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September 25, 2017

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China's rare earth trade limits break global rules: WTO

GENEVA -- China has broken the rules of global commerce by restricting exports of rare earths, tungsten and molybdenum, a move that benefited domestic industries, a World Trade Organization panel said on Wednesday.

A WTO disputes settlement panel said that Beijing's deployment of export duties and quotas, plus limits on who could trade in what are key raw materials for making electronic goods, skewed global commerce unfairly against fellow nations.

The outcome followed the arguments brought forward by the United States, the European Union, Japan and other countries who filed a complaint two years ago against China's tariffs, quantitative quotas and other restrictions on rare earth exports.

China accounts for 95 percent of the global production of rare earths, a term covering 18 metals which are vital for many industrial and high-tech processes such as the production of smartphones and low-energy light bulbs.

Conservation Argument Rejected

China had fiercely denied the plaintiffs' claims that the measures it imposed in 2011 all about market advantage for domestic producers who had privileged access to the raw materials

A WTO panel concluded "that the overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers."

Beijing insisted that its goal was to conserve its exhaustible natural resources and reduce pollution caused by mining, and argued that it was allowed to do so under WTO rules.

But the WTO panel ruled that permitted exceptions to rules banning trade-restraining measures were "not available to justify a breach of the obligation to eliminate export duties."

"Under the circumstances, China's imposition of the export duties in question was found to be inconsistent with China's WTO obligations," it said.

The panel rejected China's use of export quotas, saying that they were "designed to achieve industrial policy goals rather than conservation."

"'Conservation' does not allow members to adopt measures to control the international market for a natural resource, which is what the challenged export quotas were, in the view of the panel, designed to do," it said.

"The overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers," it added, saying that such measures could "not be justified."

Second WTO Ruling Against China in Two Years

China also restricts the right of companies to export such raw materials, but the panel found that Beijing had "not satisfactorily explained" why such measures could be permitted.

"Accordingly, the panel concluded that China's trading rights restrictions breach its WTO obligations," it said.

The Geneva-based WTO polices respect for global trade accords in an effort to offer its 159 member economies a level playing field.

Its disputes settlement body has the power to authorise retaliatory trade measures against a country found at fault and which fails to fall into line.

Beijing has the right to appeal the decision.

Last year, the EU, the U.S. and Mexico won another WTO battle when the Geneva-based trade body ruled that China's restrictions on exports of commodities such as magnesium, silicon metal and zinc were illegal.

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