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Termination of China’s Export Duties on Three Raw Materials Including Rare Earths

On May 1, 2015, the People’s Republic of China terminated export duties on rare earths, tungsten, and molybdenum.
Japan, jointly with the U.S. and the EU, had filed the WTO Dispute Settlement Procedures regarding China’s export restrictions on rare earths, tungsten, and molybdenum, and in August 2014, the WTO Appellate Body released a report which ruled that China’s export restrictions were inconsistent with the WTO Agreements and it was confirmed that China’s export restrictions were inconsistent with the WTO Agreements.

In conformity with WTO recommendations, China abolished its export duties on May 1, 2015, in addition to the export quotas which had been previously terminated on January 1, 2015. Japan will continue to closely monitor the implementation of the export restrictions and, if necessary, will encourage China to ensure its compliance with the WTO Agreements.

1. Background

China had introduced export quotas on rare earths, tungsten, and molybdenum, which are strategically significant resources, incrementally since 1999, and had also imposed export duties on those mineral resources since 2006. China had gradually reduced the size of export quotas since 2006, and in particular, drastically cut their sizes 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, were inconsistent with the WTO Agreements, and requested the establishment of a Panel in June 2012.

In March 2014, the WTO released a Panel Report on this matter, making a decision that fully supported Japan’s claim that China’s export restrictions (export quotas, export duties, and restrictions on trading rights) were inconsistent with Article XI:1 (General Elimination of Quantitative Restrictions) of the GATT and China’s export duties were inconsistent with Paragraph 11.3 (Taxes and Charges Levied on Imports and Exports) of the WTO Accession Protocol, and the WTO Appellate Body’s Report released in August 2014 also supported the rulings of the Panel Report. The Panel Report and the WTO Appellate Body Report were adopted by the WTO Dispute Settlement Body at the meeting held in August 2014. Accordingly, it was confirmed that China’s export restrictions were inconsistent with the WTO Agreements.

(Reference 1): METI News Release on August 7, 2014
Release of WTO Appellate Body report on the export restrictions by China
http://www.meti.go.jp/english/press/2014/0808_01.html

(Reference 2): Outline of the Panel‘s and the WTO Appellate Body’s main rulings
The Panel Report and the WTO Appellate Body Report fully approved Japan’s claim, and recommended that China bring its export restrictions into conformity with the WTO Agreements as follows:

  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 conformity with WTO recommendations, China terminated its export quotas and the restrictions on trading rights for rare earths, tungsten, and molybdenum in January, 2015.
The export duties were maintained, but according to the notice from the Ministry of Finance of the People's Republic of China published on April 23, it was decided that the Export duties should also be terminated on May 1, 2015.

(Reference 3): The details of the notice posted on the website of the Ministry of Finance of the People's Republic of China (released on April 23, 2015)

<Title> Notices on Export Duty Adjustment for Some Items from the Customs Tariff Commission of the State Council
<Texts>
General Administration of Customs: With the approval of the State Council, export duties on some items are to be adjusted. The details of the adjustments are as follows.

  1. The export duties on raw materials including granular powders of iron, rare earths, tungsten, and molybdenum shall be terminated.
  2. The duty on the export of items including materials processed with aluminum shall be 0%.
  3. The adjustments mentioned above are to be implemented from May 1, 2015.

2. Evaluation

These WTO rulings are significant cases as it is confirmed 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. These rulings are also meaningful in that they clarified that resource supplier country impositions of export restrictions on natural resources, which in effect give preferential treatment to domestic industries, under the stated purpose of natural resource conservation or environmental protection, is inconsistent with the WTO Agreements.

It is significantly meaningful that China complied with the WTO recommendations and terminated the export restrictions, amid recent proliferation of protectionism in some resource-endowed countries, such as the introduction of export restrictions on natural resources violating the international rules.

Japan will continue to closely monitor the implementation of the export restrictions and if necessary, will encourage China to ensure its compliance with the WTO Agreements.

Release date

May 1, 2015

Division in Charge

Office for WTO Compliance and Dispute Settlement, Multilateral Trade System Department, Trade Policy Bureau for information on dealing with general WTO disputes

Critical Material Industry Office, Nonferrous Metals Division, Manufacturing Industries Bureau & Mineral and Natural Resources Division, Agency for Natural Resources and Energy for information on rare earths

Northeast Asia Division, Trade Policy Bureau for information on the Japan-China economic relationship

Related Information

WTO

Regional Affairs / China

Ministry of Economy, Trade and Industry
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