China Measures Related to the Exportation of Various Raw Materials - Essay Example

World Trade Organization (China – Measures Related to the Exportation of Various Raw Materials) The WTO dispute between China and Mexico, which further involved other nations such as the US and those within the European Union, was quite heated. The dispute illuminated a number of queries within WTO rules regarding the consistencies of China’s exports restrictions on minerals. It is quite possible that the dispute, dubbed China- Measures Related to the Exportation of Various Raw Materials, will trigger additional similar trade conflicts such as China’s restrictions on the exportation of rare earth minerals. This may ultimately result in increased instability within the world trading system, thereby impeding efficient world trade. This paper provides an in-depth discussion on the compatibility of China’s export strategy at hand, with articles of GATT 1994, examining the exceptions set out in Article XX of GATT 1994 and WTO jurisprudence with regard to Article XX of GATT 1994 (WTO 9). Increased transparency and uniformity with regard to the administration of trade regulations, particularly in terms of export restrictions will effectively counter such disputes in the future. Summary of the Dispute and Appellate Panel’s Findings The WTO appellate panel issued its report after examining complaints by the European Union, US and Mexico with regard to China’s exportation of certain raw materials. In essence, the panel’s verdict found China’s export restriction regarding its rare earth metals to be in complete violation of China’s WTO commitments. The WTO dispute centered on four forms of export restrictions that China imposed on the exportation of certain raw materials. The raw materials in question encompassed certain forms of bauxite, magnesium, silicon carbide, yellow phosphorus, zinc, manganese, coke and fluorspar. China is notably the chief producer of all the aforementioned raw materials used in the production of common items, as well as products used in the manufacture of technological appliances. The complaints contended that the imposition of export restrictions create scarcity and cause the prices of raw materials to increase within global markets. This means that China’s export restriction of raw materials primarily produced in the country gave the nation’s domestic industry substantial advantage by means of a sufficient supply, as well as low and highly stable prices for the raw materials in question. This form of restriction is, as a matter of fact, in utter contravention of WTO provisions. After China’s concurrence to the WTO, the country agreed to do away with all export taxes or duties with the exception of several products cataloged in the Annex to its WTO Protocol of Accession. Through this Protocol, China further pledged not to apply any form of export restriction on the amount exportable. One of the Appellate panel’s findings noted that China’s export restrictions were not in agreement with the commitments, which China made in its Protocol of Accession. The panel realized that China’s imposition of export restrictions on certain raw materials was incompatible with WTO rules. This is because the wording found in China’s Protocol of Accession disallowed China from using the general exceptions found within Article XX of the GARR 1994. This means that China could not use the exceptions of this Article to justify its inconsistencies with regard to WTO export duties (WTO 12). However, even if China was able to use some exceptions in the WTO rules to give a valid reason for its incompatible export duties, China had still not acted in line with the demands of such WTO exceptions. Notably, China argued in its defense that part of its export taxes, quotas and duties were reasonable since they concerned the conservation of certain exhaustible natural resources, particularly with regard to certain raw materials. On the other hand, China was unable to prove that its imposition of export restrictions coupled with restrictions on domestic consumption and production aimed at conserving the raw materials. However, the Panel acknowledged that China appeared to be steering in the right direction through its adoption of a framework to give an explanation for its quotas in WTO regulations. Nonetheless, the WTO was yet to adopt the framework and put it into practice for domestic producers such as China. With regard to the other raw materials, China claimed that the imposition of export duties and quotas was necessary to protect the health of Chinese citizens. Nonetheless, the Chinese government was still unable to prove that the export duties and quotas would result in the decline of pollution both in the short and long term; hence contributing to the improvement of the health of Chinese people. As a result of the Panel’s findings, China made commitments to get rid of all restrictions infringing the right to trade. These rights refer to those given to enterprises by the Chinese government in corresponding to market admission and nondiscrimination provisions assured by the WTO. In essence, the complainants succeeded in most of the claims regarding China’s trading rights. However, with regard to the allocation and administration of its export quotas, China was successful in defending its practices against claims channeled by Mexico and the US. The European Union, however, succeeded in the claim it brought separately against China. In addition, the Panel found that several elements of China’s export licensing protocols, which were relevant to a number of products at issues, hamper the exportation of raw materials (WTO 10). This means that these licensing strategies were also inconsistent with the rules of WTO. Discussion of Exceptions Article XX of the GATT 1994 plays a significant role with regard