DISPUTE SETTLEMENT: DISPUTE DS394

China — Measures Related to the Exportation of Various Raw Materials


This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

  

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One-page summary of key findings of this dispute
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Text of the Dispute Settlement Understanding


Current status  back to top

 

Key facts  back to top

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 5 July 2011
Appellate Body Report circulated: 30 January 2012

  

Summary of the dispute to date  back to top

The summary below was up-to-date at
See also: One-page summary of key findings of this dispute

Consultations

Complaint by the United States.  (See also DS395 and DS398)

On 23 June 2009, the United States requested consultations with China with respect to China's restraints on the export from China of various forms of raw materials.  The United States cites 32 measures through which China allegedly imposes restraints on the exports in question and note that there appear to be additional unpublished restrictive measures.

The United States considers that China, through these measures as well as any amendments, replacements, related measures, and implementing measures, is in violation of:

  • Articles VIII, X, and XI of the GATT 1994; and
      
  • Paragraphs 5.1, 5.2, 8.2, and 11.3 of Part I of the Protocol on the Accession of the People's Republic of China (“Accession Protocol”), as well as China's obligations under the provisions of paragraph 1.2 of Part I of the Accession Protocol (which incorporates commitments in paragraphs 83, 84, 162, and 165 of the Report of the Working Party on the Accession of China).

The United States considers that the measures also appear to nullify or impair the benefits accruing to the United States directly or indirectly under the cited agreements.

On 2 July 2009, the European Communities requested to join the consultations.  On 6 July 2009, Canada, Mexico and Turkey requested to join the consultations.  Subsequently, China informed the DSB that it had accepted the requests of Canada, the European Communities, Mexico and Turkey to join the consultations.

On 4 November 2009, the United States requested the establishment of a panel.  At its meeting on 19 November 2009, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 21 December 2009, the DSB established a single panel, pursuant to Article 9.1 of the DSU, to examine this dispute and DS395 and DS398.  Argentina, Brazil, Canada, Chile, Colombia, Ecuador, the European Union, India, Japan, Korea, Mexico, Norway, Chinese Taipei and Turkey reserved their third-party rights. Subsequently, Saudi Arabia reserved its third-party rights.  On 19 March 2010, the United States, the European Union and Mexico requested the Director-General to determine the composition of the panel.  On 29 March 2010, the Director-General composed the panel. On 19 October 2010, the Chairman of the panel informed the DSB that the panel would not be able to issue its report within six months.  The timetable agreed after consultations with the parties envisages the proceedings will be finalized by April 2011.  The panel expects to conclude its work within that time-frame.

On 5 July 2011, the panel report was circulated to Members.

Summary of key findings

This dispute concerns four types of export restraint that China imposes on the export of a number of raw materials.  The raw materials subject to the export restraints are various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.  China is a leading producer of each of the raw materials which are used to produce everyday items as well as technology products. 

The complainants argued that the use of export restraints creates scarcity and causes higher prices of the raw materials in global markets. They also provide Chinese domestic industry with a significant advantage by way of a sufficient supply, and lower and more stable prices for the raw materials.

Upon its accession to the WTO, China undertook to eliminate all export duties (taxes) except for a number of products listed in an Annex to its Protocol of Accession.  In this Protocol, China also committed not to apply export quotas (restrictions on the amount that can be exported).

In one of its key findings, the Panel found that China's export duties were inconsistent with the commitments that China had agreed to in its Protocol of Accession. The Panel also found that export quotas imposed by China on some of the raw materials were inconsistent with WTO rules. 

The Panel found that the wording of China's Protocol of Accession did not allow China to use the general exceptions in Article XX of the GATT 1994 to justify its WTO-inconsistent export duties. The Panel also considered that even if China were able to rely on certain exceptions available in the WTO rules to justify its export duties, it had not complied with the requirements of those exceptions.

