disadvantages for foreign industries by artificially increasing China’s export prices and driving up world prices. Such restrictions also artificially lower China’s domestic prices for raw materials, as they increase domestic supplies. This gives China’s local industries a competitive advantage and puts pressure on foreign producers to move their operations and technologies to China. Foreign companies are incentivized to move production to China for cheaper manufacturing costs. China has argued that its export restrictions on rare earths are part of its conservation policy. But the WTO’s position has traditionally been that export restrictions cannot be imposed to conserve exhaustible natural resources if the domestic production or consumption of the same raw materials is not also restricted for the same purpose. China has lost multiple cases in 2012 and 2014 against the U.S., EU, Mexico, and Japan for illegal export restrictions.
The EU joins the U.S. in suing Beijing for unfairly favoring Chinese industry. The United States declared they were filing a complaint with the World Trade Organization on July 13th. The Western bloc is seeking formal consultations with China, which is the first step in World Trade Organization dispute settlement procedures, over restrictions on the following natural resources: graphite, cobalt, copper, lead, chromium, magnesia, talcum, tantalum, tin, antimony and indium. The 11 raw materials are used in a variety of industries, from battery production to paints, chemicals, plastics and electrical circuits.
The United States expanded its WTO challenge filed the previous week against Chinese export duties on nine raw materials to match the EU complaint. Washington’s trade agency added chromium and indium to its list of materials and said it will challenge China’s export duties on all 11 as well as its quota restrictions on five of them. The European Union states that the metals and minerals are among 20 raw materials critical to Europe’s economy. China is the largest producer of most of the 20. Both the U.S. and EU claim China has kept export duties ranging from 5% to 20% on the raw materials listed above.
U.S. Trade Representative Michael Froman, EU Trade Commissioner Cecilia Malmstrom held a joint conference call stating the restrictions enable China to unfairly influence global market prices for these raw materials, damaging the long-term competitiveness of European industries that depend on them. Malmstrom continued, stating that the EU would “not sit on our hands seeing our producers and consumers being hit by unfair trade practices and we hope that this joint U.S.-EU action will motivate China to reconsider its current policy.” The EU’s executive Commission asserts that China applied export duties to various forms of the 11 materials, with quantitative restrictions on five – antimony, indium, magnesia, talc and tin.
China’s Commerce Ministry not only rejected the EU challenge, but also counter-argued that the measures are in line with WTO rules and intended to protect the environment. In a statement posted online, the Ministry said “China regrets the EU request for consultations and will appropriately handle it according to WTO dispute resolution procedures.”
The EU challenge comes at a time when it is deciding whether to lower trade barriers to Chinese imports across all sectors and accede to Beijing’s demand that it be treated as a normal market economy. Malmstrom and Froman insisted in the conference call that the WTO raw materials challenge was completely separate from the discussions on China’s market economy status. Both trade officials said China’s restrictions distorted the market and favored Chinese industry at the expense of EU companies and consumers, and that Beijing could support the environment more effectively with other measures that would not hurt trade.
It said China’s total exports of these products are worth 1.2 billion euros ($1.3 billion) per year, one-sixth of which comes into Europe. It said removing the export duties might allow supplies of the materials to the EU to rise by 9 percent, with an even greater increase if other measures were to be removed. The formal consultations between the EU and China are to be conducted in conjunction with the same procedure initiated by Washington. The EU challenge follows successful legal actions over rare earths and other materials including bauxite and zinc. The consultations will be held over a 60-day period. If there is no resolution, the U.S. and EU can request the WTO to set up a dispute settlement panel. WTO rulings can up to two to three years to conclude. China has previously complied with WTO rulings affecting its exports of rare earths.
For more information on this topic, please visit the following links:
World Trade Organization- “Disciplines on Export Prohibitions and Restrictions”
World Trade Organization- “What We Do”
Office of the United States Trade Representative-“United States Challenges China’s Export Duties on Nine Key Raw Materials to Level Playing Field for American Manufacturers”
European Trade Commission- “WTO Appellate Body rules against Chinese restrictions on access to rare earths and other raw materials”
New York Times-“EU Takes Action Against China at WTO over Raw Materials ”
Wall Street Journal-“U.S. Brings WTO Challenge Against China Over Copper, Graphite, Other Materials”
Organization for Economic Co-operation and Development-“Glossary of Statistical Terms: Export Duties”
Compiled and edited by Sarah Eustace