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WTO Rules Against China’s Rare Earth Export Restraints

Posted March 31, 2014

Last week, the World Trade Organization ruled that China’s restraints on rare earth and metals exports breach WTO guidelines.

China currently produces more than 90 percent of the world’s rare earths, key elements in defense industry components and modern technology from iPhones and disk drives to electric car batteries and wind turbines. The country imposed strict rare earth export quotas in 2010, saying it was trying to curtail pollution and preserve resources. The resulting effect has been a dramatic spike in global prices of the prized commodities.
China Mining
The United States, European Union and Japan complained to the WTO that the export restrictions gave Chinese companies an unfair competitive edge by causing foreign manufacturers to pay as much as three times more than what companies in China pay for the exact same materials. According to the U.S. Trade Representative, “These types of export restraints can skew the playing field against the United States and other countries in the production and export of downstream products. They can artificially increase world prices for these raw material inputs while artificially lowering prices for Chinese producers.”

After investigating the circumstances, the WTO panel concluded that China’s export duties and quotas on numerous forms of rare earths, as well as tungsten, and molybdenum constitute a breach of WTO rules and that “China failed to justify those measures as legitimate conservation or environmental protection measures. The panel also found that China’s export quota administration requirements are inconsistent with WTO rules.”

An editorial published by China’s official news agency on Monday stated that the WTO ruling “has sparked disappointment and dissatisfaction among the Chinese public, as they hold China has been unfairly treated.” It notes what it considers a blatant double-standard in the WTO rules that enable the U.S. and other Western countries to restrict exports of high-tech products such as precision machinery and semiconductors to China. The government agency also reiterates China’s case that export restrictions are essential to mitigate the enormous damage inflicted on the local environment by “excessive” rare earth mining that “has not only destroyed local landscapes, but also poisoned streams and crops.”

The Association of China Rare Earth Industry has said will study details of the WTO report and evaluate its impact. China has to adopt or appeal to the panel report within 60 days of publication.