DISPUTE SETTLEMENT: DISPUTE DS432

China — Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum


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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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: 26 March 2014

  

Summary of the dispute to date  back to top

The summary below was up-to-date at

Consultations

Complaint by the European Union. (See also DS431 and DS433)

On 13 March 2012, the European Union requested consultations with China with respect to China's restrictions on the export of various forms of rare earths, tungsten and molybdenum.  The request refers to materials falling under but not limited to 212 eight-digit Chinese Customs Commodity Codes and over 30 measures.  The request also refers to a number of Chinese published as well as unpublished measures that, operating separately or collectively, allegedly impose and administer export restrictions. These restrictions include export duties, export quotas, minimum export price requirements, export licensing requirements and additional requirements and procedures in connection with the administration of the quantitative restrictions.

The European Union claims that these measures are inconsistent with:

  • Articles VII, VIII, X and XI of the GATT 1994; and
     
  • paragraphs 2(A)2, 2(C)1, 5.1, 5.2, 7.2, 8.2 and 11.3 of Part I of China's Protocol of Accession, as well as China's obligations under paragraph 1.2 of Part I of the Protocol of Accession.

On 22 March 2012, Japan and the United States requested to join the consultations.  On 26 March 2012, Canada requested to join the consultations. Subsequently, China informed the DSB that it had accepted the requests of Canada, Japan and the United States to join the consultations.

On 27 June 2012, the European Union requested the establishment of a panel.  At its meeting on 10 July 2012, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 23 July 2012, the DSB established a single panel pursuant to Article 9.1 of the DSU to examine this dispute, DS431 and DS433.  Brazil, Canada, Colombia, India, Japan, Korea, Norway, Oman, Saudi Arabia, Chinese Taipei, the United States and Viet Nam reserved their third party rights.  Subsequently, Argentina, Australia, Indonesia, Peru, Russia and Turkey reserved their third party rights. On 12 September 2012, the United States, the European Union and Japan requested the Director-General to compose the panel.  On 24 September 2012, the Director-General composed the panel. On 22 March 2013, the Chair of the panel informed the DSB that the panel expects to issue its final report to the parties by 21 November 2013, in accordance with the timetable adopted after consultation with the parties.

On 26 March 2014, the panel report was circulated to Members.

Summary of key findings

    This dispute concerns Chinese export restrictions on rare earths, tungsten, and molybdenum. These are raw materials used in the production of various kinds of electronic goods. China argued that the restrictions are related to the conservation of its exhaustible natural resources, and necessary to reduce pollution caused by mining. The complainants disagreed, arguing that the restrictions are designed to provide Chinese industries that produce downstream goods with protected access to the subject materials.

    China imposes three distinct types of restrictions on the export of rare earths, tungsten, and molybdenum: first, it imposes duties (taxes) on the export of various forms of those materials; second, it imposes an export quota on the amount of those materials that can be exported in a given period; third, it imposes certain limitations on the enterprises permitted to export the materials.

    (1)        Export Duties

    The complainants alleged that China applies export duties on various forms of rare earths, molybdenum, and tungsten. The complainants argued that these duties are inconsistent with China's WTO obligations because in its Accession Protocol, China undertook to eliminate all export duties, except for those imposed on a number of products listed in Annex 6 to China's Accession Protocol. The complainants argued that, with the exception of tungsten ores and concentrates (which they excluded from the scope of their claim), none of the products at issue are included in Annex 6, and China is therefore not entitled to impose the export duties on them.

    China acknowledged that the duties at issue were imposed on products that are not included in the relevant Annex, but sought to justify its imposition of export duties on the basis of the “General Exceptions” provision in Article XX of the GATT. Specifically, Article XX(b) allows WTO Members to maintain measures that would otherwise be inconsistent with the GATT 1994 if the measures are necessary to protect human, animal or plant life or health. In this case, China argued that the export duties are necessary to protect human, animal and plant life and health from the pollution caused by mining the products at issue. The complainants argued that the “General Exceptions” contained in Article XX of the GATT 1994 are not available to justify breaches of China's obligation to eliminate export duties contained in China's Accession Protocol and that, in any event, China's export duties were not necessary for the protection of human, animal or plant life or health.

    The majority of the Panel agreed with the complainants and found that the “General Exceptions” contained in Article XX of the GATT 1994 are not available to justify a breach of the obligation to eliminate export duties contained in China's Accession Protocol. Accordingly, the majority held that China could not invoke the exception in Article XX(b) to seek to justify its export duties. One panelist disagreed and concluded in a separate dissenting opinion that the “General Exceptions” in Article XX of the GATT 1994 are available to justify all WTO obligations related to trade in goods unless an obligation explicitly provides otherwise, and the relevant obligation in China's Accession Protocol does not explicitly provide otherwise.

    The Panel nonetheless examined the merits of China's Article XX(b) defence for its export duties on an arguendo basis so that, in the event of an appeal and reversal on the applicability of the provision, the Appellate Body would have on the record the Panel's relevant factual findings in this regard. All of the panelists agreed that even if Article XX(b) were available to justify China's export duties, those duties were not “necessary to protect human, animal, or plant life or health”, as required under Article XX(b). Under the circumstances, China's imposition of the export duties in question was found to be inconsistent with China's WTO obligations.

    (2)        Export Quotas

    China also imposes quantitative limits (quotas) on the amount of rare earths, tungsten, and molybdenum that can be exported in a given period. Although it recognized that such restrictions are inconsistent with the GATT 1994, China argued that they are justified under the exception in Article XX(g) of the GATT 1994, since they relate to the conservation of an exhaustible natural resource.

    The Panel did not agree. It found that China's export quotas were designed to achieve industrial policy goals rather than conservation. The Panel agreed with China that the term “conservation” in Article XX(g) means more than simply “preservation” of natural resources, and that every WTO Member can take its own sustainable development needs and objectives into account when designing a conservation policy, in accordance with the general international law principle of sovereignty over natural resources reflected in various United Nations and other international instruments. However, the Panel held that “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.

    Additionally, the Panel found that the challenged export quotas do not work together with measures restricting domestic Chinese use of rare earths, tungsten, and molybdenum, as required by the second part of Article XX(g). After examining the various domestic measures that China claimed restricted domestic access to rare earths, tungsten, and molybdenum, the 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. Under the circumstances, the Panel concluded that the “even-handedness” required by the Appellate Body under Article XX(g)had not been met, and hence the quotas could not be justified under that provision.

    (3)        Trading Rights

    China imposes certain restrictions on the right of enterprises to export rare earths and molybdenum. Although China has committed to eliminating trading restrictions in its Accession Protocol, it argued that the restrictions in question are justified pursuant to Article XX(g), since they too relate to the conservation of exhaustible natural resources. Although the Panel found that China could rely on the Article XX exceptions to justify the restrictions in question, it found that China had not satisfactorily explained why its trading rights restrictions were justified under this provision. Accordingly, the Panel concluded that China's trading rights restrictions breach its WTO obligations.

 

On 25 April 2014, China notified the DSB of its decision to appeal to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the panel.

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