Last month, PJ Media exposed how China was using various export restrictions, including tariffs approaching 50%, export quotas, and minimum export prices, to artificially make the cost of certain metals critical to the production of high tech and green technology products globally expensive and cheap inside China. China’s goal was to provide a cost advantage to its producers of high tech products and also to force non-Chinese producers with valuable technology to build their plants in China in order to gain access to these lower prices.
On Monday, the World Trade Organization’s (WTO) Appellate Body completed a several year review of these practices and ruled that China was in violation of the agreement it signed when it first joined the WTO. It further directed China to immediately dismantle the illegal export structure. The ruling is a huge victory for the U.S. as well as for all global high tech, military, automotive and alternative energy manufacturers.
The WTO’s decision applies to a group of metals, including manganese, silicon, and magnesium, and minerals such as coke and bauxite. It does not specifically refer to the most critical metals that China has monopolized — the 17 metals known as the “rare earths” which were the focus of my prior piece in PJ Media. However, the ruling does clearly deal with the exact same restrictions that China imposed on the rare earths and found them to be in violation of WTO requirements.
EU Trade Commissioner Karel De Gucht has already called for the ruling to immediately apply to rare earths. He issued a statement after the ruling was published stating, “China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime — including for rare earths — in line with WTO rules.”
An important aspect of the ruling is the decision that China cannot use environmental protection as an excuse to restrict export of critical minerals. The WTO rules contain a provision that allows nations to reduce production on mined materials for environmental reasons. China was using this provision as a basis for drastically reducing its rare earth exports over the last two years. The Appellate Body found that the agreement that China signed when it first joined the WTO prohibited it from relying on the provision. In the original agreement it entered in 2001, China agreed to cut its then-existing export quotas and taxes. They have in fact risen 10 fold.
The matter had first come before a WTO dispute resolution board in 2009 which found in favor of the claimants — the U.S., Mexico and the European Union. China appealed the decision to the WTO’s Appellate Body, which is the highest court within the WTO tribunal system. On Monday, the Appellate Body ruled against China on the key aspects of the decision, but did find the resolution board overstepped its authority in certain minor aspects of its finding. However, the overall substantive effect of its ruling is to require a dismantling of China’s export restrictions which include these tariffs, export quotas, and export licensing requirements.
There is some concern of course whether China will honor the ruling. However, I personally fully expect China will respect the decision of the Appellate Body, since they historically comply with WTO rulings and cherish their good standing in the WTO. China’s mission in Geneva stated on Monday that while it felt “deep regret” for the decision, it would honor the ruling.