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The WTO ruling against China’s appeal on export curbs


The WTO ruling against China’s appeal on export curbs

JB Cronjé, tralac Researcher, discusses the WTO ruling against China’s appeal on export curbs

A recent ruling by the World Trade Organization’s (WTO’s) Appellate Body against China’s exports restrictions on raw materials brought export restriction practices back into the spotlight.

Article XI, General Agreement on Tariffs and Trade 1994 (GATT), prohibits WTO Members from imposing prohibitions or quantitative restrictions on exports except those applied on a temporary basis to relieve critical food shortages and those that are necessary for the application of standards or regulations for the classification, grading or marketing of commodities. The WTO’s Agriculture Agreement contains additional requirements in the case of export restrictions on agricultural products. The dramatic increase in agricultural commodity prices in world markets during 2007 and 2008 are a chilling reminder of the possible impact and extent of export restrictions. Many countries imposed restrictions and even bans on the export of basic foodstuffs such as rice and wheat in an effort to ensure domestic food security.

The rules of the WTO do not prevent a Member from imposing duties, taxes or other charges on the exportation of any product. Many developing countries apply export restrictions to raise tax revenue or to promote investment in high value-added sectors. The application of export restrictions on primary commodities by resource-rich developing countries can be used to reduce the domestic price of primary products in order to promote investment in domestic manufacturing or processing industries with high value-added exports.

In this instance, the rules of the game do not cater adequately for the supply concerns of importers where exports are restricted; especially in cases where large export countries can influence world prices. Export duties are not bound in the schedules of countries and the reduction thereof are not subject to negotiation. Multilateral efforts towards the tariffication of export restrictions and binding and reduction of export taxes look very unlikely at this stage.

The existence of limited trade disciplines on export restrictions (whether created intentionally or not by the drafters of GATT) provides significant policy space for domestic policy considerations despite its detrimental economic impact. Even though the importers of primary products located in industrial countries may object to the use of export restrictions for competitive advantage or supply management purposes, developing countries seem reluctant to forego this policy space. The rules of the WTO are clear and do not prohibit developing countries from using export restrictions as a legitimate tool for economic development.

Even so, in some bilateral and regional economic agreements, the parties have committed to eliminate export duties between and among them. Existing Members can also apply pressure on acceding countries during negotiations on accession to undertake commitments beyond general WTO rules. Many recently acceded WTO Members agreed to legally binding commitments in this regard. China’s WTO Accession Protocol provides for the elimination of export duties on all products except for 84 product lines. These commitments are legally binding and enforceable under the WTO’s Dispute Settlement Understanding.

A further possible justification, for otherwise illegal measures, can be found in Article XX, GATT, the ‘general exceptions’ provision. The provision allows an exemption from other GATT provisions if the product in question is a (raw) material and is used in domestic processing and the “domestic price of such materials is held below the world price as part of a governmental stabilization plan” or where restrictions are “essential to the acquisition or distribution of products in general or local short supply”. Article XX also makes provision for environmental protection measures and the conservation of exhaustible natural resources.

In 2009 the United States of America brought a complaint to the WTO’s Dispute Settlement Body against 40 measures through which China imposed export restrictions in the form of export duties, export quotas, minimum export price requirements and export licensing requirements on a number of raw materials (bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc). These materials are used by the steel, automotive and chemicals industries. China is a leading exporter of all these products. China appealed against aspects of the ruling of the dispute settlement panel which led to the ruling of the Appellate Body on 30 January 2012. The Appellate Body upheld the panel’s finding that China’s export restrictions are unjustifiable in terms of Article XX, GATT, for environmental protection and conservation reasons and for the management of products in critical supply shortages. The Appellate Body found that there is no basis in China’s Accession Protocol to allow the application of Article XX, GATT, to its obligations in the Protocol. It also upheld the Panel’s decision that its export quotas were not “temporarily applied” to either prevent or relieve a “critical shortage” in terms of Article XI, GATT. The European Commission welcomed the decision in a press release stating that the ruling “sends a clear signal that such measures cannot be used as a protectionist tool to boost domestic industry at the expense of foreign competition”.

Although the WTO takes decisions on a case-by-case basis, the ruling may have implications for China’s policy of export restrictions on rare earth metals. Rare earths are a set of 17 elements used in the renewable and high-tech industries. China produces almost 95 % of world output. The EU has already called on China “to bring its overall export regime – including for rare earths – in line with WTO rules”. The legal battles look set to continue.



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