WTO rules Chinese rare earth minerals export limits breach the GATT 1994

Parliament house flag post

WTO rules Chinese rare earth minerals export limits breach the GATT 1994

Posted 19/06/2014 by Jaan Murphy

In March 2014 a Panel established by the Dispute Settlement Body of the World Trade Organization (WTO) ruled that export controls on rare earth mineral put in place by China contravened the General Agreement on Tariffs and Trade 1994 (GATT).

Background

In 2012, the United States (US), European Union and Japan (complainants) requested consultations with China about its rare earth mineral (tungsten and molybdenum) export restrictions which included export duties, export quotas, minimum export price requirements, and export licensing requirements.  The complainants argued that they were inconsistent with various articles of the GATT.

The consultations were unsuccessful and a panel was established to resolve the dispute. Australia, as a third party, made submissions to the panel regarding the interpretation of Article XX(g) of the GATT.

Importance of rare earth minerals

Rare earth minerals refer to elements that have special optical and magnetic properties, and hence are used in a wide range of modern technology including smartphones, weapons systems, and computers. It has been argued that modern technology would be impossible without rare earth minerals.

Whilst not particularly rare (compared to other minerals) concentrations in commercially mineable quantities are very uncommon. In addition, exploration efforts have been lacking for many years. From the mid-1960s through to the 1980s, the US was the world’s dominant source of rare earth minerals. However, as noted by the US Congressional Research Service:

…by 2000, nearly all of the separated rare earth oxides were imported, primarily from China. Because of China’s oversupply, lower cost production, and a number of environmental… and regulatory issues… the United States has lost nearly all of its capacity in the rare earth supply chain, including intellectual capacity.

China is now responsible for approximately 95% of the world’s rare earth mineral production, and has at least half of the world’s reserves. In contrast, Australia, the third largest producer of rare‑earth minerals, is responsible for 2.0% of world production and has 3.9% of the world’s reserves.

With so much of the world’s rare earth mineral production capacity located in China, any restrictions on exports from China would have significant impacts on industries that use them.

The GATT and export controls

Generally speaking, the GATT prohibits measures that limit or discourage exports. For example, Article XI, subject to certain exceptions, prohibits quantitative restrictions:

No prohibitions or restrictions… whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the … exportation or sale for export of any product destined for the territory of any other contracting party.

The dispute centred on the view that the measures imposed by China were designed to provide Chinese industries that use rare earth minerals with protected access to them, thus conferring on them a competitive advantage vis-à-vis foreign industries.

The Chinese export control measures

The export control measures in question included export duties, export quotas and restrictions on trading rights.

The complainants argued that the export duties applied on rare earth minerals were inconsistent with China’s WTO obligation to eliminate all export duties (except for those imposed on a number of specifically listed products). As the rare earth minerals in question were not listed, it was argued that China could not impose the export duties on them.

China argued that the duties were permitted on the basis of Article XX(b) which allows the maintenance of measures that are inconsistent with the GATT if they are necessary to protect human, animal or plant life or health, which China argued they were (given the pollution caused by mining the rare earth minerals in question).

The complainants argued that the export duties were not necessary for the protection of human, animal or plant life or health.

China also imposed quantitative export limits (quotas) on rare earth minerals and restrictions on the right of enterprises to export them, arguing that whilst inconsistent with the GATT, they were justified under Article XX(g), since they relate to the conservation of an exhaustible natural resource.

The decision

The panel upheld the complaints. It found the export duties were not necessary for the protection of human, animal or plant life or health and were inconsistent China’s WTO obligations.

The panel concluded that the export quotas were designed to achieve industrial policy goals rather than conservation goals and overall the effect of the measures was to encourage domestic extraction (and secure preferential use) of the rare earth minerals by Chinese manufacturers, and hence could not be justified under Article XX(g). In relation to the trading right restrictions, the Panel found that China had not satisfactorily explained why its trading rights restrictions were justified and hence breached its WTO obligations.

In April 2014, China appealed the decision.

Why is the case important?

The case is important for a number of reasons. First, from a legal perspective it contains useful analysis of the application of Article XX(b), an exception Australia may seek to rely upon in relation to WTO disputes concerning its plain cigarette packaging laws. Second, the decision (if upheld) will prevent the perceived misuse of a near-monopoly by China to favour its domestic industries. Finally, as Australia is one of the few alternative suppliers of rare earth minerals, the decision effectively increases competition for export markets.


