On 26 March 2014, a panel constituted under Article 6 of the World Trade Organisation's (WTO's) Understanding on Rules and Procedures Governing the Settlement of Disputes, which governs disputes between WTO members states, published a decision (the Panel Report) in which it found that the People's Republic of China (China) had acted inconsistently with the General Agreement on Tariffs and Trade, 1947 and 1994 (the GATT) when it imposed certain export restrictions on various forms of rare earth minerals, tungsten and molybdenum (the relevant commodities). The Panel Report, which followed a complaint by the European Union (the EU), the United States of America (the US) and Japan appears to have direct implications for South Africa, as a signatory to the GATT and as a member of the WTO. This is so because section 26 of the Mineral and Petroleum Resources Development Act, 2002 (the MPRDA), as amended by the recently passed Mineral and Petroleum Resources Development Amendment Bill, 2013 (the Bill), grants the Minister of Mineral Resources (the Minister) wide discretionary powers to impose export restrictions on designated minerals to promote domestic beneficiation.
The key findings are highlighted below:
The WTO dispute concerned export restrictions placed on the relevant commodities by China. China argued that the purpose of these restrictions was to conserve its exhaustible natural resources, as well as to protect the environment. The EU, the US and Japan (collectively the complainants) disagreed, arguing that the restrictions were designed to provide Chinese downstream industries with protected access to, as well as supply of, the relevant commodities.
Article XI:1 of the GATT, provides that "[n]o prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, … export licences or other measures, shall be instituted or maintained by any contracting party… on the exportation or sale for export of any product destined for the territory of any other contracting party". This article accordingly prohibits WTO member states from imposing quantitative restrictions on exports. A quantitative restriction is a measure which places a limitation on the quantity of goods which may be exported or imported by or between WTO member states.
Article XX of the GATT, which deals with general exceptions to the prohibition on quantitative restrictions on exports, sets out a number of specific cases in which WTO members may be exempted from GATT rules. Two exceptions are of particular relevance to the protection of the environment; article XX(b) and XX(g). Under these two articles, WTO members may adopt policy measures that are inconsistent with GATT disciplines, but necessary to protect human, animal or plant life or health, or which relate to the conservation of exhaustible natural resources.
China imposed three types of restrictions on the export of the relevant commodities: firstly, it imposed duties (taxes) on the export of various forms of those commodities; secondly, it imposed an export quota on the amount that could be exported in a given period; and thirdly, it imposed certain limitations on the enterprises permitted to export the commodities.
The complainants alleged that China applied export duties on the relevant commodities. It was argued that such export duties contravened China's WTO obligations as, under China’s 2001 Accession Protocol with the WTO, it undertook to eliminate all export duties, except those imposed on a number of products listed in Annex 6 to the Protocol. The complainants pointed out that none of the relevant commodities fell under Annex 6 of the Accession Protocol, and China was thus not entitled to impose export duties on them.
China accepted that the duties in question were enforced on products that were not included in the Accession Protocol, but justified their imposition on the basis of Article XX(b) of the GATT. China argued that the export duties, although inconsistent with the GATT, were necessary to protect human, animal and plant life, as well as health, from the pollution caused by mining the products in issue.
The majority of the Panel agreed with the complainants and found that the exception contained in Article XX(b) of the GATT was not available to justify a breach of the obligation to eliminate export duties contained in the Accession Protocol. Accordingly, the majority held that China could not invoke the exception in Article XX(b) to justify its export duties.
China also imposed quantitative limits (quotas) on the amount of the relevant commodities that could be exported in a given period. Although China acknowledged that the restrictions were inconsistent with the GATT, it maintained that they were justified under the exception in Article XX(g) of the GATT, as they related to the conservation of an exhaustible natural resource.
The Panel found that China's export quotas were designed to achieve industrial policy goals rather than conservation. The Panel agreed with China that the term "conservation" in Article XX(g) meant more than simply "preservation" of natural resources. The Panel held that China's export quotas were intentionally designed to control the international market in a natural resource. Accordingly, the Panel found that such a measure did not fall under the exclusion of measures for "conservation of natural resources" as provided for under Article XX(g).
