By: Al-Hothali Randah Anjum Omar Benchekroun Meryem

 Overview  History of the dispute  Quick Facts  What is Dispute Settlement Body Process  Dispute Summary 1. Consultation 2. Panel & appellate proceedings 3. Position of parties 4. Panel Findings 5. Appeals & Position 6. Decision 7. Implementation & Sanctions  Limitations set on China  Conclusion: What’s next?

 China produces more than 90 percent of the world's rare earths; components of modern technology.  Since 2006, China started to levy duties and enforce quotas for the export of the rare earth elements  Dispute arose when the Chinese government reduced its export quotas by 40% in 2010, sending the rare earths prices in the markets outside China soaring.  The Chinese government argued that the quotas were necessary to protect the environment. Critics charged that the move was protectionism in disguise.  The difference in prices inside and outside China gave unfair advantage to Chinese firms.  The Chinese restrictions posed a national security threat to the US.  China was accused of unofficially banning of rare earths exports to Japan during a diplomatic standoff between the two countries after the Senkaku boat collision incident  China was using its dominance in rare earth productions to gain leverage in International negotiations.

 Complainant: The United States, EU & Japan  Claims: Unfair trade practices  Respondent: China  Defends: Reduced exports to conserve environment & mining industry  Dispute Case: Export restrictions on a number of rare earth elements, tungsten, and molybdenum.  Dispute issues on three components:  Exercising export duties,  Restrictions on Export quotas,  limitations on the enterprises permitted to export the products.

 What is DSB?  When is it used?  What is its Time-Line Process?

 “On 13 March 2012, the United States requested consultations with China with respect to China’s restrictions on the export of various forms of rare earths, tungsten and molybdenum.”  The United States claims that these measures are inconsistent with: Articles VII, VIII, X and XI of the GATT 1994; and paragraphs 2(A)2, 2(C)1, 5.1, 5.2, 7.2, 8.2 and 11.3 of Part I of China’s Protocol of Accession, as well as China’s obligations under paragraph 1.2 of Part I of the Protocol of Accession.  On 22 March 2012, the European Union and Japan requested to join the consultations. On 26 March 2012, Canada requested to join the consultations. Subsequently, China informed the DSB that it had accepted the requests to join the consultations.

 United States – along with co-complainants the EU and Japan – initiated this dispute in an attempt to preserve their rights under WTO rules and level the playing field for all non- Chinese consumers of the raw materials at issue – consistent with what China agreed to do in entering the WTO.

 The three types of restrictions that China imposes on the exportation of the Rare Earth Materials are : I. Imposing of Export duties II. Imposing of Export quotas III. Trading Rights

 Claim: China justified export duties - “General Exceptions” Provision in Article XX in GATT. Article XX (B) allows WTO members to maintain measures are to protect human, animal or plant Life/Health.  Panel Result: China’s Export Duties on Rare Earths, Tungsten and Molybdenum are Inconsistent with China’s Obligations under Part I, Paragraph 11.3, of its Accession Protocol Part I, paragraph 11.3 states: “ China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994”.

 Claim: China justifies under Exception in Article XX(g) of GATT 1994, Article XX(g) relate to the conservation of an exhaustible natural resources.  The Panel agreed with China that the term CONSERVATION in Article XX(g) means more than “PRESERVATION” of natural resources Every WTO member can take its own sustainable development needs and objectives into account when designing a conservation policy.  Panel Result: A) The Panel agreed that China adopted measures to control the international market for a natural resource. B) The overall effect of foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of materials by Chinese manufacturers. Even Handedness required by Appellate body under Article XX(g) had not been met.

 China’s Export Quotas on Rare Earths, Tungsten and Molybdenum Are Inconsistent with China’s Obligations under Article XI:1 of the GATT 1994 Article XI:1 of the GATT 1994 titled “General Elimination of Quantitative Restrictions” “No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or 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”  China’s Export Quotas Are Also Inconsistent with China’s Obligations under GATT Article XI.1 in Cooperation with Paragraphs 162 and 165 of the Working Party Report Paragraph 162 of the Working Party Report states in pertinent part: “The representative of China confirmed that China would abide by WTO rules in respect of non-automatic export licensing and export restrictions. The Foreign Trade Law would also be brought into conformity with GATT requirements. Moreover, export restrictions and licensing would only be applied, after the date of accession, in those cases where this was justified by GATT provisions.” Paragraph 165 of the Working Party Report provides: “The representative confirmed that upon accession, remaining non-automatic restrictions on exports would be notified to the WTO annually and would be eliminated unless they could be justified under the WTO Agreement or the Protocol.”

