OUSTR Is Considering Filing WTO Complaint Against PRC For Its Rare Earths Export Restraints
December 23, 2010. The Office of the U.S. Trade Representative (OUSTR) released its report [124 pages in PDF] titled "2010 Report to Congress On China's WTO Compliance". It states that the OUSTR is considering filing a complaint with the World Trade Organization (WTO) alleging that the People's Republic of China's (PRC) restrictions on the export of rare earth materials (REM) violates its WTO obligations.
The PRC followed this announcement with its own announcement that it will further restrict exports of REMs. See, related story in this issued titled "PRC Further Curtails Exports of Rare Earths".
There is already a pending WTO complaint, filed by the US and EU in 2009, regarding the PRC's export quotas and export duties on bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.
The just released OUSTR report states that "Since its accession to the WTO, China has continued to impose restraints on exports of raw materials, including export quotas, related export licensing and bidding requirements, minimum export prices and export duties, as China’s economic planners have continued to guide the development of downstream industries. These export restraints are widespread. For example, China maintains some or all of these types of export restraints on antimony, bauxite, coke, fluorspar, indium, magnesium, magnesium carbonate, manganese, molybdenum, phosphate rock, rare earths, silicon, silicon carbide, talc, tin, tungsten, yellow phosphorus and zinc, all of which are of key interest to U.S. downstream producers." (Emphasis added.)
It continues that "These types of export restraints can significantly distort trade, and for that reason WTO rules normally outlaw them. In the case of China, the trade-distortive impact can be exacerbated because of the size of China's production capacity. Indeed, for many of the raw materials at issue, China is the world's leading producer."
It also states that these restraints "affect U.S. and other foreign producers of a wide range of downstream products, such as ... hard-disk drives, magnets, lasers, ... semiconductor chips, ... fiber optic cables ... among numerous others."
The report also speculates regarding the PRC's motives for imposing these restraints. "The export restraints can create serious disadvantages for these foreign producers by artificially increasing China's export prices for their raw material inputs, which also drives up world prices. At the same time, the export restraints appear to artificially lower China’s domestic prices for the raw materials due to significant increases in domestic supply, enabling China’s domestic downstream producers to produce lower-priced products from the raw materials and thereby creating significant advantages for China’s domestic downstream producers when competing against foreign downstream producers both in the China market and in other countries' markets. The export restraints can also create incentives for foreign downstream producers to move their operations and technologies to China."
This report also states that the US "began raising its concerns about China's continued use of export restraints shortly after China’s WTO accession, while also working with other WTO members with an interest in this issue, including the EU and Japan. In response to these efforts, China refused to modify its policies in this area. In fact, over time, China's economic planners expanded their use of export restraints and also made them increasingly restrictive, particularly on raw materials."
This report also summarizes the steps taken by the PRC to restrict exports of REMs. "In 2010, China's export restraints on rare earths -- a collection of 17 different chemical elements used in a variety of green technology products, among other products -- generated significant concern among China's trading partners. Even though it controls about 97 percent of the global rare earths market, China has been imposing increasingly restrictive export quotas and export duties on rare earth ores, oxides and metals."
"In July 2010, China sharply reduced its export quotas, causing world prices for some of the rare earths to rise dramatically higher than China's domestic prices and further hindering efforts in other countries to develop expertise in the increasingly important downstream manufacturing of green technology products."
Then, the report states, "in September 2010, China reportedly imposed a de facto ban on all exports of rare earths to Japan, causing even more concern among China’s trading partners."
"The United States pressed China during the run-up to the December 2010 JCCT meeting to eliminate its export restraints on rare earths and also used the November 2010 G-20 meeting, as did Japan, the EU and other trading partners, to try to persuade China to pursue more responsible policies on raw materials."
It concludes that the US "will continue these efforts in 2011 while also
considering other options for addressing China’s use of export restraints,
including WTO dispute settlement, if appropriate."