According to recent international media reports, a significant trade dispute has emerged over China's rare earth export restrictions, with the United States, Japan, and the European Union filing a complaint at the World Trade Organization (WTO). The WTO has reportedly issued a preliminary ruling in favor of the complainants, suggesting that China's export controls and taxes on rare earth materials may violate its commitments upon joining the WTO in 2001. This could mean that China is likely to lose the first round of the case.
The WTO’s position hinges on the argument that rare earth elements are essential for high-tech industries, and China’s restrictions have been seen as unfair trade practices. When China joined the WTO, it agreed to impose export taxes only on 84 specific products, and rare earths were not among them. Therefore, the current measures are considered inconsistent with China’s obligations under the WTO agreement.
The lawsuit, initiated by the U.S. last year, marked the first time Japan directly filed a trade complaint against China. The three countries argue that China’s policies hinder global high-tech development and negatively impact their industries. In contrast, China claims that its actions are driven by environmental concerns, aiming to reduce pollution and manage resource depletion.
Despite this, many Chinese legal experts believe the chances of China winning the case are slim. Li Chenggang, from the Ministry of Commerce, stated that China has "substantially no room" to defend its position. The U.S., Japan, and Europe have presented alternative solutions, such as resource taxation or production cuts, which could increase domestic prices rather than just affecting exports—something China wants to avoid.
Japanese media reported that the WTO expert panel's preliminary report, akin to a first-instance ruling, is expected to be released in mid-November. While China can appeal to the WTO Appellate Body, the final decision is likely to go against it. Tu Xinquan, a legal expert, noted that similar cases involving other raw materials had already resulted in China losing previous disputes, making the rare earth case look even more challenging.
Currently, the WTO has only issued a preliminary notice, but the final ruling is still pending. Experts suggest that China will eventually need to remove export taxes on rare earths, although it might still retain export quotas. However, these quotas must align with domestic consumption levels to comply with WTO rules.
Under WTO regulations, export restrictions can be exempted if they serve public health, animal and plant protection, or natural resource conservation. China’s rare earth industry meets most of these criteria, but its current export quotas do not match domestic usage. Therefore, China could request to maintain export quotas while increasing them to meet domestic demand.
Moreover, many companies have historically failed to use their full export quotas, so expanding them would not significantly affect China’s rare earth sector. To protect its resources, the government should focus on taxation and environmental policies instead of relying solely on export controls.
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