In early 2012, the United States sought a World Trade Organization (WTO) consultation regarding China's restrictions on the export of tungsten and molybdenum -- forms of "rare earths." These rare earths are raw materials that are used in the production of some electronics products. Subsequently, the European Union, Japan and Canada requested to join the consultation. China then accepted the request for a WTO consultation.
In support of the restrictions, China argued that they are related to the conservation of exhaustible natural resources. China also asserted that they are needed to reduce mining pollution.
The complaining countries strongly disagreed, arguing that the restrictions really were designed to provide protected access to the subject materials to Chinese industries.
China has imposed three different types of restrictions on the export of tungsten and molybdenum. China first has imposed duties on the export of the materials. Second, it also has imposed an export quota on the amount of those materials that can be exported in a specified time period. And third, it has imposed certain limits on the very enterprises that potentially may be permitted to export the materials.
The WTO panel in its recent report concluded:
- That China's imposition of export duties violated China's WTO obligations;
- That China's imposition of export quotas were not "even-handed" under GATT 1994; and
- That China's trading rights restrictions breached its WTO obligations.
What is the moral of this story? Perhaps it is that while seeking to protect natural resources and preventing pollution are laudable goals, those stated goals cannot be used as justifications when in reality they are being used as a smokescreen to not engage in fair international trading practices.