Bloomberg News

WTO Rejects Chinese Appeal of Ruling Against Mineral Curbs

January 30, 2012

(Updates with comment from judges in third paragraph.)

Jan. 30 (Bloomberg) -- World Trade Organization judges rejected China’s appeal of a ruling that found restrictions on exports of nine raw materials break global rules and give the country’s manufacturers an unfair edge over competitors.

The WTO concluded on July 5 that Chinese quotas, export duties and license requirements on overseas shipments of industrial ingredients including coke, zinc and bauxite are discriminatory. The restrictions have stoked tensions between China and its trading partners, which accuse the Chinese government of having unfair commerce and currency policies.

China should modify its policies on raw-material exports to ensure they “do not operate to bring about a WTO-inconsistent result,” Appellate Body judges said today in their 145-page report on the Geneva-based trade arbiter’s website.

Today’s affirmation of the initial panel ruling may prompt the U.S. and the European Union to make good on threats to complain at the WTO over Chinese restraints on exports of rare earths, a group of 17 elements used in high-tech products such as Boeing Co. helicopter blades, Nokia Oyj cell phones and Toyota Motor Corp. hybrid cars.

Higher Prices

China, the world’s second-largest economy, is the top producer of cadmium, gold, indium, iron ore, lime, lead, manganese, mercury, molybdenum, phosphate, salt, tin, tungsten, vanadium and zinc. Its export restraints have caused worldwide supplies of many raw materials to plummet, sending prices higher and providing an incentive for manufacturers to move to China to take advantage of the cheaper materials.

The commodities at issue in the WTO complaint, filed by the U.S., the EU and Mexico, also include magnesium, manganese, silicon carbide, fluorspar, silicon metal and yellow phosphorus, which are used by the steel, aluminum, automotive and chemicals industries. Mexico appealed certain issues of law and legal interpretations of the initial panel report.

John Clancy, the European Commission’s trade spokesman in Brussels, said before the Appellate Body ruling that a rejection of China’s appeal “would be a clear verdict for open trade and take us one step closer to a level playing field for raw materials. These raw materials are hugely important for EU industry, and ensuring global and fair access to them is the bedrock of their competitiveness.”

China argued that the restrictions are necessary to conserve exhaustible natural resources and ease overproduction and emissions of carbon and sulfur gases from furnaces. The U.S., the EU and Mexico said the curbs discourage the export of materials that are “critical” for their manufacturers, while keeping them cheaper and readily available in China.

Rare Earths

Rare earths became a political and legislative issue after China moved to limit domestic output and slash export quotas in July 2010 by 40 percent, souring ties with major users including the U.S. and Japan, where buyers have cut usage after prices soared in the first half of 2011. The Chinese government, which supplies 95 percent of global rare earths, said on Dec. 28 it was leaving the 2012 overseas sales caps virtually unchanged.

The U.S. Energy Department said earlier this month that limited supplies of five rare-earth minerals -- dysprosium, terbium, europium, neodymium and yttrium -- pose a threat to increasing use of clean-energy technologies such as wind turbines and solar panels. While prices of rare earths fell in the second half of 2011, they remain volatile, leading some companies to search for ways to consider reducing reliance on the minerals, the Energy Department said.

China has said the curbs protect the environment and are in line with its WTO commitments. The country’s Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, concentrated in the south of China, includes the elements dysprosium, gadolinium and terbium.

--Editor: Eddie Buckle, James Hertling

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.


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