WTO says China’s export restrictions on silicon and other materials unfair

The Appellate Body of the World Trade Organization (WTO) confirmed the findings made by a Panel in July 2011 that China’s export restrictions on several industrial raw materials are in breach of WTO rules. The WTO found that China’s export restrictions are not justified for reasons of environmental protection or conservation policy.

The Appellate Body confirmed the clear findings made by the Panel in its report last summer. The Panel found that the export duties and quotas imposed by China on various raw materials (various forms of: bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc) are protectionist measures in breach of WTO rules and that China failed to justify them. The Appellate Body in particular upheld the finding that China has committed unconditionally in its Accession Protocol to the WTO not to levy export duties and that this commitment cannot be reduced by reverting to the general exceptions of the GATT.  

China applies export restrictions on key raw materials, some of which cannot be sourced outside China.

Export restrictions create serious disadvantages for foreign producers by artificially increasing China’s export prices and driving up world prices. At the same time, such restrictions artificially lower China’s domestic prices for the raw materials due to significant increases in domestic supply. This gives China’s domestic downstream industry significant competitive advantages and puts pressure on foreign producers to move their operations and technologies to China.

As dialogue has not proven successful, the European Union (EU) decided to have recourse to the WTO dispute settlement mechanism for an important set of raw materials. Restrictions on these materials have caused concerns for worldwide industry such as the chemical, steel and non-ferrous metal industries, as well as their downstream clients, including producers of semiconductors.

The export restrictions challenged include mainly export quotas (bauxite, coke, fluorspar, silicon carbide and zinc) and export duties (bauxite, coke, fluorspar, magnesium, manganese, silicon metal, yellow phosphorus and zinc) as well as some claims related to technical aspects of China’s administration of export quotas and licenses and to a minimum export price.

The WTO dispute settlement case was initiated on June 23, 2009, by the EU and U.S., followed by Mexico. Consultations were held with China but no amicable solution was found. A WTO Panel was established on December 21, 2009. A first ruling by a WTO Panel was issued on July 5, 2011, upholding most of the EU’s claims. China appealed certain aspects of this ruling on August 31, 2011. A hearing took place before the WTO’s Appellate Body on November 7-9, 2011.

The Appellate Body upheld all main claims raised by the EU. For procedural reasons, the Appellate Body was not in a position to rule on some additional claims on technical aspects of China’s administration of export quotas and licenses and to a minimum export price.

In terms of next steps, the EU (and the co-complainants) will request the adoption of the reports by the WTO Dispute Settlement Body within 30 days. China will then have to bring its measures in compliance with the rulings within a reasonable period of time.

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