WTO's rare earth ruling reveals bias

On March 13, the United States, the European Union and Japan jointly challenged China's restrictions on exports of rare earth materials, a group of 17 key elements used in high-technology products, and requested consultations with China under the World Trade Organization framework. China responded on March 15, by saying it will consult with them following the dispute settlement procedure of the WTO.

China has time and again emphasized that the export restrictions are necessary in order to conserve its exhaustible natural resources and to protect people's health and are thus permitted by the General Exceptions clause in the WTO rules.

The WTO rules, a single set of comprehensive world-wide trade rules, require member countries commit to the fundamental obligations of non-discrimination, lowering trade barriers, non-quantitative restrictions and transparency in the administration of their trade related economic system. But the WTO rules also respect the sovereignty of member states in certain prescribed circumstances.

The WTO rules guarantee member countries a balance between their international obligations and national sovereignty by permitting the adoption or enforcement of measures in certain instances. In particular, Article XX of the General Agreement on Tariffs and Trade allows measures "necessary to protect human, animal or plant life or health" or "relating to the conservation of exhaustible natural resources".

However, the dispute settlement body of the WTO has denied China use of this clause.

On Jan 30th, the dispute settlement body delivered its decision on a complaint made at the end of 2009 by Mexico, the EU and the US of China's export restrictions on certain raw materials. After examining the case for two years, the dispute settlement body ruled that the restrictions were not consistent with WTO provisions and the commitments of China's WTO accession protocol.

This judgment erodes China's sovereign right to protect the health of its people and conserve its natural resources. A right retained by all member states when they subject themselves to WTO trade rules. The dispute settlement body denied China the right to use Article XX of the General Agreement on Tariffs and Trade to justify its export duties on raw materials, simply because the export duty section of China's WTO accession protocol does not explicitly mention this article.

The ruling of the dispute settlement body needs further discussion. It's obvious that the core clauses in the General Agreement on Tariffs and Trade for countries' obligations regarding non-discrimination and non-quantitative restrictions don't mention Article XX either, and yet member states don't lose the rights contained in this Article.

The treatment that China has received begs the question as to why the protective umbrella the WTO gives to all the member states in Article XX does not apply to China.

The reasoning of the dispute settlement body in this case severs the connection between the different parts of the WTO rules and derives from the North-South gap in international rule making, as the WTO rules follow the legislative design of the developed countries for trade relations. Developing countries may not fully realize the implications of certain provisions when they enter the WTO, and the damaging ramifications only become apparent to their future disadvantage.

The denial of China's right to use Article XX to justify the restrictions needs to be clarified by a legislative process rather than an adjudicative one.

Meanwhile, this case highlights that more needs to be done to balance the obligations and rights of member countries and that the hidden bias in the rules favoring developed countries needs to be addressed.

The author is director of the policy review division of Beijing WTO Affairs Center.

(China Daily 03/19/2012 page9)