USTR Says U.S. Largely Wins China Raw Materials Export Restraints Dispute

(In July 2009, the U.S. requested WTO dispute settlement consultations with China regarding its export restraints on various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus, and zinc. The European Union and Mexico also requested consultations with China. On December 21, 2009, a DSP was established to examine the three complaints. China is a leading producer of each of these nine raw materials, which are used in a multitude of downstream applications in the steel, aluminum and chemicals industries.)

The following are highlights of the WTO's report on the DSP's conclusions regarding the U.S.' complaints against China (similar conclusions were reached with respect to Mexico and the EU):

Countries Argued Restraints Caused Higher Prices, Giving China an Advantage

According to the WTO, the U.S. and its two co-complainants (the EU and Mexico) identified the following four types of restraints that China imposes on the exportation of these raw materials: (1) export duties; (2) export quotas; (3) export licensing; and (4) minimum export price requirements. The complainants challenged the existence of these restraints as well as aspects of the allocation and administration of export quotas, export licenses and minimum export prices, and the alleged non-publication of certain measures.

The complainants argued that the use of export restraints creates scarcity and causes higher prices of the raw materials in global markets. They also provide Chinese domestic industry with a significant advantage by way of a sufficient supply, and lower and more stable prices for the raw materials.

China Said Restraints Justified for Supply, Conservation, Environmental Reasons

China argued that its imposition of export quotas and export duties was justified under certain exceptions in the GATT² 1994: (i) in order to prevent a critical shortage of the material at issue (bauxite); (ii) as measures related to the conservation of exhaustible natural resources (bauxite and fluorspar); and (iii) as environmental protection measures (coke, manganese, magnesium, silicon carbide, and zinc).

DSP Said Some Export Restraints Unjustified, WTO-Inconsistent

The DSP found that China failed to justify certain export quotas and export duties as legitimate conservation measures, environmental protection measures, or short supply measures. The DSP also found that: (i) certain of China's export duties were inconsistent with the commitments that China had agreed to in its Protocol of Accession, (ii) export quotas imposed by China on some of the raw materials were inconsistent with WTO rules, and (iii) the wording of China's Protocol of Accession did not allow China to use the general exceptions in Article XX of the GATT 1994 to justify its WTO-inconsistent export duties. Even if China were able to rely on certain exceptions available in the WTO rules to justify its export duties, the DSP stated China had not complied with the requirements of those exceptions.

Specifically, the DSP found the following to be inconsistent with the GATT 1994, China's Accession Protocol, and/or China's Working Party Report:

• The application of export duties to certain forms of bauxite, coke, fluorspar, magnesium, manganese, silicon metal and zinc;
• The application of export duties to forms of fluorspar;
• The application of export duties to forms of magnesium, manganese, and zinc;
• The application of export quotas to certain forms of bauxite, coke, fluorspar and silicon carbide;
• The application of an export ban on certain forms of zinc;
• The application of an export quota to refractory-grade bauxite, classifiable under HS No. 2508.3000;
• The application of export quotas to coke and silicon carbide;
• China's prior export experience or export performance requirement, and minimum registered capital requirement, imposed on coke;
• China's prior export experience or export performance requirements, and minimum registered capital requirement, imposed on bauxite, fluorspar and silicon carbide;
• The 2008 Export License Administration Measures and the Working Rules on Export Licenses, as applicable to export licenses granted to applicants to export bauxite, coke, fluorspar, manganese, silicon carbide and zinc;
• The minimum export price requirement on exporters of bauxite, coke, fluorspar, magnesium, silicon carbide, yellow phosphorus and zinc; and
• The fact that China failed to publish promptly the 2001 CCCMC³ Charter in such manner that is consistent with the GATT 1994.

But DSP Found Certain Export Allocation & Licensing Rules Consistent

However, the DSP found that China successfully defended its practices regarding the following export quota administration and allocation and export licensing requirements, which the DSP found were not inconsistent with the GATT 1994, China's Accession Protocol, and/or China's Working Party Report:

• China's administration of its coke export quota through the involvement of the CCCMC;
• China's administration of its export quota bidding system for bauxite, fluorspar and silicon carbide through the involvement of the CCCMC;
• The requirement for an exporter applicant to pay a bid-winning price for the right to export bauxite, fluorspar and silicon carbide;
• China's export licensing regime, solely on the basis that it permits export licensing agencies to require a license for goods subject to export restrictions;
• Article 21 of the CCCMC Coordination Measures, with respect to the U.S.' claims concerning China's export licensing requirements which are outside the DSP's terms of reference; and
• Article 40(3) of China's Measuresfor the Administration of Licensing Entities, with respect to the U.S.' claims concerning China's export licensing requirements.

(The DSP notes that it made no findings on whether the 2009 Tariff Implementation Program that applied a special duty rate to yellow phosphorus prior to July 1, 2009, and on whether the administration of the price verification and chop procedure to yellow phosphorus by the CCCMC are inconsistent with China's WTO obligations.)

Says China's Framework to Justify Quotas Under WTO-Rules Still Needs Work

The DSP also acknowledged that China appears to be heading in the right direction in adopting a framework to justify its quotas under WTO rules, but that the framework is not yet WTO-consistent as it still has to be put into effect for domestic producers. The DSP also states that China has committed to eliminate all restrictions on the “right to trade,” rights given to enterprises by China in parallel to market access and non-discrimination provisions guaranteed under the WTO. The complainants were successful in most of their trading rights claims.

Recommends China Bring Its Measures into Conformity with WTO Obligations

The DSP recommends that China bring the existing measures at issue into conformity with its WTO obligations.

Both sides have the right to appeal this DSP decision to the WTO’s Appellate Body.

¹The WTO states that upon its accession, China undertook to eliminate export duties except for those on a number of products listed in an Annex to its Protocol of Accession. In this Protocol, China also committed not to apply export quotas (restrictions on the amount that can be exported).

²General Agreement on Tariffs and Trade

³China Chamber of Commerce for Metals, Mineral and Chemicals Importers and Exporters

(See ITT's Online Archives or 12/04/09 news, 09120430, for BP summary of USTR seeking comments on the panel discussions.

See ITT's Online Archives or 10/22/10 news, 10102234, for BP summary of the WTO DSP delaying its report on this dispute to April 2011.

See ITT's Online Archives or 05/20/10 news, 10052036, for BP summary of the WTO DSP's preliminary, partial determination on its terms of reference in this dispute.)

WTO's DSP reports and summaries of key findings, dated 07/05/11, are available here.

USTR press release, dated 07/05/11, is available here.