Bridges Weekly Trade News Digest • Volume 13 • Number 23 • 24th June 2009

EU, US Target Chinese Export Restrictions

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After months of speculation, the EU and the US on Tuesday launched a WTO case against Chinese export restrictions on a range of raw materials, saying that they intend to level the playing field for their domestic manufacturers. Beijing countered that the export curbs are justified on environmental grounds and that it intends to contest the accusations.

Washington and Brussels have targeted Chinese export quotas, export duties, and other export restraints on nine materials they say are critical to their domestic steel, aluminium, and chemicals sectors: bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus and zinc. China produces 60 percent of the world’s supply of coke and is a major supplier of the other materials. Beijing’s export restrictions keep prices for those materials unfairly low in China, US and EU officials said Tuesday, while decreasing supply for the rest of the world and causing an increase in their prices on the global market.

“After two years of discussion and dialogue with no resolution, it was well past the time to take this step,” US Trade Representative Ron Kirk said yesterday. “China’s policies on these raw materials put a giant thumb on the scale in favour of Chinese producers. It’s our job to make sure we remove that thumb.”

The WTO does not generally regulate its Members’ use of export taxes, which can act as indirect subsidies to domestic industries. Roughly a third of the WTO’s 153 Member countries currently impose such measures, according to a 2004 report by the WTO’s Roberta Piermartini, although some developed countries have proposed an agreement that would eliminate them.

Beijing promised to drop restrictions upon accession

But when China joined the global trade body in December 2001, it promised to do away with “all taxes and charges applied to exports” on all but 84 of its goods. The products that the US and the EU are targeting in their WTO challenge are not included in that list of exceptions, which is outlined in Annex 6 of the country’s accession package, the office of the US Trade Representative said Tuesday. The numerous and wide-ranging commitments that countries make when they join the WTO are enforceable under the organisation’s dispute settlement system.

But while, in most cases, the WTO does not ban its Members from imposing export taxes, it does regulate – quite strictly – their use of quotas on exported goods. With a few exceptions, such measures are prohibited under Article XI of the General Agreement on Tariffs and Trade (GATT), which bans the implementation of “prohibitions or restrictions other than duties, taxes or other charges” on exports.

The US and EU have reportedly been mulling a case against the Chinese export curbs for many months, but have only now moved forward with the request for consultations, the first step in the WTO’s lengthy dispute settlement process. USTR Kirk indicated at a press conference on Tuesday that the launch of the case is in keeping with the Obama administration’s tough line on trade enforcement.

“We will always, and that’s always, expect our trading partners to play by the rules,” Kirk said.

China defends policies

But China’s Ministry of Commerce has insisted that the export curbs are justified and has said that it will work to defend them.

“The goal of the Chinese side’s policy on the relevant exports is to protect the environment and natural resources, and the Chinese side considers the relevant policy to be compliant with WTO regulations,” the ministry said in a written statement.

The goal of the restrictions is to place some limits on the domestic production of the materials since the extraction and processing of the products can cause tremendous amounts of pollution in certain areas of the country, a Chinese official said on Wednesday. Beijing has also argued that the export measures help the country ensure the sustainability of critical domestic resources.

But China took a conciliatory step on Tuesday, with the announcement that it was lifting export duties on wheat, rice, soybeans, vitriol and steel wire, and reducing them on chemical fertilisers and non-ferrous metals. None of those products, however, is targeted in the new case.

Taking an offensive move, the Chinese ministry issued a statement on Wednesday indicating that it is moving forward with a WTO challenge to a five-year-old US ban on imports of Chinese poultry, on the grounds that the restrictions are unfair and have hurt Chinese poultry producers. The US embargo has been in place since an outbreak of bird flu in 2004.

The poultry issue aside, the US and the EU maintain that they have an air-tight case against Beijing’s export restrictions. At least one analyst agrees.

“China has made a specific commitment not to apply export restrictions on certain products and it is applying those restrictions, so it’ll lose,” Daniel Crosby, a Geneva-based trade lawyer, told Bloomberg on Tuesday.

There is a measure of irony in the recent challenge, as the US has recently focused its enforcement efforts on stopping Beijing from selling Chinese exports at artificially low prices in the US market, a practice known as ‘dumping’ in trade parlance. But the current case ultimately aims to bring down the US market prices of the raw materials in question. Some observers say moves such as these will likely become more common as countries looking to shore up domestic industries amid the ongoing economic slowdown pursue their trade disputes at the WTO.

The parties to the dispute will begin consultations within 30 days of yesterday’s request, as per the WTO’s rules on dispute settlement. If a resolution has not been reached after 60 days of talks, the EU and the US will have the right to ask a WTO dispute panel to hear their complaint. Both sides have said they hope to resolve the matter before it reaches that stage.

Additional information

To read Roberta Piermartini’s report on export taxes, please see http://www.wto.org/english/res_e/booksp_e/discussion_papers4_e.pdf

To read the announcement from the Chinese Ministry of Commerce regarding the lifting of certain export restrictions, please click here http://english.mofcom.gov.cn/aarticle/newsrelease/commonnews/200906/20090606352494.html

ICTSD reporting; “EU, US complain at WTO over Chinese export curbs,” BLOOMBERG, 23 June 2009.

One response to “EU, US Target Chinese Export Restrictions”

nomzz 25th June 2009 at 12:05
Thx for sharing such an Informative post…Actually i was working on a project related to 640-721 so thats why i was surfing net,but luckily came here and read some ineteresting articles…Well coming back to the point,i wanna say that now one can understand how this competition is getting stiffer and stiffer…i also wanna share example of Krik…Kirk cited coke as an example of the effect of China’s trade practices.

In 2008, China was the world’s leading producer of the coal derivative, with 336 million metric tons. But export duties that reached 40% limited China’s annual exports to 12 million metric tons, pushing the world price for coke in August 2008 to $740 a metric ton, Kirk said. In China, the price was $472 a metric ton…well dont know what will gonna to be happen in end!
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