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WTO rules Chinese rare earth minerals export limits breach the GATT 1994
WTO rules Chinese rare earth minerals export limits breach the
Posted 19/06/2014 by Jaan Murphy
In March 2014 a Panel established by the Dispute Settlement Body of the World Trade
Organization (WTO) ruled that export controls on rare earth mineral put in place by China
contravened the General Agreement on Tariffs and Trade 1994 (GATT).
In 2012, the United States (US), European Union and Japan (complainants) requested
consultations with China about its rare earth mineral (tungsten and molybdenum) export
restrictions which included export duties, export quotas, minimum export price
requirements, and export licensing requirements. The complainants argued that they were
inconsistent with various articles of the GATT.
The consultations were unsuccessful and a panel was established to resolve the dispute.
Australia, as a third party, made submissions to the panel regarding the interpretation of
Article XX(g) of the GATT.
Importance of rare earth minerals
Rare earth minerals refer to elements that have special optical and magnetic properties, and
hence are used in a wide range of modern technology including smartphones, weapons
systems, and computers. It has been argued that modern technology would be impossible
without rare earth minerals.
Whilst not particularly rare (compared to other minerals) concentrations in commercially
mineable quantities are very uncommon. In addition, exploration efforts have been lacking
for many years. From the mid-1960s through to the 1980s, the US was the world’s
dominant source of rare earth minerals. However, as noted by the US Congressional
…by 2000, nearly all of the separated rare earth oxides were imported, primarily from
China. Because of China’s oversupply, lower cost production, and a number of
environmental… and regulatory issues… the United States has lost nearly all of its capacity
in the rare earth supply chain, including intellectual capacity.
China is now responsible for approximately 95% of the world’s rare earth mineral
production, and has at least half of the world’s reserves. In contrast, Australia, the third
largest producer of rare-earth minerals, is responsible for 2.0% of world production and has
3.9% of the world’s reserves.
With so much of the world’s rare earth mineral production capacity located in China, any
restrictions on exports from China would have significant impacts on industries that use
The GATT and export controls
Generally speaking, the GATT prohibits measures that limit or discourage exports. For
example, Article XI, subject to certain exceptions, prohibits quantitative restrictions:
No prohibitions or restrictions… 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.
The dispute centred on the view that the measures imposed by China were designed to
provide Chinese industries that use rare earth minerals with protected access to them, thus
conferring on them a competitive advantage vis-Ã -vis foreign industries.
The Chinese export control measures
The export control measures in question included export duties, export quotas and
restrictions on trading rights.
The complainants argued that the export duties applied on rare earth minerals were
inconsistent with China’s WTO obligation to eliminate all export duties (except for those
imposed on a number of specifically listed products). As the rare earth minerals in question
were not listed, it was argued that China could not impose the export duties on them.
China argued that the duties were permitted on the basis of Article XX(b) which allows the
maintenance of measures that are inconsistent with the GATT if they are necessary to
protect human, animal or plant life or health, which China argued they were (given the
pollution caused by mining the rare earth minerals in question).
The complainants argued that the export duties were not necessary for the protection of
human, animal or plant life or health.
China also imposed quantitative export limits (quotas) on rare earth minerals and
restrictions on the right of enterprises to export them, arguing that whilst inconsistent with
the GATT, they were justified under Article XX(g), since they relate to the conservation of an
exhaustible natural resource.
The panel upheld the complaints. It found the export duties were not necessary for the
protection of human, animal or plant life or health and were inconsistent China’s WTO
The panel concluded that the export quotas were designed to achieve industrial policy goals
rather than conservation goals and overall the effect of the measures was to encourage
domestic extraction (and secure preferential use) of the rare earth minerals by Chinese
manufacturers, and hence could not be justified under Article XX(g). In relation to the
trading right restrictions, the Panel found that China had not satisfactorily explained why its
trading rights restrictions were justified and hence breached its WTO obligations.
In April 2014, China appealed the decision.
Why is the case important?
The case is important for a number of reasons. First, from a legal perspective it contains
useful analysis of the application of Article XX(b), an exception Australia may seek to rely
upon in relation to WTO disputes concerning its plain cigarette packaging laws. Second, the
decision (if upheld) will prevent the perceived misuse of a near-monopoly by China to favour
its domestic industries. Finally, as Australia is one of the few alternative suppliers of rare
earth minerals, the decision effectively increases competition for export markets.