In particular, China had argued in its defence that some of its export duties and quotas were justified because they related to the conservation of exhaustible natural resources for some of the raw materials.  But China was not able to demonstrate that it imposed these restrictions in conjunction with restrictions on domestic production or consumption of the raw materials so as to conserve the raw materials.  The Panel acknowledged, however, that China appears to be heading in the right direction in adopting a framework to justify its quotas under WTO rules, but that the framework is not yet WTO-consistent as it still has to be put into effect for domestic producers.

As for other of the raw materials, China had claimed that its export quotas and duties were necessary for the protection of the health of its citizens.  China was unable to demonstrate that its export duties and quotas would lead to a reduction of pollution in the short- or long-term and therefore contribute towards improving the health of its people. 

China also committed to eliminate all restrictions on the “right to trade” — rights given to enterprises by China in parallel to market access and non-discrimination provisions guaranteed under the WTO.  The complainants were successful in most of their trading rights claims.

Regarding the administration and allocation of its export quotas, China successfully defended its practices in claims brought by the United States and Mexico whereas the European Union succeeded in its separate claim that it brought against China.

The Panel also found that certain aspects of China's export licensing regime, applicable to several of the products at issue, restrict the export of the raw materials and so are inconsistent with WTO rules.

On 31 August 2011, China notified the DSB of its decision to appeal certain issues of law and legal interpretations of the panel report.  On 6 September 2011, the United States notified the DSB of its decision to appeal certain issues of law and legal interpretations of the panel report. On 28 October 2011, the Chair of the Appellate Body notified the DSB that due to the significant size of this appeal, including the number and complexity of the issues raised by both China and each of the three other appellants, the Appellate Body would not be able to circulate its report within 90 days.  The Appellate Body report will be circulated to Members no later than 31 January 2012.

On 30 January 2012, the Appellate Body report was circulated to Members.

Summary of key findings

This dispute concerns certain measures imposed by China affecting the exportation of certain forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorous, and zinc.  Before the Panel, the United States, Mexico, and the European Union (the “complainants”) challenged four types of export restraints imposed on the different raw materials at issue:  (i) export duties;  (ii) export quotas;  (iii) minimum export price requirements;  and (iv) export licensing requirements.  Collectively, the complainants identified 40 specific Chinese measures in connection with their claims.  The complainants alleged that these export restraints, as well as aspects of the administration and allocation of certain measures, were inconsistent with China's commitments under China's Accession Protocol and China's Accession Working Party Report, and Articles VIII:1(a), X:1, X:3(a), and XI:1 of the GATT 1994.

On appeal, the Appellate Body found that the Panel erred under Article 6.2 of the DSU in making findings regarding claims allegedly identified in Section III of the complainants' panel requests.  The Appellate Body reasoned that, in the light of the failure by the complainants to provide sufficiently clear linkages between the broad range of obligations contained in provisions of the covered agreements allegedly violated, and the 37 challenged measures, Section III of the complainants' panel requests did not satisfy the requirement in Article 6.2 of the DSU to “provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly”.  Consequently, the Appellate Body declared moot and of no legal effect the Panel's findings regarding claims allegedly identified in Section III of the complainants' panel requests.(1)

The Appellate Body upheld the Panel's recommendation that China bring its export duty and export quota measures into conformity with its WTO obligations such that the “series of measures” do not operate to bring about a WTO-inconsistent result.  For the Appellate Body, the complainants' challenge in this case was not to specific annual duty or quota measures in isolation or, as China claimed, to on-going conduct consisting of a “chain of annually reviewed measures”.  Rather, the Appellate Body considered that the Panel correctly described the object of the complainants' challenge as the legal situation prevailing in 2009, that is, the “series of measures” pursuant to which China imposed export quotas and duties on the raw materials at issue at the time the Panel was established. 

