China Faces WTO Dispute by U.S., EU Over Export Curbs

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By Bryce Baschuk

July 19 — China faces scrutiny at the World Trade Organization over export restrictions on raw materials for manufacturing airplanes, cars, computers and mobile phones, after U.S. and European Union trade officials launched a joint WTO dispute.

Specifically, the EU and the U.S. challenged the legality of China's 5 percent to 20 percent export duties on 11 raw materials—antimony, chromium, cobalt, copper, graphite, indium, lead, magnesia, talcum, tantalum, and tin—and China's export quotas on antimony, indium, magnesia, talc, and tin.

The trade restrictions do not comply with the terms of China's 2001 WTO accession agreement, which requires Beijing to eliminate all taxes or charges on exports of such products, according to the joint complaint.

A WTO victory could help reduce key input costs for various U.S. producers such as Abermarle Corp., Apple Inc., Boeing Co., Ford Motor Co., General Motors Co., Nucor Corp., the United States Steel Corp. and Vulcan Materials Co.

The total annual export value of the products in question exceeds $1.3 billion, according to the EU.

Joint Dispute

The measures create an unfair playing field, U.S. Trade Representative Michael Froman told reporters. Froman said during a July 19 press call that he is “confident” the WTO will find such practices to be illegal.

The U.S. earlier won a similar WTO dispute against China's export restrictions on rare-earth minerals (242 ITD, 12/17/13).

The joint request for consultations supersedes and expands upon last week's U.S. WTO dispute filing against China because it challenged Beijing's export quotas in addition to its export duties (135 ITD, 7/14/16).

“The export quotas that we are highlighting today have the same distortive effect as export duties,” Froman said. They “make it less expensive for Chinese manufacturers and more expensive for foreign manufactures,” he said.

European Trade Commissioner Cecilia Malmstroem told reporters it's “crystal clear” that the Chinese export restrictions violate international trade rules and noted that the EU won its previous two trade disputes against China

The EU agreed to file its dispute with the U.S. dispute after Malmstroem and her Chinese counterparts failed to reach an agreement over the matter during a meeting in Beijing this month, she said.

Market Economy Debate

Froman and Malmstroem said the dispute is unrelated to the ongoing debate over whether WTO members should consider China a market economy after a key provision of its accession protocol expires on Dec. 11, 2016.

“This is not really an issue of market economy because obviously China is not a market economy,” Malmstroem said.

“Market economy status is a separate issue,” Froman said. “We have our statutory criteria to help define what the process is and what the standards are for achieving that status and that's separate from any of these sorts of actions.”

If the U.S. and other major WTO economies—such as Canada, the EU and Japan—were to grant China market economy status, they would lose their ability to protect domestic companies with higher dumping margins based on comparable market prices.

China could launch a major WTO dispute against those countries don't grant it market economy status this year, which would risk worsening trade relations.

Europe has been emboldened by two previous victories over China at the WTO. The Geneva-based global trade arbiter ruled in 2012 against Chinese export restrictions on nine other raw materials—bauxite, coke, fluorspar, magnesium, silicon carbide, silicon metal, yellow phosphorus and zinc (19 ITD, 1/31/12). In 2014, it ruled against similar curbs on rare earths, tungsten and molybdenum (170 ITD, 9/3/14).

Next Steps

A request for consultations is the first step in the WTO dispute settlement process and trade officials from the three countries will soon meet in parallel discussions to resolve the matter.

The U.S. and EU may ask the WTO establish a dispute settlement panel to jointly investigate the dispute, if the U.S., EU and China are unable to reach a mutually agreed solution through consultations.

China's loss of the case could permit Brussels and Washington to impose trade sanctions against it, if Beijing doesn't comply with the ruling.

With assistance from Jonathan Stearns

To contact the reporter on this story: Bryce Baschuk in Geneva at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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