Rami Alshaibani Corey Albright Daniela Abril US VS CHINA – MEASURES RELATED TO THE EXPORTATION OF RARE EARTHS, TUNGSTEN, AND MOLYBDENUM Rami Alshaibani Corey Albright Daniela Abril

Content Introduction Consultation Business Context Practices Involved The WTO Agreement and Specific Provisions Involved Arguments of Parties involved - AB Decision Dispute Settlement Body Final Ruling and Implementation Case Observations

Introduction CHINA – Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum (DS431, 432, 433). Main Issue: Export restrictions on rare earths, Tungsten, and Molybdenum. The export restrictions comprised of export duties, export quotas, and certain limitations on the enterprises permitted to export the products. Countries involved: United States, European Union, Japan, China. Agreement: Accession Protocol, Working Party Report, Marrakesh Agreement, GATT Arts. XI and XX. Establishment of the Panel 23 July 2012. Appellate Body Report 7 August 2014.

Consultation •On 13 March 2012, the United States, requested consultations with China with respect to China’s export restrictions. •On 22 March 2012, the European Union and Japan requested to join the consultations. Subsequently, China informed the DSB that it had accepted the requests. •Third-Party: Brazil; Canada; Colombia; European Union; India; Republic of Korea; Norway; Oman; Kingdom of Saudi Arabia; Chinese Taipei; United States; Vietnam; Argentina; Australia; Indonesia; Turkey; Peru; Russian Federation. •On 9 October 2012, Canada filed for enhanced third-party rights, including third-party access to the entirety of all written submissions, and the right to make an oral statement at the second Panel meeting. On 19 October 2012, the Panel declined Canada's request.

The Future Global Supply of rare Earth Elements https://www.good.is/infographics/infographic-the-future-global-supply-of-rare-earth-elements#open

Business Context According to the report China’s export quotas were designed to achieve industrial policy goals rather than conservation.

Uses of Rare Earth Material

Practices Involved 1. Export duties China applied export duties (taxes) on the export of various forms of rare earths, tungsten, and molybdenum.

Practices Involved 2. Export Quotas China imposed quantitative limits (quotas) on the amount of those materials that can be exported in a given period.

Practices Involved 3. Trading Rights China imposed certain restrictions on the right of enterprises permitted to export rare earths, tungsten and molybdenum.

The WTO agreement and specific provisions involved

Arguments of the Unites States and Third Participant These measures were inconsistent with: Articles VII, VIII, X and XI of the GATT 1994. Article VII: Valuation for Customs Purposes Article VIII: Fees and Formalities connected with Importation and Exportation Article X: Publication and Administration of Trade Regulations Article XI: General Elimination of Quantitative Restrictions Paragraphs 1.2, 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. Paragraph 1. General provisions (2) Paragraph 2. Administration of the Trade Regime (A) 2 and (C) 1 Paragraph 5. Right to Trade (1) and (2) Paragraph 7. Non-Tariff Measures (2) Paragraph 8. Import and Export Licensing (2) Paragraph 11. Taxes and Charges Levied on Imports and Exports (3)

Arguments of China Export Duties: Based on “General Exceptions” provision in Article XX of the GATT 1994. Specifically, Article XX paragraph (b). (b) “Necessary for the protection of human, animal or plant life or health” Export Quotas and Trading Rights: Both were justified under “General Exceptions” provision in Article XX of the GATT 1994. Specifically, Article XX paragraph (g). (g) “Relating to the conservation of exhaustible natural resources”

Appellate Body Decision •Export Duties: The Panel found that China's export duties on rare earths, tungsten, and molybdenum were inconsistent with its Accession Protocol. •Quantitative Restrictions: The Panel found that China's export quotas on rare earths, tungsten, and molybdenum were inconsistent with GATT Art. XI. •Trading Rights: The Panel found that China maintained restrictions (minimum registered capital, prior export experience and export performance) on the trading rights of enterprises exporting rare earths and molybdenum contrary were inconsistent with the Working Party Report.

The WTO Dispute Settlement Body (DSB) Rulings from the China – Rare Earths Case WTO Rules Against China On Rare Earths Export Restrictions: WTO dispute panel backed a complaint filed by the U.S., the European Union and Japan that the Chinese restrictions, which take the form of export quotas, export duties and other measures, ran counter to commitments China made when it joined the WTO in 2001. Specifically, the export restrictions on rare earths violated provisions of China's 2001 WTO accession agreement. In particular, the imposition of export duties violated Paragraph 11.3 of China's accession agreement requiring the country to eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of the protocol (none of the rare earths or metals at issue in the dispute are on the Annex 6 list). WTO Ruling – CCTV News Clip.

The WTO Dispute Settlement Body (DSB) Rulings from the China – Rare Earths Case (continued) China’s administration of the export quotas inconsistent with its obligations under Paragraphs 5.1 and 5.2 of China’s WTO Accession Protocol, requiring China to give all foreign enterprises and individuals, as well as all enterprises in China, the right to export most products. China's export quotas on rare earths, tungsten and molybdenum violate China's accession agreement, as well as Article XI:1 - General Elimination of Quantitative Restrictions (GATT): prohibiting export restrictions other than permitted duties, taxes or other charges. The WTO panel rejected China's claims that the export restrictions could be justified as an exception to WTO rules under Article XX of the WTO's General Agreement on Tariffs and Trade (GATT). Article XX: protect human health and conserve exhaustible natural resources. (conservation v. preservation)

WTO Final Ruling & Implementation (April 2014) Brief Appeal Process: China's Ministry of Commerce filed an appeal against the WTO’s ruling that the country's export restrictions on rare-earth minerals violated global rules. (August 2014) China Loses Appeal: The final ruling notes... “China has not demonstrated that the export quotas that China applies to various forms of rare earths, tungsten and molybdenum by virtue of the series of measures at issue are justified.” (Sept. 2014) Ruling Adoption: China agreed to implement the DSB's recommendations and ruling in a manner that respects its WTO obligations. China added that it would need a reasonable period of time to do so. 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. (May 2015) WTO Compliant: 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 had been removed. In that regard, China had fully implemented the DSB's recommendations and rulings.

Case Observations: Global Trading System The panel found that several aspects of China's export quota on rare earths, including its structure, design and operation, disfavor and discriminate against foreign users: Export Quotas Temporarily Inflated prices for rare earth minerals: Demand outpaced World (China) supply. Illegal mining operations: According to Chinese officials, up to 40% of rare earths sold today could be classified as illegal and while the government is attempting to regain control by consolidating smaller companies into larger groups, the problem is unlikely to go away. (Make illegal mining a priority) Illegal operations proceeded to influence global price for rare earth minerals: As a reaction to the export quotas, illegal operations in China kept rare earth mineral prices down - ultimately led to the bankruptcy of many foreign-operations who sought to limit their reliance on Chinese rare-earth minerals and supplement the decrease in supply. USTR Report on China’s Consumption notes: China provides no analysis of the impact that export duties have on domestic prices and consumption.” Lynas’s Mount Weld project contains one of the largest and highest grade known deposits of rare earths.

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