On March 26, 2014, a World Trade Organization (WTO) panel held that China’s export duties and quotas on raw materials are incompatible with China’s WTO obligations. The panel report concludes the dispute settlement panel proceedings launched jointly by the United States, the European Union and Japan in March 2012.

The dispute involves rare earths, tungsten and molybdenum. Rare earths are chemical elements used in various electronic goods, including computers, cameras, phones, televisions and displays, energy-efficient bulbs and certain car parts. Tungsten, an extremely hard metal, has applications in lighting, electronics, power engineering, automotive and aerospace industries and medical technology. Molybdenum is a metal that is commonly used in light bulb filaments, due to its heat-resistant properties. China produces more than 90 percent of the global supply of rare earths and tungsten and 36 percent of the global supply of molybdenum.

China imposes three types of restrictions on the export of these raw materials: (i) it imposes duties on exports of various forms of these raw materials; (ii) it imposes a quota on the total amount of these materials that can be exported in a given period; and (iii) it imposes limitations on the enterprises permitted to export these materials.

China argued that the measures at issue in this dispute are necessary for the conservation of its natural resources and to reduce pollution caused by mining. While the WTO rules include exceptions that allow Members to establish trade-restrictive measures for a legitimate purpose (e.g., the protection of human, animal or plant life or health), such measures must be applied in a non-discriminatory manner and be the “least trade-restrictive” measure available to achieve the measure’s stated goal.

In its report, the WTO panel rejected China’s argument that these measures are justified under any of the recognized exceptions to the WTO rules. The panel noted that China’s WTO Accession Protocol requires China to eliminate all export duties. Additionally, the panel observed that, rather than working to reduce extraction, China’s export quotas encourage domestic extraction of these raw materials and secure preferential use of these resources by Chinese manufacturers. Finally, the panel found that China failed to explain how its restrictions on the right of enterprises to export these materials are justified under any exception to China’s Accession Protocol.

China may appeal the findings of the panel in this dispute to the Appellate Body, which has the authority to overrule any aspect of the panel’s report.