WTO’s Appellate Body Rules Against China’s Export Restraints on Raw Materials

(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 Dispute Settlement Panel (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. In July 2011, the DSP ruled largely in favor of the U.S. in this dispute. China, the U.S., EU, and Mexico subsequently appealed various aspects of the DSP report.)

(Various press reports suggest that although not part of the WTO ruling, the ruling could have implications for Chinese rare earth metals.)

WTO Findings to Be Adopted in 30 Days, U.S. Must Notify Its Intent on the Ruling

According to USTR, upon a U.S. request, the WTO Dispute Settlement Body will adopt the AB reports within 30 days and call for China to bring its measures into compliance with its WTO obligations.

(Under WTO rules, once a panel report or AB report is adopted, the party concerned has to notify its intentions with respect to implementation of adopted recommendations. If it is impracticable to comply immediately, the party concerned is given a reasonable period of time, the latter to be decided either by agreement of the parties and approval by the DSB within 45 days of adoption of the report or through arbitration within 90 days of adoption. In any event, the DSB will keep the implementation under regular surveillance until the issue is resolved.)

Appellate Body Rejected China’s Appeal, Rules DSP Erred in Some Areas

According to the USTR, the Appellate Body affirmed a WTO DSP July 2011 finding, therefore agreeing with the U.S. and rejecting China’s attempts to portray its export restraints as conservation or environmental protection measures or measures taken to manage critical shortages of supply.

The USTR states that the AB, in its report, rejected China’s appeal and confirmed that:

• China may not seek to justify its imposition of export duties pursuant to the exceptions provided in Article XX of the GATT 1994;
• China failed to demonstrate that certain of its export quotas were justified as measures for preventing or relieving a critical shortage under Article XI:2(a) of the GATT 1994; and
• the Panel correctly made recommendations for China to bring its measures into conformity with its WTO obligations.

The USTR also states that the Appellate Body also found that the DSP erred:

• in making findings related to licensing and administration claims identified in Section III of the U.S. panel request, declaring those findings moot; and
• in the Panel’s legal interpretation of one element of the exception set forth in Article XX(g) of the GATT 1994 (China did not appeal the Panel’s conclusion that China had failed to establish a defense under Article XX(g)).

(See ITT’s Online Archives 11091415 for summary announcing that the U.S., EU, and Mexico had decided to appeal the DSP’s decision.

See ITT’s Online Archives 11070615 for summary of July 2011 DSP decision.

See ITT's Online Archives 10052036 for summary of the WTO DSP's preliminary, partial determination on its terms of reference in this dispute.)

USTR press release available here

Appellate Body finding and conclusions available here

Appellate Body report available here