WTO rules against China policy on raw materials

GENEVA—The World Trade Organization has ruled that China was unfairly protecting its domestic manufacturers by limiting the export of nine raw materials that are used widely in the steel, aluminum and chemical industries.

A WTO panel sided with the U.S., European Union and Mexico, which had each filed complaints saying China was driving up the prices they pay for raw materials such as coke, bauxite and zinc by setting export duties and quotas on them.

The panel rebuffed China’s argument that its export limits were needed to protect its environment, and said those export restrictions should be removed.

WTO judges concluded that “China’s export duties were inconsistent with the commitments that China had agreed to” when it joined the trade organization in 2001.

“The panel also found that export quotas imposed by China on some of the raw materials were inconsistent with WTO rules,” the judges said.

The judges recommended that the WTO ask China to drop the duties and quotas. China can still appeal the panel’s decision. But if Beijing loses the case, and then doesn’t comply, the parties to the case can negotiate a settlement—or a WTO body can authorize one.

China’s export restrictions have caused supplies of some raw materials to tighten globally, pushing prices higher and creating an incentive to use Chinese manufacturing facilities.

But the ruling’s more important effect could be that it helps the U.S. and Europeans support another trade complaint against Chinese attempts to restrict exports of rare-earth materials that are used in many high-tech products, according to Europe’s trade chief.

“This is a clear verdict for open trade and fair access to raw materials,” said EU Trade Commissioner Karel De Gucht. “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.”

EU officials say export prices for raw materials more than doubled when compared with the price in China because of the export quotas, and for some products half of the final cost to consumers depends of the cost of those raw materials.

Other materials affected include fluorspar, magnesium, manganese, silicon carbide, silicon metal and yellow phosphorus. The materials have a range of uses, from protecting against the corrosion of steel to being used in the manufacture of cellphones.

U.S. trade representative Ron Kirk called the ruling a big victory for workers and manufacturers in the U.S. and worldwide.

“China’s policies provide substantial competitive advantages for downstream Chinese industries at the expense of non-Chinese users of these materials,” he said.

Gabriele Steinhauser in Brussels and Juergen Baetz in Berlin contributed to this report.