WTO vetoes China's rare earths policy

Workers make energy-conserving fluorescent lamps using rare earth three-band phosphorus in Hefei, Anhui province. China exported 22,493 metric tons of the material in 2013,an increase of 38.3 percent over the previous year. Li Yuanbo / for China Daily

The World Trade Organization released a report on Wednesday, saying China's export restrictions on rare earths, molybdenum and tungsten are incompatible with WTO rules.

It marks a second successful challenge to China's use of export quotas and tariffs as an industrial policy tool.

"China regrets that the panel ruled that China's export duties, export quota and related administration measures were inconsistent with the WTO rules and China's WTO obligation," a statement on the Ministry of Commerce's website said.

China's management measures on high-pollution, high-energy-consuming and resource-dependent products are in accordance with the WTO's advocacy of sustainable development, it said.

Following the WTO ruling, China will continue to strengthen its management of resource products and maintain a level playing field, according to the statement.

In 2011, the United States, European Union and Mexico won a WTO case against China on its export quotas on nine industrial raw materials, paving the way for the challenge against its rare earths policy. China's appeal to the WTO appellate body was rejected, and it was forced to remove its export restrictions on the nine materials.

The panel report said China proved that the production of rare earths, tungsten and molybdenum could damage the environment and the health of animals and plants but that it did not provide proof that the duty served a protective purpose or made a substantive contribution to protection.

Meanwhile, China imposed duties only on the exports rather than domestic consumption of the minerals and did not reasonably explain the export duty standards or their impact on production.

The report also found the export quotas on the minerals were not related to natural resource protection. The measure was not introduced simultaneously with domestic limits on production or consumption and thus constituted "arbitrary or unjustifiable discrimination" and "a disguised restriction on international trade".

The report also rejected one of the EU's allegations regarding China's restrictions on trading rights of enterprises seeking to export molybdenum.

"The dispute has not come to an end. We are evaluating the panel report to decide whether to appeal to the WTO appellate body. If the final ruling upholds the panel report, we will remove the restrictions in the case, just as we did in the case of the nine raw materials," said Yang Guohua, deputy director-general of the department of treaty and law at the Ministry of Commerce.

According to the WTO rules, China can appeal to the appellate body within 60 days of the report's distribution.

In March 2012, the US, the EU and Japan requested consultations with China regarding its restrictions on the export of the minerals. A panel was convened in late September of 2012 to look into the dispute after talks failed to reach a resolution.

China is the world's largest producer of the 17 metals known collectively as "rare earths", which are used to manufacture a range of crucial technologies.

Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics in Beijing, said that the result of the panel report was expected. But he said the impact on Chinese industries won't be too onerous.

Du Shuaibing, an analyst with Baichuan Information, said that the existing export quota system has been "invisible" in recent years since actual export volumes did not meet the quotas.

The export volume of light rare earths is likely to be increased due to their competitive prices if the country no longer puts a cap on their export, he said.