Thank you for your comment. If it does not require moderation, it will appear shortly.
Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

refugees asylum immigration Australian foreign policy Parliament climate change elections women social security Indigenous Australians Australian Bureau of Statistics Employment Sport illicit drugs people trafficking taxation Medicare welfare reform Australian Defence Force higher education welfare policy United Nations health financing Asia income management Middle East criminal law disability Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget gambling school education forced labour aid statistics Australian Electoral Commission WADA emissions trading dental health Australia in the Asian Century steroids detention Private health insurance OECD ASADA labour force transport Law Enforcement Australian Federal Police Industrial Relations people smuggling National Disability Insurance Scheme Australian Crime Commission slavery Senate election results Papua New Guinea Australian Public Service constitution International Women's Day corruption Afghanistan Fair Work Act child protection debt federal election 2013 parliamentary procedure poker machines ALP New Zealand Newstart Parenting Payment 43rd Parliament political parties Census High Court skilled migration voting Federal Court terrorist groups Higher Education Loan Program HECS youth paid parental leave Aviation environment foreign debt gross debt net debt defence capability customs doping health crime health risks multiculturalism aged care Gonski Review of Funding for Schooling sex slavery sea farers Special Rapporteur leadership United Kingdom UK Parliament Electoral reform politics banking firearms public policy violence against women domestic violence mental health China ADRV terrorism social media pensions welfare ASIO intelligence community Australian Security Intelligence Organisation governance public service reform Carbon Pricing Mechanism carbon tax mining military history employer employee fishing by-election European Union same sex relationships international relations coal seam gas family assistance planning United Nations Security Council Australian economy food vocational education and training Drugs health reform Indonesia children codes of conduct terrorist financing health system money laundering asylum seekers early childhood education Canada Population Financial sector national security fuel disability employment Tasmania integrity science research and development Australian Secret Intelligence Service sexual abuse federal state relations World Trade Organization Australia accountability housing affordability bulk billing water renewable energy children's health health policy Governor-General US economy export liquefied natural gas foreign bribery question time speaker superannuation expertise Senators and Members climate Intergovernmental Panel on Climate Change Department of Agriculture Fisheries and Forestry food labelling Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets Indigenous constitutional recognition of local government local government consumer laws PISA royal commission US politics language education baby bonus Leaders of the Opposition Parliamentary remuneration Australia Greens servitude Trafficking Protocol energy forced marriage rural and regional Northern Territory Emergency Response ministries social citizenship human rights High Court; Indigenous; Indigenous Australians; Native Title ACT Indigenous education Norfolk Island External Territories emissions reduction fund; climate change child care funding refugees immigration asylum procurement Indigenous health e-voting internet voting nsw state elections 44th Parliament 2015 ABS Age Pension Death penalty capital punishment execution Bali nine Bali bombings Trade EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories workers Bills anti-corruption fraud bribery transparency corporate ownership whistleblower G20 economic reform innovation standards NATO Members of Parliament Scottish referendum Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly public health smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Southeast Asia Israel Palestine regional unemployment asylum refugees immigration political finance donations foreign aid Economics efficiency productivity human rights; Racial Discrimination Act employment law bullying Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies trade unions same-sex marriage disorderly conduct retirement Parliament House standing orders public housing prime ministers election timetable sitting days First speech defence budget submarines Somalia GDP forestry world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission regulation limitation period universities Ireland cancer gene patents genetic testing suspension of standing and sessional orders animal health live exports welfare systems infant mortality middle class welfare honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Constitutional reform referendum Rent Assistance competition policy pharmaceutical benefits scheme obesity evidence law sacrament of confession US presidential election international days DFAT UN General Assembly deregulation Regulation Impact Statements administrative law small business Breaker Morant homelessness regional engagement social determinants of health abortion Youth Allowance Members suspension citizen engagement policymaking federal election 2010 workplace health and safety Trafficking in Persons Report marine reserves hearing TAFE Victoria astronomy resources sector YMCA youth parliament alcohol Korea rebate Australian Greens presidential nomination Racial Discrimination Act entitlements political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing Hung Parliament political education social inclusion Social Inclusion Board maritime early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin Iran sanctions Norway hospitals republic President Barack Obama Presidential visits

Show all
Show less
Back to top