Chinese Export Quotas Violate Global Trade Law

Last week, a panel from the World Trade Organization announced that China had broken international trade law by restricting its exports of rare earth metals and other metals critical to the global manufacturing industry. The panel discovered that the export taxes, quotas, and bureaucratic delays in Beijing artificially raised the prices of exports and created shortages for foreign buying nations. The panel also determined that these export quotas, which the Chinese argued were intended for environmental protection, were actually instituted to achieve industrial policy goals aimed at promoting the continued growth of the Chinese economy.

With regards to the global supply of important metals, China produces more than 90% of metals needed for the industrial manufacturing of items like smartphones, wind turbines, industrial catalysts, and high-tech magnets. When Beijing cut export quotas by 40% in 2010, importing costs soared for foreign companies. The United States, European Union, and Japan were the first to challenge China's environmental protection argument, seeing as the export quota cuts forced them to pay three times more for the minerals than their Chinese competitors, especially when the U.S. is nearly completely dependent on China for its metals exports.

In spite of the panel's findings, the Chinese remain consistent in their claims that the quota cuts were intended for environmental purposes. The Chinese have demonstrated the environmental damage caused by the production process, mining and refining the metals, and disposing the waste. Beijing has also shut down some of the worst-offending producers of valuable metals, which have left the soil in parts of China scarred from the concentrated acids used to leach the ores, have rendered farmland unrecoverable, and have contaminated water sources with toxic and sometimes radioactive chemicals. Furthermore, the Chinese have stated that the export quotas were justified under trade rules allowing exceptions related to the conservation of exhaustible natural resources.

Nevertheless, critics of Chinese environmental conservation claims argue that China was using its dominance over the international trade of metals not only to create a cost advantage for companies operating on Chinese soil, but also to attract foreign companies into moving their operations to China.  The latter would undoubtedly create local jobs and transfer technology into China. Beijing now has about 2 months to appeal the case, and China was given a reasonable amount of time to comply with the final ruling and recommendations. Should China fail to comply, however, the U.S., Japan, and E.U. could begin to impose sanctions roughly 15 months after the appeals judgement. Fortunately for the global economy, this is not the first time that China has been charged with unfair trade restrictions by the W.T.O., seeing as in 2009 the U.S., Mexico, and E.U. brought similar charges against the Chinese. These allegations prompted Beijing to adjust their export quotas prior to receiving any international trade sanctions, which therefore suggests that the Chinese should follow suit in this case prior to any major consequences of strained trade relations in the global economy.