WTO Rules China Must Open Up Raw Material Exports
February 04, 2012 - Buyers are expected to benefit from lower prices and a greater supply of raw materials from China after the country was told to lift its export restrictions.
This week, the World Trade Organization (WTO) declared that China had breached its rules by placing export quotas on the bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc produced in the country.
The WTO said China had failed to give good reasons for its protectionist measures and called its environmental protection reasons unjustified. Upon its accession to the WTO, China promised to eliminate all export duties.
Although China's export restrictions in rare earth minerals remain unaffected by the WTO's ruling on raw materials, the EU trade commissioner Karel De Gucht intends to exert political pressure to remove restrictions because Chinese submitted similar environmental arguments for its restrictions in rare earth minerals. (Supply Management)
Background and Implications
Prices for certain raw materials are soaring on the world market. China holds vast amounts of the world's reserves in most raw materials and if not, is usually the biggest importer. In addition to that, China applies export restrictions on key raw materials in forms of quotas, export duties, a minimum export price system or additional requirements and procedures for exporters. Export restrictions can create serious disadvantages for foreign producers by artificially increasing China's export prices and driving up world prices. At the same time, such restrictions artificially lower China's domestic prices for the raw materials due to significant increases in domestic supply. This gives China's domestic downstream industries a significant competitive advantage and puts pressure on foreign producers to move their operations and technologies to China.
In recent time, the EU, U.S., and Mexico brought the case of raw material manipulations to the WTO (Canada joined the panel in January 2010). A dispute settlement case was initiated in June 2009 and a WTO Panel established in December 2009, which resulted in this recent ruling in favor of the plaintiffs.
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Previous Cost & Capital News:
Japan Supply Chain Break Down to Hurt Global Production: Two weeks after the devastating earthquake and tsunami struck the north-east coast of Japan, the aftershocks are being felt by the global manufacturing industry. A shortfall in supply of parts has already seen some of Japan's biggest companies, including carmakers and electronics manufacturers, shut down production at their factories. It has also started to have a global impact, with Toyota Motors saying that it will curb its North American production due to parts scarcity. General Motors has also announced suspension of production at one its plants in the US, blaming parts shortages. (BBC, Mar 25, 2011)
China to Renew Bid to Curb Steel Industry's Sprawl: Jan 27 2011 - China will renew its push to reduce the production capacity of its sprawling steel industry, as its largest mills continued last year to make only limited progress in the industry's consolidation, the Ministry of Industry and Information Technology said. The country produced 626.7 million metric tons of crude steel last year, an all-time high that refocused attention on limited effectiveness of policy tightening and government's attempts over the years to curb the industry's size. The 10 largest steel mills raised their combined contribution to the country's total steel output to 48% last year from 45% in 2009, and a total of 179 million tons of obsolete steel and iron capacity was shut down, Ministry of Industry and Information Technology spokesman Zhu Hongren said. (WSJ, Jan 27, 2011)
China Considers Further Rare-Earth Quotas: China is considering issuing export quotas for rare-earth alloys in a bid to further regulate the exports of the minerals used in a variety of high-tech industries. Officials have talked before about adjusting the quota system, and there is no sign a decision is imminent. But the government's current consideration comes as the rare-earths industry—and China's dominance of it—is under greater international scrutiny than ever before. Currently, China issues a single quota for rare earths, comprising 17 elements that are usually categorized into two kinds, giving exporters more incentive to ship the more precious and lucrative heavy rare earths overseas for higher returns. The new plans involving alloys and separate quotas for heavy and light rare earths, if finalized, would mean even stricter control by Beijing on the resources as it closes potential loopholes for exporters to sidestep regulations. (WSJ, Dec 29, 2010)