According to recent international media reports, a significant trade dispute has arisen over China's rare earth export restrictions, leading the World Trade Organization (WTO) to largely side with the United States, Japan, and Europe in their claims. The WTO has issued a preliminary ruling indicating that China may have violated its commitments made upon joining the WTO in 2001. This suggests that China is likely to face a loss in the first round of the case.
The WTO has emphasized that rare earth elements are crucial for high-tech industries, and China’s export controls and taxes on these materials contradict its WTO accession commitments. When China joined the WTO, it had only agreed to impose export duties on 84 specific products, and rare earths were not among them. This legal inconsistency has become a key point in the dispute.
The case, initiated by the U.S. last March, marked the first time Japan directly filed a trade lawsuit against China. The U.S., Japan, and European Union argue that China’s restrictions on rare earth exports and the imposition of export taxes violate WTO rules and negatively impact global high-tech industries. In response, China claims that environmental protection policies are the reason behind the reduced exports.
Many Chinese experts, including officials from the Ministry of Commerce, believe China’s chances of winning the case are slim. Li Chenggang, director of the Department of Law and International Trade, stated that China has “substantially no room†in this dispute. While China argues its actions are environmentally driven, the U.S. and its allies have proposed alternatives like resource taxation and production cuts, which could raise domestic prices rather than just affecting exports—something the Chinese government wants to avoid.
Japanese media reported that the WTO’s preliminary ruling, similar to a first-instance decision, is expected to be released in mid-November. Most analysts believe China will lose the initial ruling. If dissatisfied, China can appeal to the WTO Appellate Body, whose final decision would be binding.
Tu Xinquan, a well-known expert, noted that prior to the rare earth case, the U.S., EU, and Mexico had already accused China of restricting nine raw materials used in steel, aluminum, and chemical industries. The WTO had previously ruled against China in that case, making the current rare earth litigation less promising for China.
Although the WTO has issued a preliminary notice, there is still time before the final ruling. However, Tu Xinquan believes China has little chance of winning. In the future, China may need to stop collecting export taxes on rare earths, though export quotas might still be maintained.
The WTO generally requires the removal of export restrictions but allows two exceptions: measures to protect human, animal, or plant life and health, and those related to preserving natural resources, provided they are tied to domestic production or consumption limits. China’s rare earth industry meets most of these criteria, but its export quotas do not align with domestic usage levels.
Tu Xinquan suggests that China could request to keep export quotas while expanding them to match domestic demand. He also notes that many companies have not fully utilized their export quotas, so increasing them would not harm the domestic industry. To protect rare earth resources, China should focus more on taxation and other regulatory measures rather than export controls.
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