WTO ruling on China not justifiable

On Jan 30, the World Trade Organization Appellate Body released its reports on China's appeal against a WTO Panel report on its exports of raw materials on July 5, 2011.

The Appellate Body's reports supported some of China's appeals by declaring moot and of no legal effect several Panel claims concerning export quota administration and allocation, export licensing requirements, and a minimum export price requirement. But it upheld the key part of the previous ruling, namely that China's restrictions on exports of key raw materials broke WTO trade rules.

The ruling, if it comes into effect, will put great pressure on China's production and export management of such raw materials as bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorous and zinc.

However, the ruling is not justified. Since the WTO claims it respects the principle of environmental protection, it should allow its members to take measures for that purpose. China, as the world's factory for high-energy consuming and high-polluting products, has long served overseas consumers at the cost of its environment, and it has the right to change this situation.

Of all relevant measures, export restrictions and tariffs are the most direct and efficient means of cutting the production of these materials, as they prevent many uncertainties and unwanted side effects. Of course, taxing the production of raw materials would have the same effect, but this would require complicated supervision and would thus be extremely costly.

The WTO ruling pressures China to abandon the former, leaving it hardly any choice but to adopt the latter.

But even if China accepts the ruling, the "critical shortage" of raw materials claimed by the suing countries, including the United States, will not be relieved.

Besides, we also need to consider the possibility of Western countries once again changing their attitude towards the issue, as their policies have too many times vacillated under the influence of interest groups. Since they sued China for restricting raw material exports during the bull market, they can naturally ask China to restrict such exports when the market turns bear.

On Oct 24 2006, the EU Trade Committee issued a report in which they blamed China for restricting raw material exports; one or two years later they decided to change their stance and threatened to take anti-dumping measures against China's exports of raw materials.

Today they have gone back to pressuring China to export more, but as the bull market has already shown some indications of ending, especially since May 2011, no one can be sure they will not change their attitude yet again. So China should be prepared.

Almost immediately after the WTO ruling came out, Karel de Gucht, the EU trade commissioner, said it would force China to drop its export restrictions on the materials named in the case as well as rare earth elements. But the suing countries should notice that their actions might invoke a chain reaction contrary to their own measures.

A widely recognized fact in the international market is that the US and Europe have the strictest export restrictions. Ever since 1949, the US has not only set up a wide-ranging, strict and stubborn restriction mechanism against China, it has also pressured its allies to follow suit. Even after the Cold War it has maintained export restrictions against China, and pushed the Wassenaar Arrangement, to which all signatories restrict exports of technology to China.

The Western countries are pressuring China on its export restrictions but show no intention of easing their own.

The author is a senior researcher at the Ministry of Commerce's Chinese Academy of International Trade and Economic Cooperation.