The United States and Mexico filed conditional other appeals in the event that the Appellate Body were to reverse the Panel's recommendation and find that no recommendation should have been made on the “series of measures” as they existed on the date of the Panel's establishment.  In addition, the European Union filed a conditional other appeal in case the Appellate Body were to accept China's grounds for appeal and also reject the other appeals submitted by the United States and Mexico.  As the condition on which the United States and Mexico premised their request was not met, the Appellate Body found that there was no need to address the United States' and Mexico's conditional appeal.  For the same reason, the Appellate Body did not address the European Union's conditional other appeal.

The Appellate Body upheld the Panel's finding that there is no basis in China's Accession Protocol to allow the application of Article XX of the GATT 1994 to China's obligations under Paragraph 11.3 of the Accession Protocol.  In upholding the Panel's finding, the Appellate Body examined the text of Paragraph 11.3 and found that the provision does not suggest that China may have recourse to Article XX to justify a breach of its obligation to eliminate export duties.  The Appellate Body concluded that a proper interpretation of Paragraph 11.3 of China's Accession Protocol does not make available to China the exceptions under Article XX of the GATT 1994 to justify export duties that are found to be inconsistent with China's obligations under Paragraph 11.3.

The Appellate Body further upheld the Panel's conclusion that China did not demonstrate that its export quota on refractory-grade bauxite was “temporarily applied” to either prevent or relieve a “critical shortage”, within the meaning of Article XI:2(a) of the GATT 1994.  The Appellate Body found that an export prohibition or restriction applied “temporarily” in the sense of Article XI:2(a) is a measure applied in the interim, to provide relief in extraordinary conditions in order to bridge a passing need.  The Appellate Body agreed with the Panel that such a restriction must be of a limited duration and not indefinite.  Moreover, the Appellate Body found that the term “critical shortages” refers to those deficiencies in quantity that are crucial and of decisive importance, or that reach a vitally important or decisive stage.  On the basis of these findings, the Appellate Body upheld the Panel's conclusion that China did not demonstrate that its export quota on refractory-grade bauxite was “temporarily applied” to either prevent or relieve a “critical shortage”.  The Appellate Body further rejected China's claim that the Panel acted inconsistently with its duty to conduct an objective assessment of the matter as required by Article 11 of the DSU.

The Appellate Body found that the Panel erred in interpreting the phrase “made effective in conjunction with” in Article XX(g) of the GATT 1994 to require that the purpose of the challenged measure must be to ensure the effectiveness of restrictions on domestic production and consumption, and therefore reversed this interpretation by the Panel.  Contrary to the Panel's findings, the Appellate Body saw nothing in the text of Article XX(g) to suggest that, in addition to being “made effective in conjunction with restrictions on domestic production or consumption”, a trade restriction must be aimed at ensuring the effectiveness of domestic restrictions, as the Panel found. 

Note:
1. These claims related to export licensing requirements, minimum export price requirements, China's administration and allocation of export quotas, and fees and formalities in connection with exportation. back to text

At its meeting on 22 February 2012, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.

 

Reasonable period of time

At the DSB meeting on 23 March 2012, China informed the DSB of its intention to implement the DSB recommendations and rulings but that it would need a reasonable period of time to do so. On 24 May 2012, China and the United States notified the DSB that they had agreed that the reasonable period of time for China to implement the DSB recommendations and rulings shall be 10 months and 9 days.  Accordingly, the reasonable period of time expired on 31 December 2012.

 

Implementation of adopted reports

On 17 January 2013, China and the United States informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.

At the DSB meeting on 28 January 2013, China reported that on 28 December 2012, the General Administration of Customs of China had promulgated the 2013 Tariff Implementation Program. On 31 December 2012, the Ministry of Commerce of China and the General Administration of Customs of China had jointly promulgated the 2013 Catalogue of Goods Subject to Export Licensing Administration. According to the notices, the application of export duties and export quotas to certain raw materials had been removed. Both notices had taken effect on 1 January 2013. Through those measures, China had fully implemented the DSB's recommendations and rulings in these disputes.

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