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Concerned about access to raw materials, the EU and the US are contemplating a WTO case against restrictions imposed by China on key industrial inputs, mainly used in the steel sector.
Although neither trading power has yet formally requested dispute settlement consultations, both are looking into how to structure a potential case against Chinese export quotas and taxes on steel industry inputs such as metallurgical coke, molybdenum and fluorspar.
Unlike export subsidies, duties or other restrictions on exports do not currently fall under WTO disciplines. In most cases, a complainant would therefore need convince a dispute settlement panel that export taxes in fact act as a subsidy to the defendant’s own processing industry by allowing domestic manufacturers cheaper access to raw materials than that enjoyed by competitors abroad. In light of precedents set by previous WTO rulings on export restrictions, the argument would be unlikely to stick (see page 3).
A case against China, however, would be different since the country agreed in its WTO accession protocol to eliminate ‘all taxes and charges applied to exports’ (apart from customs-related fees) on all but 84 specific products. Most of those exceptions, listed in an annex, concern metallurgical industry, providing for export levies of 20 to 40 percent on products ranging from lead and zinc ores to scrap iron. As the raw materials that the US would be targeting are not among those on the list, a case built on China’s violation of its accession commitments commitments might well succeed.
EU Vows to Combat ‘Resource Nationalism’
Shortly before resigning his position as EU Trade Commissioner, Peter Mandelson made a much broader case against what he called ‘resource nationalism’. Speaking at a conference on trade and raw materials in late September, he said there were at least 450 export restrictions on raw materials across the global economy ranging from metals to wood, leather, ceramics and chemicals to textiles and energy.
Mr Mandelson argued that the “costs to EU companies that rely on these raw materials and compete with producers in [countries that restrict their export] is obvious. If it costs more just to export, say, phosphorus, from China than it costs a Chinese company to buy it domestically and transform it, then European industry can’t compete – in Europe, in China, or anywhere else in the global market. The export duty acts like an indirect subsidy” (original emphasis).
He acknowledged that governments impose export restrictions for a range of reasons – including trying to shield domestic consumers from high international commodity prices and price inflation, or capturing raw materials for their own producers – but maintained that “in a globalised economy export restrictions can also pose a systemic risk. When they drive up world prices and cut off supplies of raw materials, beggar-thy-neighbour export restrictions invite a cycle of retaliation that is as economically counterproductive as it is politically hard to resist. Because the pressure on global resources is only going to grow, policymakers cannot afford to ignore the knock-on effects of closing down or politicising markets for supply.”
Mr Mandelson predicted that the next phase of globalisation would be defined by pressure for access to basic resources, and that “one of the biggest challenges we face at the global level is managing that race to mutual benefit.”
The EU would try to counter the threat to its producers on several fronts, he said. Among those were negotiating prohibitions on raw materials restrictions in all its free trade agreements and bilateral WTO accession agreements; willingness to use WTO litigation to enforce commitments on export restrictions for raw materials made by China during its WTO accession; seeking to build support globally for more open trade in raw materials, and; using “trade defence measures such as anti-dumping duties on countries that used export restrictions to subsidise local producers and then dumped subsidised goods on European markets.”
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