AÂ World Trade Organization appeals panel ruled against China's efforts to limit the export of raw materials used in the steel and chemicals industries, a decision that could provide the U.S. and Europe with ammunition against similar limits on China's rare-earth exports.
U.S. Trade Representative Ron Kirk on Monday called the WTO decision a "tremendous victory."
Today's decision ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field," he said in a statement.
China pledged to scrap export controls when it joined the WTO in 2001. But under pressure to retain raw materials for domestic needs, Beijing has gradually restricted exports, defending its curbs on environmental grounds, saying it needs to conserve some of the materials and limit the environmental impact of the production of others.
It has made similar arguments in defense of its export quotas on rare earths, 17 elements that are key to the production of high-tech products.
The WTO panel Monday confirmed that China's export duties and export quotas on raw materials violated global trade rules and had to be changed. While WTO rules let countries restrict exports to protect the environment, it has said China hasn't demonstrated that it accompanied the export restrictions with limits on domestic production or consumption of the materials.
The European Union and Mexico had joined the U.S. in the case, which began in 2009. The countries have argued that Chinese restrictions on the export of several raw materials—bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc—gave Chinese companies an unfair advantage by keeping the price of domestic raw materials low compared with prices in other parts of the world.
The case has been watched closely as the U.S. and others weigh how to increase pressure on China over rare earths, whose prices have climbed sharply due to China's export quotas.
The appeals panel decision could result in an easing of exports of the coveted minerals, say U.S. and European officials.
"We certainly expect China to get rid of the export restraints," a senior U.S. trade official said in an interview. "And to the extent that these export restraints cover a much broader set of products than just the one we brought—including rare earths—then we would expect them to move on those fronts."
The official reiterated that the raw-materials ruling could help determine the course of action on rare earths, while adding that no decision has been made.
"Obviously we had some pretty serious concerns about rare earths to begin with, and this decision just compounds those. So we are looking at it very carefully," the official said.
EU Trade Commissioner Karel De Gucht also signaled that the ruling has rare-earth implications. "China now must comply by removing these export restrictions swiftly and furthermore, I expect China to bring its overall export regime—including for rare earths—in line with WTO rules," he saidin a statement.
Chinese officials "regret" the WTO decision, the Ministry of Commerce said on Tuesday, according to the state-run Xinhua news agency. In a statement on the ministry's website, an official reiterated China has tightened oversight of high energy-consuming and polluting resources in recent years. "The WTO should not only uphold free trade but also allow members to take necessary steps to protect the environment and natural resources," it said.
The appeals panel didn't uphold all of the initial rulings that favored the U.S., Europe and Mexico, reversing findings on China's export-licensing requirements, minimum export-price requirements and some administrative and fee matters. But the main ruling—that the export duties and quotas violate WTO rules—survived with the appeals panel rejecting China's argument for the restrictions.
The WTO's dispute-settlement body will decide whether to adopt the panel report within 30 days, after which China would have to come up with a proposal to comply with the ruling.
The ruling comes as the U.S. is taking a more muscular approach to conflicts with one of its major trading partners. President Barack Obama, in last week's State of the Union address, said the U.S. was forming a high-level panel to deal with trade disputes with China.
"The Obama administration will continue to ensure that China and every other country play by the rules so that U.S. workers and companies can compete and succeed on a level playing field," Mr. Kirk said.
The administration faces pressure political pressure—both in Congress and on the election trail—to take a bolder stance against China's trade and currency policies. U.S. Sen. Sherrod Brown (D., Ohio) said he plans to call for more aggressive trade enforcement action against China on Tuesday, holding an event with labor leaders at the Capitol on highlighting American job losses caused by alleged Chinese unfair practices in the auto-parts trade.
