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U.S. Trade Representative Ron Kirk Announces U.S. Victory in Challenge to China’s Raw Materials Export Restraints

Washington, D.C. – U.S. Trade Representative Ron Kirk today announced that the World Trade Organization (WTO) Appellate Body found China’s export restraints on several industrial raw materials used as key components in the steel, aluminum, and chemicals industries to be inconsistent with China’s WTO obligations. The Appellate Body affirmed a WTO dispute settlement panel’s July 2011 finding, therefore agreeing with the United States and rejecting China’s attempts to portray its export restraints as conservation or environmental protection measures or measures taken to manage critical shortages of supply.

“Today’s report is a tremendous victory for the United States – particularly its manufacturers and workers,” Ambassador Kirk said. “The Obama Administration will continue to ensure that China and every other country play by the rules so that U.S. workers and companies can compete and succeed on a level playing field. During his State of the Union Address last week, the President laid out a blueprint for an economy that’s built to last – an economy built with the renewed strength of American manufacturing. Today’s decision ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field.”

The export restraints challenged in this dispute include export quotas and export duties, as well as related minimum export price, export licensing, and export quota administration requirements. The raw materials at issue include various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus, and zinc. Export restraints on these types of industrial products can skew the playing field against the United States and other countries in the production and export of numerous steel, aluminum and chemical, and a wide range of other products. They can artificially increase world prices for these raw materials while artificially lowering prices for Chinese producers. This enables China’s domestic producers to produce lower-priced products from the raw materials and thereby creates significant advantages for China’s producers when competing against U.S. and other producers, both in China’s market and other countries’ markets. Such export restraints can also create substantial pressure on foreign producers to move their operations and, as a result, their technologies to China.

The European Union and Mexico joined the United States as co-complainants in the dispute. Upon a U.S. request, the WTO Dispute Settlement Body (DSB) will adopt the panel and Appellate Body reports within 30 days and call for China to bring its measures into compliance with its WTO obligations.  

BACKGROUND

On June 23, 2009, the United States requested WTO dispute settlement consultations with China regarding export restraints maintained by China on various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus, and zinc. On the same day, the European Union also requested consultations with China. On August 21, 2009, a third WTO Member, Mexico, requested consultations with China. On December 21, 2009, a single WTO panel was established to examine the three complaints. Argentina, Brazil, Canada, Chile, Colombia, Ecuador, India, Japan, Korea, Norway, Saudi Arabia, Chinese Taipei, and Turkey joined as third parties in the dispute.

The panel found that the export duties and export quotas that China maintains on various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, and zinc constitute a breach of WTO rules and that China failed to justify those measures as legitimate conservation measures, environmental protection measures, or short supply measures. The panel also found that China’s imposition of minimum export price, export licensing, and export quota administration requirements on these materials, as well as China’s failure to publish certain measures related to these requirements, is inconsistent with WTO rules.

On August 31, 2011, China appealed certain aspects of the panel’s report. On September 6, 2011, the United States and its co-complainants filed limited cross appeals on certain procedural and other findings made by the panel. A hearing took place before the WTO’s Appellate Body on November 7-9, 2011. In its report, the Appellate Body rejected China’s appeal and confirmed that: China may not seek to justify its imposition of export duties pursuant to the exceptions provided in Article XX of the GATT 1994; China failed to demonstrate that certain of its export quotas were justified as measures for preventing or relieving a critical shortage under Article XI:2(a) of the GATT 1994; and the Panel correctly made recommendations for China to bring its measures into conformity with its WTO obligations. The Appellate Body also found that the Panel erred: in making findings related to licensing and administration claims identified in Section III of the U.S. panel request, declaring those findings moot; and in the Panel’s legal interpretation of one element of the exception set forth in Article XX(g) of the GATT 1994 (China did not appeal the Panel’s conclusion that China had failed to establish a defense under Article XX(g)).