EU Files WTO Case Against China’s Raw Material Export Duties

19/07/2016

EU Files WTO Case Against China’s Raw Material Export Duties

 

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The European Union is tired of China cheating the trade system. And so is the U.S.

On Tuesday, the EU filed yet another case with the World Trade Organization (WTO) against China’s export duties on certain raw materials, including some used in polyester and for pigments.

“We cannot sit on our hands seeing our producers and consumers being hit by unfair trading practices,” EU trade commissioner Cecilia Malmström said. “The past two WTO rulings on Chinese export restrictions have been crystal clear—these measures are against international trade rules. As we do not see China advancing to remove them all, we must take legal action.”

China has been imposing export restrictions—essentially duties and quotas—on these raw materials for companies outside of China, which means companies inside of China are saving money and are thus at an advantage because they can make lower-priced goods with unfairly priced inputs. It also means non-Chinese companies are under pressure to set up production operations in China (which means they’re sending jobs to China, too).

The problem, other than the obvious, is that the practice goes against the rules China signed onto when it joined the WTO in 2001.

What’s more, as the EU charged, “[China’s] alleged aim to support an environmentally friendly and sustainable production of raw materials could be achieved more effectively with other measures, without negative impact on trade.”

The EU brought similar cases before the WTO in 2012 and 2014 (both of which were successful), but for this go around, graphite, cobalt, copper, lead, chromium, magnesia, talcum, tantalum, tin, antimony and indium are on the target list.

China’s total exports of these products are worth roughly 1.2 billion euro ($1.32 billion), and the EU takes in one-sixth of that.

“A first analysis suggests that removing the export duties imposed by China could allow an additional supply of these raw materials to the EU economy worth around €19 million [$20.9 million], i.e. an increase of 9.2%,” the European Commission noted. “However, the real increase of China’s supplies to the EU is likely to be much higher if the other instruments that China is currently using to restrict its exports were also removed.”

The EU will now engage with China on the matter as part of the first step in WTO dispute settlement, and if a “satisfactory” solution isn’t reached within 60 days, the Commission said it would ask the WTO to set up a panel to rule on China’s behavior.

The EU’s action follows last week’s from the U.S., which said China’s export duties provide an unfair competitive advantage to China at the expense of American workers and manufacturers. China’s export duties on these raw materials range from 5 to 20 percent of the value of the good.

“These duties are China’s attempt to game the system so that raw materials are cheaper for their manufacturers and more expensive for ours,” said U.S. Trade Representative Michael Froman. “This scheme is directly at odds with WTO commitments China has made, and as we’ve shown time and again, we will hold them accountable to their commitments.”

The U.S. is targeting nine raw materials in its case: antimony, cobalt, copper, graphite, lead, magnesia, talc, tantalum and tin (the same as the EU with the exception of chromium—largely used in stainless steel production and indium—which goes into goods like flat screen computer monitors).

The case marks the 13th the U.S. has initiated against China during the Obama Administration, and it has won each.