WTO Questions Chinese Export Limits on Raw Materials (Update2)

GENEVA, June 1 -- Chinese curbs on raw-material exports to help conserve resources and protect the environment "may not be the best way to achieve" those objectives and give Chinese manufacturers an unfair edge, the World Trade Organization said.

WTO judges are probing complaints by the European Union, the U.S. and Mexico against Chinese restrictions on exports of raw materials to determine whether duties on overseas shipments of nine commodities including coke and zinc are discriminatory. China says the taxes are aimed at easing overproduction and emissions of carbon and sulfur gases from furnaces.

"Export restraints tend to reduce export volumes of the targeted products and divert supplies to the domestic market, leading to a downward pressure on the domestic prices of these products," the Geneva-based WTO secretariat said in China's biennial trade policy review. "The resulting gap between domestic prices and world prices constitutes implicit assistance to domestic downstream processors of the targeted products and thus provides them a competitive advantage."

The U.S., the EU and Mexico say the levies discourage the export of materials that are "critical" for their manufacturers, while keeping them cheaper and readily available in China. The commodities at issue also include bauxite, magnesium, manganese, silicon carbide and yellow phosphorus, which are used by the steel, aluminum, automotive and chemicals industries.

Coke Curbs

The Chinese government introduced a 40 percent duty on coke in 2008 and banned the expansion of coke projects for three years in September. China imposes coke export quotas on companies including China Minmetals Corp., Sinosteel Corp. and Shanxi Coking Co. and plans to eliminate 400,000 metric tons of zinc smelting capacity. Coke is used to make steel and zinc is needed to rust-proof the metal.

Yi Xiaozhun, China's vice minister of commerce, said his government has demonstrated its commitment to liberalization.

"China has been making great efforts to open up its market and improve the investment environment," he told delegates from the WTO's 153 members yesterday in Geneva. "China will stand firm for trade liberalization and has fully implemented its WTO accession commitments."

The WTO also said China, the most frequent target of anti- dumping measures, continues to use non-tariff measures such as import and export licensing or state trading to "guide" the allocation of resources. The country's export barriers haven't dropped as quickly as import barriers, according to the report.

Export Restrictions

Overall, the WTO said that China has continued on a steady pace of opening its economy to foreign trade and investment since joining the WTO in 2001. The U.S. said it disagreed.

"In the first years after China's accession to the WTO, China made noteworthy progress in adopting economic reforms," Michael Punke, the U.S. ambassador to the WTO, said today in a statement. "Beginning in 2006, progress toward further market liberalization began to slow."

The WTO report "fails to note more broadly the change in the pace and direction of China's trade liberalization efforts over the past two years," Punke said. "China has demonstrated a highly selective interest in continuing to open its market more fully and fairly to foreign participation."

WTO officials rarely comment on issues that are either subject to litigation or being investigated, said Joost Pauwelyn, a professor of international law at The Graduate Institute of International and Development Studies in Geneva and a former legal adviser for the WTO secretariat.

"It is rather strong language, but these are economists making an economic comment that is not aimed at having any influence on the investigation" into whether Chinese limits on raw-material exports break global trade rules, Pauwelyn said.