 Claims :  China justified under Article XX(g) –relating to the conservation of exhaustible natural resources.  Panel Result:  Foreign Trade Law and Import and Export Regulations inconsistent with WTO export quotas.  China had not satisfactorily explained why its trading rights restrictions were justified under this provision. “China’s commitments under paragraph 5.1 of Part I of the Accession Protocol, as well as paragraph 1.2 of the Accession Protocol to the extent it incorporates paragraphs 83 and 84 of the Working Party Report (commonly referred to as China’s “trading rights” commitments), require China to give all foreign enterprises and individuals, as well as all enterprises in China, the right to export products except for goods listed in Annex 2A of the Accession Protocol” “In its administration of the quotas for rare earths and molybdenum, China breaches these commitments by impermissibly requiring exporters to satisfy certain criteria – i.e., (i) prior export experience and export performance and (ii) minimum capital requirements – in order to be eligible to participate in the process required to receive an allocation of the quotas (and in turn be able to export ”

 China’s Position on Article XX GATT: China argued that they are justified under the exception in Article XX(g) of the GATT 1994, since they relate to the conservation of an exhaustible natural resource. GATT Article XX -...(b) necessary to protect human, animal or plant life or health;...(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption....”  China’s Accession Protocol Position: Although China has committed to eliminating trading restrictions in its Accession Protocol, it argued that the restrictions in question are justified pursuant to Article XX(20), since they too relate to the conservation of exhaustible natural resources. China also contends that trading rights commitments in Paragraph 5.1 of China's Accession Protocol and Paragraphs 83 and 84 of China's Accession Working Party Report do not prevent the use of prior export performance and minimum registered capital requirements as criteria to administer the rare earth and molybdenum export quotas.

 Both the panel and the Appellate Body found Article XX of the GATT 1994 does not apply to China’s commitment to eliminate export duties.  The Appellate Body declined to accept China's interpretation of Paragraph 1.2 of China's Accession Protocol and Article XII:1 of the Marrakesh Agreement.

 On 8 December 2014, China and the United States informed the DSB that they had agreed that the reasonable period of time for China to implement the DSB recommendations and rulings shall be 8 months and 3 days from the date of adoption of the Appellate Body and panel reports.  Accordingly, the reasonable period of time expired on 2 May 2015.

 On 20 May 2015, China informed the DSB that, according to notices by the Ministry of Commerce and the General Administration of Customs of China, the application of export duties and export quotas to rare earths, tungsten and molybdenum as well as restriction on trading rights of enterprises exporting rare earths and molybdenum which were found to be inconsistent with WTO rules, had been removed.  China had fully implemented the DSB's recommendations and rulings. However, the United States could not share China's assessment that it had fully complied with the DSB's recommendations and rulings.  On 21 May 2015, China and the United States informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.

 China was the leading producer of rare earth materials. They are valuable to manufacturer of electronics, automobiles, steel, petroleum industries  The significant loss in WTO case vs. USA, Japan and EU has shifted the global trade market away from China: 1. the policy proved to be of little value for Beijing as many countries found other sources for the materials known as rare earths. 2. the world has reduced its reliance on the minerals from China, which until recent years produced about 93% of the world’s rare earths. 3. China’s share of Global rare-earth output has fallen to around 86% as other producers amped up supply. 4. Chinese manufactures lose their competitive edge 5. Forced to match the Global price of raw materials 6. Shift towards greater Market orientation – End of Monopoly 7. This ruling will preserve the rights of the WTO members and level the playing field for all non- chinese consumers for raw materials

 About 90% of China’s rare earth producers are currently operating at a loss as prices for the coveted elements — used in high-tech sectors — continue to drop due to overcapacity and illegal mining.  Attractive prices encouraged investment in the sector in the U.S., Australia and other places outside China. But, at the same time, it fired up smuggling from the Asian nation and a consequent drop in prices.  China continues to restrict the number of firms allowed to produce and export rare earths. This means there will remain a significant supply bottleneck that is likely to encourage smuggling as well as illegal production in the nation, with the feared consequences in prices.  the U.S. trade representative's office welcomed China's removal of its quotas, it expressed concern that China was erecting new barriers.  The United States welcomes the removal of rare earths, tungsten, and molybdenum from China’s 2015 export quota notice and will be monitoring exports of these materials closely