China imposed certain restrictions on the right of its domestic enterprises to export rare earths and molybdenum. China likewise argued that the restrictions in question were justified under Article XX(g), since they were related to the conservation of exhaustible natural resources.
Although the Panel found that China could rely on the Article XX exceptions to justify the restrictions in question, it found that it had not adequately explained why its trading rights restrictions were justified under this provision. Consequently, the Panel decided that these restrictions breached China's WTO obligations.
Section 26 of the Mineral and Petroleum Resources Development Act (as amended)
South Africa is a member of the WTO and is a party to the GATT. As indicated, article XI:1 of the GATT prohibits WTO members from imposing quantitative restrictions on exports.
The Bill, which was passed by National Assembly on 12 March 2014 and the National Council of Provinces on 27 March 2014, substantially amends the MPRDA. The Bill now awaits Presidential assent. Section 26 of the MPRDA, as amended by the Bill, obliges the Minister to:
- "initiate or promote the beneficiation of mineral resources in the Republic"; and
- "designate any mineral or mineral product for local beneficiation".
Prior to designating any mineral for local beneficiation, the Minister must:
- consult with the Minister of the relevant national departments;
- consider "national development imperatives such as macro-economic stability, energy security, industrialisation, food security and infrastructure development"; and
- consider the advice of the Ministerial Advisory Council established by section 56A of the MPRDA.
The Minister is also granted wide discretionary powers, under the amended section 107 of the MPRDA, to determine the "terms and conditions applicable to beneficiation of mineral resources as contemplated in section 26" as well as to "publish such conditions required to ensure security of supply for local beneficiation in the prescribed manner".
Beyond this, the Minister's discretion must now be guided by "national development imperatives", which are not defined in the Bill. These are instead described in the amended section 26 of the MPRDA as including "macro-economic stability, energy security, industrialisation, food security and infrastructure development".
Under the MPRDA, as amended by the Bill, the Minister has broad discretion to set the percentages, quantities, qualities and timelines for beneficiation in regulations. The newly inserted section 26(2B) provides that "every producer of designated minerals must offer to local beneficiators a prescribed percentage of its production of minerals or mineral products in prescribed quantities, qualities and timelines at the mine gate price or agreed price". This could potentially constitute a quantitative restriction on exports as a certain percentage of minerals or mineral products must be supplied to the domestic market which would, in turn, restrict the supply of these minerals to the export market.
Further, the amended section 26(3) requires that "no person, other than a producer (or an associated company of such producer) in respect of its own production and who has complied with subsection (2B), may export designated minerals or mineral products without the Minister's prior written approval". This provision will have the effect of restricting the export of designated minerals from South Africa. Thus, any person who wishes to export a designated mineral or mineral product must first comply with the amended MPRDA's mandatory beneficiation provisions or obtain written approval from the Minister before it may export such designated mineral or mineral products. This is almost certainly a prohibited quantitative restriction under article XI:1 of the GATT.
The purpose of China's prohibited export restrictions is similar to that of section 26(3) of the MPRDA: both were drafted to further national industrial policy goals. This is clear from the explanatory memorandum to the Bill, which states that the purpose of beneficiation is to advance the growth of downstream industries and create employment. The Panel has made it clear, however, that industrial policy goals do not fall within the exceptions contemplated in article XX of the GATT. As such, the industrial policy goals for which section 26 of the MPRDA was crafted will not fall within an exception contemplated in article XX of the GATT, and South Africa's beneficiation provisions may thus constitute a potential violation of article XI:1 of the GATT.
While South Africa's compliance or non-compliance with the GATT will depend on how the Minister exercises her powers under the Bill's mandatory mineral beneficiation provisions, the Bill nevertheless affords the Minister broad discretionary powers in relation to designated minerals which do not appear to be GATT compliant.