Materials Injury?
I posted about a month ago about China’s stranglehold on production of rare earths and the possibility that Beijing could use export embargoes of these substances as an economic weapon. I’m not the only one thinking that way.
James Bacchus, former chairman of the World Trade Organization’s Appellate Body – the ultimate stage in WTO dispute settlement, is worried about new cases coming to the WTO about export controls that may stretch the dispute settlement system a bit too far. And one of those cases involves those rare earths from China.
Bacchus argues, rightly, that the WTO and the General Agreement on Tariffs and Trade (GATT) assume that trade disputes will be about import restrictions – not restrictions on exports. The GATT (the organization was replaced by the WTO, but the agreement still stands as the basic governing document of international trade law) addresses export restrictions, but almost as an afterthought.
Bauxite
The first of the new cases likely to come to the WTO will challenge China’s alleged export restrictions on a series of raw materials, including bauxite, fluorspar, magnesium and coke (no, not the soft drink). These materials are key to production of metals and chemicals, and restrictions on their availability have Mexico, the European Union and the United States mightily upset. Bacchus anticipates, and I agree, that the United States, the EU, Japan and probably others are very likely to launch a case if China tries to restrict its rare earth exports.
The GATT is somewhat ambiguous about China’s rights to restrict exports. Bacchus notes that the General Agreement prohibits quantitative restrictions on exports (e.g., embargoes or quotas), but allows taxes, export duties or other financial actions to hinder those exports. I expect China, should they place an embargo on rare earths exports, will drive a truck through GATT Article XI(2)a, which – after stating the general prohibition on quantitative restrictions – allows an exception for “Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.“ Nowhere are “temporarily” or “essential” defined. China merely has to argue that their measures are temporary and apply only to essential products. The challenging countries won’t accept this, but the argument can go on for a long, long time.
Bacchus also notes Article XX(g), which allows a general exception from GATT rules for measures “relating to the conservation of exhaustible natural resources” if the export controls are accompanied by equivalent restrictions on domestic consumption of the same items. I’m not as sure that China will be able to demonstrate that, but could be proven wrong. Either way, some big arguments are coming.
