U.S. Wins Trade Tiff With China

China’s export duties and quotas on several raw materials widely used in the chemical, steel, and aluminum industries violate international rules that it has agreed to follow since 2001, a panel of the World Trade Organization ruled last week. China potentially faces sanctions if it does not correct the violations.

The WTO panel largely agreed with complaints filed in 2009 by the U.S., the European Union, and Mexico, which alleged that the export restrictions allowed the Chinese government to artificially increase world prices for the materials by constraining supplies while giving the country’s domestic producers an unfair competitive advantage.

As a member nation of WTO, China must now “bring its export duty and export quota measures into conformity,” the panel said. The raw materials at issue in the case included various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus, and zinc.

U.S. Trade Representative Ron Kirk called the ruling “a tremendous victory” for U.S. manufacturers. “The Obama Administration will continue to ensure that China and every other country play by the rules so that U.S. workers and companies can compete and succeed on a level playing field,” Kirk said.

China’s Ministry of Commerce said it “deeply regrets” the decision, but vowed to abide by the ruling. China had argued that it restricted exports to protect the environment and conserve exhaustible natural resources. “WTO should not only uphold free trade but also allow members to take necessary steps to protect the environment and natural resources,” the ministry said.

Notably, the ruling does not apply to rare earths, a group of 17 elements critical to the production of an array of high-tech products, including solar panels and flat-screen TVs. China, which accounts for 95% of global rare-earth production, has limited output and set strict export quotas, causing global prices to climb sharply.

EU Commissioner for Trade Karel De Gucht expressed hope that in light of WTO’s decision in the raw materials case, Beijing will now revise all of its export policies. “I expect China to bring its overall export regime—including for rare earths—in line with WTO rules,” De Gucht said.