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Joint Press Release with the Ministry of Foreign AffairsRelease of WTO Appellate Body report on the export restrictions by China

On August 7 (Geneva time), 2014, the World Trade Organization (WTO) released the WTO Appellate Body’s report on the export restrictions imposed by the People’s Republic of China on three raw materials, i.e., rare earths, tungsten, and molybdenum, an issue that has been examined by the WTO at the request of Japan, the U.S. and the EU.

The report presents a ruling that fully supports Japan’s claim that China’s export quotas are inconsistent with Article XI:1 (General Elimination of Quantitative Restrictions) of the General Agreement on Tariffs and Trade (GATT), and that China’s export duties are inconsistent with Paragraph 11.3 (Taxes and Charges Levied on Imports and Exports) of the WTO Protocol on the Accession of China (hereinafter referred to as the “Accession Protocol”).

1. Background

China has introduced export quotas on rare earths, tungsten, and molybdenum, which are strategically significant resources, step by step since 1999, and has also imposed export duties on those mineral resources since 2006. China has gradually reduced the amount of export quotas since 2006, and in particular, drastically cut its amount in the latter half of 2010, which disrupted the market. In response, Japan, jointly with the U.S. and the EU, requested consultation with China under the WTO Agreements in March 2012, claiming that China’s export restrictions, including export quotas and export duties on those materials, are inconsistent with the WTO Agreements.

Reference: METI News Release (March 13, 2012):
http://www.meti.go.jp/english/press/2012/0309_04.html

However, as Japan, along with the U.S. and the EU, could not reach a satisfactory solution with China at the consultation phase, Japan requested the WTO to establish a panel under the WTO Agreements, a quasi-judicial body, in June 2012, jointly with the U.S. and the EU. Accordingly, the panel was established in July 2012, and held meetings (oral hearings) in February and June 2013.

Reference: METI News Release (June 27, 2012):
http://www.meti.go.jp/english/press/2012/0627_01.html

On March 26, 2014, the WTO released the Panel report on this matter, making a decision that fully supports Japan’s claim that China’s export quotas are inconsistent with Article XI:1 (General Elimination of Quantitative Restrictions) of the GATT and China’s export duties are inconsistent with Paragraph 11.3 (Taxes and Charges Levied on Imports and Exports) of the WTO Accession Protocol.

Reference: METI News Release (March 26, 2014):
http://www.meti.go.jp/english/press/2014/0326_01.html

Being dissatisfied with the rulings of the Panel report, China appealed to the WTO Appellate Body on the matter claimed by the U.S. on April 17, 2014, and on the matter claimed by Japan and the E.U. on April 24, 2014.

Following the appeal, the WTO Appellate Body held meetings in June 2014 and has released the report regarding China’s export restrictions on three raw materials including rare earths.

2. Outline of the WTO Appellate Body’s major rulings

The WTO Appellate Body report fully approves Japan’s claim, supports the Panel report, and recommends China to bring the export restrictions into conformity with the WTO Agreements. In summary, the Appellate Body’s decision:

1) supports the Panel report that approved all the claims by Japan, the U.S. and the E.U.;

2) presents the ruling that China’s export duties imposed on the materials are inconsistent with the provision of the Accession Protocol and that China may not justify the duties pursuant to Article XX(b) of the GATT, which stipulates the exceptions regarding the protection of environment to the obligations under GATT ;

3) presents the ruling that China may not justify the export quotas under Article XX(g) of the GATT, which stipulates the exceptions related to the conservation of exhaustible natural resources; and

4) recommends China to bring the restrictions that have been determined inconsistent with the WTO Agreements into conformity with GATT and the Accession Protocol.

The rulings of the Panel report

1) China’s export quotas are inconsistent with the Article XI:1 of the GATT, which generally prohibits quantitative restrictions of imports and exports. China’s export quotas are not justified under Article XX(g) of the GATT, as they are not relating to the conservation of exhaustible natural resources and they are not put in place in conjunction with domestic restrictions.

2) China’s export duties are inconsistent with Paragraph 11.3 of the Accession Protocol, which prohibits certain taxes and charges applied to exports. China may not seek to justify the export duties pursuant to Article XX(b) of the GATT. Even assuming arguendo that China could seek to justify the export duties under Article XX(b), China’s export duties are not justified, as they are not necessary to protect human, animal or plant life or health.

3) China’s imposition of the minimum capital requirement and export performance requirement concerning export quota administration is inconsistent with Paragraph 5.1 of the Accession Protocol and Paragraphs 83 and 84 of the China’s Working Party Report, as incorporated into the Accession Protocol. They are not justified under Article XX(g) of the GATT, as they are not relating to the conservation of exhaustible natural resources.

In response, METI Minister Motegi delivered a statement, as shown in the Appendix.

3. Future schedule

The Appellate Body report is expected to be formally adopted by the WTO Dispute Settlement Body at the meeting to be held on August 29, 2014.

Japan requests China to implement the recommendations and rulings in the report as early as possible and to immediately bring the WTO-inconsistent restrictions into conformity with WTO Agreements.

4. Evaluation

These WTO rulings are significant as they confirm that the export quotas and the export duties on important resources, such as rare earths, tungsten, and molybdenum imposed by China, which have been distorting the market for the mid to long term, are inconsistent with the WTO Agreements.

The report established that imposing export restrictions on natural resources, which in effect give preferential treatment to domestic industries, under the stated purpose of natural resources conservation or environment protection, is inconsistent with the WTO Agreements. Considering that Japan heavily relies on the imports of many natural resources from overseas countries, it is extremely important for Japan to develop international rules stipulating that imposing export restrictions on natural resources is inconsistent with the WTO Agreements. In addition, some resource supplier countries have recently been inclined toward resource nationalism, and attempting to introduce export restrictions on natural resources. We believe that the WTO decision is also highly significant for restraining such protectionist conduct.

Release Date

August 8, 2014

Division in Charge

  • Information on dealing with general WTO disputes
    Office for WTO Compliance and Dispute Settlement, Multilateral Trade System Department, Trade Policy Bureau
  • Information on rare earths:
    Critical Material Industry Office, Nonferrous Metals Division, Manufacturing Industries Bureau & Mineral and Natural Resources Division, Agency for Natural Resources and Energy
  • Information on the Japan-China economic relationship
    Northeast Asia Division, Trade Policy Bureau

Related Information

WTO

Regional Affairs / China

Ministry of Economy, Trade and Industry
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