An international ruling that China unfairly restricts the global trade of raw materials used in cars, chemicals and steel could set the stage for a U.S. challenge over trade barriers raised for rare earth minerals used in "green" technology.
A World Trade Organization panel of judges yesterday agreed with assertions made by the United States, Europe and Mexico in 2009, when they called for an investigation into China's export duties and quotas on materials such as zinc, coke, magnesium and silicon carbide. China dominates production of these materials, and U.S. officials have complained in recent years that China has contributed to rising commodity prices by withholding supplies.
"China's policies provide substantial competitive advantages for downstream Chinese industries at the expense of non-Chinese users of these materials," said Ron Kirk, the U.S. trade representative, in a statement.
"They have also caused massive distortions and harmful disruptions in supply chains through the global marketplace," he said.
In the past couple of years, China has said it must better control the sale of a long menu of minerals and metals that it mines or risk depleting the country's limited natural resources. China has also said the environmental and public health impact of mineral mining is weighing on production decisions. WTO judges said these reasons didn't justify import duties and quotas slapped on materials needed by manufacturers.
"China was not able to demonstrate that it imposed these restrictions in conjunction with restrictions on domestic production or consumption of the raw materials so as to conserve the raw material," a summary of the WTO judges' decision noted.
But the panel said China "appears to be heading in the right direction" in adopting a policy framework to justify its quotas, though the judges said China is not there yet.
U.S. lawmakers push for a WTO showdown
Together and in separate petitions to the WTO, the United States and Europe have been challenging barriers to the free flow of rare minerals. Part of the concern is over the reliance on a category of these minerals called rare earth elements needed to make advanced wind turbines, batteries and other forms of clean energy technology. If China cuts production or otherwise restricts trade, trade officials say it could send commodity prices through the roof.
Legal analysts have said a series of favorable WTO rulings could embolden U.S. officials to force a rare earths case before the WTO.
China has rapidly built up its green technology manufacturing capacity, far outpacing U.S. and European companies. U.S. and E.U. government officials contend that China's competitive advantage is being compounded because the country supplies 95 percent of rare earth elements used in clean-tech manufacturing.
Some Republican members of the House are also putting pressure on the Obama administration to extend its fight to rare earths.
Rep. Mike Coffman (R-Colo.) interpreted the WTO ruling yesterday as proof that China "flouts global trade laws to give their country an unfair competitive advantage," according to a statement. "It's obvious that China is engaging in these same practices with regard to rare earth metals, and I will continue to pressure U.S. Trade Representative Ron Kirk to file a complaint with the WTO."
In a March letter to Kirk, 28 GOP House members, including Coffman, urged him to move forward.
"Rare earths are the key to technological innovation and the growth of green energy jobs," they said. "Widespread reports indicate China is using the restrictions of exports as leverage to force high-tech companies to relocate to China."
Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, also reiterated his support for getting tougher on China's trade restrictions on raw materials and rare earths. He called on China "to drop these restraints immediately."