The EU, along with the US and Mexico, launched WTO dispute settlement proceedings against various export restrictions on raw materials’ export from China. The WTO dispute settlement Panel issued its report on 5 July.
The Panel supported the EU’s claims against China. Its key findings are:
China’s export duties imposed on certain raw materials are inconsistent with China’s obligations under its WTO Accession Protocol, under which China committed to discipline its export duties. The Panel finds that China cannot revert to the general exceptions of the GATT Agreement to justify these duties (see paragraph 7.105 of the Panel Report). This limitation of China’s right to regulate its exports does not mean that China’s sovereignty over its natural resources is not respected.
“The Panel agrees with China that WTO Members have an inherent and sovereign right to regulate trade. WTO Members and China have exercised this right, inter alia, in negotiating and ratifying the WTO agreement. China’s Accession Protocol and its various rights and obligations, are the ultimate expression of China’s sovereignty China has exercised its inherent and sovereign right to regulate trade in negotiating, among other actions, the terms of its accession into the WTO”(paragraph 7.156/7.157 of the Panel Report on Measures Related to the Exportation of Various Raw Materials (DS 394/395/398)).
The export quotas as imposed by China violate the provision that prohibits quantitative trade restrictions (Article XI of the General Agreement on Tariffs and Trade of 1994). In the Panel’s view, China did not demonstrate that these export quotas are justified; they were neither based on the alleged need to prevent a critical shortage of an essential product, nor on the alleged aims of environmental protection and conservation of exhaustible resources (Articles XX (b) and (g) GATT 1994).
While the Panel takes due account of legitimate environmental considerations raised by China, it clearly states that these cannot be used as a pretext for restricting exports. Measures that increase the costs of certain raw materials for foreign consumers and decrease to domestic consumers are difficult to reconcile with the goal of protecting the environment or conserving these raw materials.
“Thus the Panel concludes that neither the measures implementing the export restrictions, nor the contemporaneous laws and regulations, convey in their texts that the export restrictions are contributing to, or form part of a comprehensive programme for the fulfilment of its stated environmental objective” (paragraph 7.512 idem)
“(…) Indeed, the Panel understands that all parties agree that, in general, export restrictions are not an efficient policy to address environmental externalities when these derive from domestic production rather than exports or imports. This is because generally, the pollution generated by the production of goods consumed domestically is not less than that of the goods consumed abroad. So the issue is the production itself and not the fact that it is traded.” (paragraph 7.586 idem)
“The Panel is also concerned with the possibility that export restrictions may have long-term negative effects on conservation due to increased demand from the downstream sector. An export restriction on an exhaustible natural resource, by reducing the domestic price of the materials, works in effect as a subsidy to the downstream sector, with the likely result that the downstream sector will demand over time more of these resources than it would have absent the export restriction. This could offset the reduction in extraction determined by the export restriction.” (paragraph 7.430 idem)
“The Panel also observes that there is no clear link between the way the duty and the quota are set and any conservation objective (…).” (paragraph 7.432 idem)
“For the Panel, measures that increase the costs of refractory-grade bauxite and fluorspar to foreign consumers but decrease their costs to domestic users are difficult to reconcile with the goal of conserving refractory-bauxite and fluorspar.” (paragraph 7.434 idem)
“(…) In order to show even-handedness, China would need to show that the impact of the export duty or export quota on foreign users is somehow balanced with some measure imposing restrictions on domestic users and consumers. In our view, China has not met this burden.” (paragraph 7.465 idem)
The Panel also upheld the EU’s claim that the conditions imposed by China for the allocation of export quotas also violate its obligations under the WTO Accession Protocol. For example, China’s authorities have the right to refuse the grant of export quotas to enterprises which, in the Chinese authorities’ view, do not possess “business management capacity”. As there is no definition of this criterion in Chinese legislation, the panels supports the EU’s claim that this allows China to administer its export quota allocation system in a manner that is non-uniform and unreasonable and hence inconsistent with WTO law (Article X:3(a) GATT 1994).
(…) Moreover, the Panel is persuaded that the lack of any definition, guidelines or standards pose a very real risk that this criterion will be administered differently depending on which Local Department handles the quota application. (Paragraph 7.745 idem)
Finally, the Panel finds that China imposed a minimum export price requirement on exporters of certain raw materials which also violates the “general elimination of quantitative restrictions” contained in Article XI:1 GATT 1994.