China's export restraints on raw materials violate international trade agreements - that is the conclusion of a World Trade Organisation (WTO) panel report after a complaint by the United States, the European Union and Mexico in 2009. Industry experts welcome the WTO's decision.
Geneva/Switzerland – China's export duties and trade restraints for raw materials such as bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc violate China's commitments that the country had agreed to in its Protocol of Accession and other WTO rules, say WTO experts in their recent panel report. The United States, Mexico and the European Union had filed a complaint against the Chinese practice in 2009.
China, a major producer of raw materials and rare earths, imposes export restraints on these important primary products. The complainants argued that the use of trade restrictions would create scarcity and cause higher prices for raw materials on the global market. The Chinese industry meanwhile profits from the domestic supply with cheap raw materials on the country's domestic market. Upon its accession to the WTO, China had agreed on eliminating export duties and quotas.
Chinese officials had argued in defence that the export restraints would be related to environmental concern sand the conservation of scarce natural resources - an argument that the WTO could not follow.
Industry Experts Welcome WTO's Decission – Analysts Sceptical
"China was not able to demonstrate that it imposed these restrictions in conjunction with restrictions on domestic production or consumption of the raw materials so as to conserve the raw materials," the WTO panel report states. Industry experts welcomed this outcome: "We consider the decision taken by the WTO a good starting point towards other export restrictions and violations of WTO law that continuously take place worldwide," the European Chemical Industry Council Cefic says. "Free and undistorted access to raw materials is important for the chemicals industry in the European Union. Any distortions in pricing and access to feedstock have a direct adverse impact on the competitiveness of our sector, given that feedstock can reach beyond half of production costs." Cefic's president Giorgio Squinzi had already stressed the need for a stable supply of primary products, raw materials and energy for the chemical industry earlier this year.
"This is a clear verdict for open trade and fair access to raw materials. It sends a strong signal to refrain from imposing unfair restrictions to trade and takes us one step closer to a level playing field for raw materials", said EU Trade Commissioner Karel De Gucht. "I expect that China will now bring its export regime in line with international rules. Furthermore, in the light of this result China should ensure free and fair access to rare earth supplies."
Wether China will now quickly ease it's export restrictions is, nevertheless, still regarded as unlikely by analysts. The country had already used its quasi-monopoly to apply pressure on the the Japanese government during a territorial dispute in 2010.
Although prices on the commodity markets recently gave in slightly, shortages of basic materials like rare earths could easily have drastic effects on the global economy, analysts fear.