China to appeal against World Trade Organisation's ruling that its rare earth metals activity violates WTO rules

Out-Law News | 23 Apr 2014 | 11:26 am | 2 min. read

China is to appeal against the World Trade Organisation's ruling that Chinese export restrictions on rare earth elements violate global trade rules, China's state press agency Xinhau has reported.

The announcement follows a ruling by the WTO last month that export duties, export quotas and trading rights which China imposes on enterprises in relation to rare earths as well as the metals tungsten and molybdenum breach its WTO commitments. 

"China will put its weight behind making an appeal," said Chinese ministry of commerce spokesman Shen Danyan. "Whatever the result will be, China’s policy goal to protect resources and the environment will not change. We will also continue to strengthen management of resource products in line with WTO rules and ensure fair competition."

Xinhua did not state on what grounds China plans to make its appeal.

Rare earths are a set of 17 metal elements which have magnetic and optical properties. They are essential for the manufacture of a range of high tech products, including mobile phones, wind power turbines, disk drives and defence technology. China is home to 23% of the world's rare earth reserves and accounts for 90% of global annual supply, according to Xinhua.

The WTO examined China's activities in relation to the production and trading of rare earths as well as tungsten and molybdenum following a joint complaint by the European Union, the US and Japan. China imposed rare earth export quotas in 2010, stating that it was attempting to limit pollution and preserve resources by preventing over-mining, according to Reuters. Following the restrictions prices of the elements rose by hundreds of percent, said Reuters, and the EU, US and Japan claimed that this gave Chinese companies an unfair competitive edge in the manufacture of goods which use these products.

According to the WTO findings, China argued that export duties it imposes on the elements are necessary to protect "human, animal and plant life and health from the pollution caused by mining the products at issue", and that this was allowed under the "general exceptions" of the WTO General Agreement on Tariffs and Trade (GATT 1994), a multilateral trade agreement designed to reduce trade barriers.

However the WTO found that the materials in question do not fall within the scope of the general exceptions and even if they had, export duties were "not necessary" to protect against pollution. Therefore the export duties were inconsistent with China’s WTO obligations.

China argued that its export quotas on rare earths, tungsten, and molybdenum were designed to conserve an exhaustible natural resource. However the WTO found that these were designed to "achieve industrial policy goals rather than conservation", said the WTO.

The WTO also found that trading rights which China imposes on enterprises regarding the export of rare earths and molybdenum breach its WTO obligations, despite China's argument that these too are designed to conserve exhaustible natural resources.

The WTO said that the US has since notified the Dispute Settlement Body which made the rulings against China that the US will appeal certain issues of law covered in the panel report and certain legal interpretations developed by the panel. It is understood that the US appeal was planned in the event that China would appeal the WTO rulings.

Following the WTO ruling, China's trade ministry said: "The Chinese government has been reinforcing and improving its comprehensive regulation on high-polluting, high-energy-consuming and resource-consuming products in recent years. China believes that these regulatory measures are perfectly consistent with the objective of sustainable development promoted by the WTO."

At the time, EU Trade Commissioner Karel De Gucht. said: "Today's ruling by the WTO on rare earth shows that no one country can hoard its raw materials from the global market place at the expense of its other WTO partners," according to Reuters.