EU Trade Commissioner Karel de Gucht qualified the ruling as "another milestone in the EU's efforts to ensure fair access to much-needed raw materials for its industries". "This ruling sends a clear signal that export restrictions cannot be used to protect or promote domestic industries at the expense of foreign competitors. I now look forward to China swiftly bringing its export regime in line with international rules, as it did with other raw materials under the previous WTO ruling," Commissioner said.
In 2012, China lost another WTO case, brought jointly by the EU, US and Mexico, on export restrictions on raw materials. It subsequently lifted those restrictions. However, it did not lift similar measures, export quotas and duties, applying to other raw materials, such as tungsten, molybdenum and rare earths. The EU and its co-complainants were therefore left with no option but to use the WTO's dispute settlement mechanism again.
China has argued that its export restrictions on rare earths are part of its conservation policy. But the WTO's position today is clear: export restrictions cannot be imposed to conserve exhaustible natural resources if the domestic production or consumption of the same raw materials is not restricted at the same time for the same purpose.
Neither the complainants nor the panel contest China's right to put in place conservation policies. However, as the WTO clarified, the sovereign right of a country over its natural resources does not allow it to control international markets or the global distribution of raw materials. A WTO Member may decide on the level or pace at which it uses its resources but once raw materials have been extracted, they are subject to WTO trade rules. The extracting country cannot impose restrictions only on foreign users.
Background
The raw materials involved in this case are several rare earths, as well as tungsten and molybdenum. They have a wide range of uses in hi-tech and green goods, automotive and machinery manufacturing, chemicals, steel and non-ferrous metal industries.
Chinese export restrictions have been mainly export duties or export quotas, as well as additional requirements and procedures for exporters. They 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.
The EU, together with the US and Japan, launched a WTO dispute settlement case in March 2012. Initial consultations with China did not bring an amicable solution. As a result, the WTO set up a panel in June 2012. The Panel report was issued on 26 March 2014 and was full victory for the EU and its co-complainants. China appealed the report on 25 April 2014. The reports will be adopted by the WTO Dispute Settlement Body within 30 days and China will have to comply with the ruling immediately or within a reasonable period of time that it can request for implementation.
