China: reaction to WTO rare earths ruling
Published 6 May 2014
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0.1 Summary
The World Trade Organisation (WTO) has ruled that China’s restrictions on exports of rare earths break WTO trade rules. Ruling hailed as a victory for the EU, US and Japan. China reacts and launches an appeal.
0.2 Detail
The WTO’s dispute panel report has found that China’s restrictions on exports of rare earths break WTO trade rules. The report states that China’s export duty, export quota administration and allocation measures imposed on rare earths (as well as the metals tungsten and molybdenum) are inconsistent with WTO rules and commitments China made when it joined the WTO in 2001.
The case against China stated that Chinese restrictions limited other countries access to rare earths and gave China a distinct competitive advantage whilst damaging producers and consumers elsewhere. It was originally brought to the WTO jointly by the EU, US and Japan in March 2012.
Rare earths are essential parts of a range of hi-tech and green goods. Notable examples including medical equipment, mobile phones, energy-efficient lighting and electric engines. Statistics show that China, with a rare earths reserve of approximately just 23 percent of the global total, supplies over 90 percent of the world’s market demand.
The panel clearly rejected China’s argument that their export restrictions on rare earths were based on a need to protect the environment and to conserve rare earths, rather than a trade tactic. The report states that the overall effect of the restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers.
In a statement China’s Ministry of Commerce (MOFCOM) expressed regret at the WTO’s decision. They re-iterated their belief that the measures they have taken on rare earths is consistent with the objective of sustainable development promoted by the WTO.
The reports findings have received widespread media coverage in China, with a strong focus on MOFCOM’s statement of regret. The government mouthpiece Xinhua news agency stated no matter the final outcome the industry should be strengthened to improve environmental protection. Other reactions were more vitriolic, citing China’s desire to protect the environment and stating that WTO ruling is unfair with the West showing double standards by complaining about export restrictions when it does not suit their own interests.
0.3 Comment
The ruling has been hailed as a victory for the US, Japan and the EU with China losing out on all counts in this case. China has filed an appeal with the WTO appellate body, an appeal that some observers believe China will lose. The appellate body now has 3 months to make a final decision on the case.
One senior observer felt that the government expected this result and, in the bigger picture, the ruling is not economically significant for China with rare earths being a small industry by Chinese standards.
Although the result was not a surprise China now faces the challenge of deciding how they adjust their policy to implement the ruling. The industry is beset by problems related to pollution and waste of resources – this could be an opportunity for China to improve its production control and environmental protection.
Not everyone has been on board with the existing policy of rare earths restrictions, restrictions which have lead to price shocks in the market. We understand that local business, particularly Chinese financial institutions, hope that the next step will be to loosen regulations allowing for a more predictable, stable market.
0.4 Disclaimer
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