The World Trade Organisation (WTO) Appellate Body’s latest report on the high-profile dispute on China’s export restrictions on raw materials used by steel, aluminium and chemical industries globally provides a window into the larger question of whether countries that are aligned to global markets can deny their national resources to other trade partners. The Appellate Body has said the Chinese measures are illegal and not in line with Beijing’s obligations at the WTO.
The case that was filed by the US, European Union and Mexico brings to the fore the fact that developing countries looking at policy measures to protect domestic resources need to be very careful of the obligations they undertake under multilateral agreements.
The case began in June 2009 when the US requested consultations with China with respect to Beijing’s restraints on the export of various forms of raw materials. The US cited 32 measures through which China allegedly imposed restraints on exports and also noted that there were additional unpublished restrictive measures. Subsequently, the European Union and Mexico joined the dispute. India along with a number of other countries became a third party to the dispute.
After prolonged hearings from the complainants and China, the Dispute Settlement Body (DSB) of the WTO released its findings in July 2011 in which it said that the export restraints by China on various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc were not in line with its obligations under the WTO. The DSB pointed out that Beijing had in its accession protocol agreed to eliminate export quotas and eliminate export duties on most products except for a limited number of products that were mentioned in the accession protocol.
The DSB had also ruled against China’s defence that the export restrictions were imposed because they related to the conservation of exhaustible natural resources for some of the raw materials. The dispute body had said Beijing had not demonstrated how these restrictions would serve the purpose of conserving the raw materials.
Following the DSB decision, China decided to appeal against the ruling in August 2011 and the Appellate Body came back seeking longer than the stipulated 90-day period to study the large number of arguments put forward by the two sides and come up with a ruling. On January 30 this year, the Appellate Body came out with its report that justified the earlier ruling by the dispute settlement body that the export restrictions adopted by the Chinese authorities are illegal according to the WTO obligations undertaken by Beijing in 2001. Once the Appellate Body report is adopted by the WTO, Chinese authorities will be given reasonable time to bring the laws in conformity with the WTO ruling.
Even as most countries had anticipated the Appellate Body decision, this case was closely watched by several members of the WTO since it sets precedence for most countries that are looking to safeguard the available natural resources in their countries. Two important factors that went against China were that the resources it was protecting from exports were to be used in some very large sectors and that it is the largest producer of these resources.
As the European Union pointed out, this case is going to provide countries with a handle to pressure China to also open up its export of rare earths that it has blocked for some while now. This measure by China has led to a sharp increase in the global prices of rare earth that is used in some high-end industries across the globe.
The need for developing countries to have policy space to preserve resources that are important for their development has been a matter of debate for long. However, what this specific case brings forward is the point that emerging nations that want to have a slice of the global market pie may have limited policy space available to protect their resources since they have to meet their international obligations. The WTO ruling provides a good yardstick for countries to understand and analyse how their obligations may be interpreted.
The author is Principal Adviser with APJ-SLG Law Offices