to the GATT. This is because the article provides exceptions, which provide a balance for drafters with regard to definite nontrade objectives under trade law. The formulation of Article XX of the GATT 1994 exemplifies the care, which the drafters took to ensure the sovereignty of WTO members to engage in the aforementioned nontrade objectives while at the same time remaining within the established framework of the set rules of conduct. However, in certain instances the quest for these social objectives that include among others environmental protection, may contravene even the fundamental rules as nondiscrimination. Two notable exceptions regarding environmental protection are of immense significance. These paragraphs include paragraph (b) and (g) of Article XX. With regard to the aforementioned paragraphs, WTO members can implement policy measures, which are incompatible with even the most basic principles provided as nondiscrimination in pursuing the protection of plant, animal and human health and life (paragraph (b)) (WTO 12). In addition, the exceptions also allow inconsistency in WTO members’ behavior provided the said behavior aims at the conservation of natural resources that can easily become exhaustible (paragraph (g)). The fundamental chapeau within Article XX of the GATT 1994 asserts that, such actions are not executed in a way that would be equal to a manner of unjustifiable or arbitrary discrimination amongst countries in which similar conditions prevail. The chapeau also provides that nations’ actions should not be in the form of a disguised restriction with regard to international trade. In essence, this means that no WTO member country can construe that anything within the GATT 1994 prevents the implementation of measures by other contracting parties. This means that Article XX of the GATT 1994 applies not only to certain but rather to all provisions stipulated by the GATT 1994. Accordingly, the exceptions are relevant to all provision of the GATT 1994, which encompass among others rules on subsidies, as well as countervailing imposition of duties. Pursuant to the requirement that contracting countries do not apply the measures within GATT 1994 in a manner that would represent a form of unjustified or arbitrary discrimination, Article XX of the GATT 1994 provides succinct exceptions to trade restrictions. Firstly, Article XX of the GATT 1994 allows restrictions to free trade if such trade would contravene public morals. This means that the article allows restrictions, which are necessary for the protection of public morals. Secondly and as earlier mentioned, the Article XX also maintains that trade restrictions are permissible if they are vital to guarantee the protection of health and life of living organisms such as plants, animals and humans. In its defense, during the WTO dispute, China justified its trade restrictions on certain raw materials citing its restrictions were because of the deterrence of pollution. China perhaps sought to show that production of the raw materials in question would result in the death or sickness of living organisms protected by the GATT 1994 (WTO 15). Nonetheless, this exception was not applicable since China was unable to prove that such production would have caused the death or illness of humans, animals and plants. Another notable exception within Article XX of the GATT 1994 relates to the exportation, as well as importation of silver or gold. Article XX allows the imposition of taxes and quotas on the importation and exportation of precious metals like gold and silver amongst WTO members. These precious metals meet the threshold of restriction because of their scarcity and high value or monetary worth. Although China did not seek to justify its restrictions of raw material metals through this exception, the exception would have been sufficient if the country’s main exports were silver and gold. In addition, Article XX provides that trade restrictions are permissible if they are critical to ensure compliance with the stipulations that are not necessarily consistent with the provisions of GATT XX. This essentially relates to the enforcement of customs; monopolies run in accordance with paragraph 4 of Article II, as well as Article XVII. This exception also relates to the protection of patents, copyrights and trademarks. The aim of this exception is to deter the occurrence of deceptive practices amongst contracting WTO member countries. WTO recognizes restrictions are critical to the maintenance of elements such as customs, monopolies, patents, trademarks and copyrights. Conversely, the exceptions provided under Article XX of the GATT 1994 protect products manufactured by prison labor. Article XX of the GATT 1994 also allows WTO member states to impose trade restriction if such countries can prove that the restrictions aim at the protection of national treasures with artistic, archeological or historic importance. Of critical importance to China’s case is the next exception, which concerns the protection of natural resources. This exception allows countries to impose trade restriction; if such restrictions aim at the protection or conservation of natural resources that can diminish easily (WTO 17). However, this exception only allows trade restrictions if countries couple such restrictions with restrictions on domestic consumption and production of the restricted products in question. As it stands, China did not enjoy the immunity provided by this exception because the country did not couple its international trade restrictions with domestic restrictions on consumption and production of certain raw materials and metals. Moreover, Article XX of the GATT 1994 provides stipulations to allow countries to impose trade restrictions that may contravene the provisions of GATT 1994 if such restrictions take place in pursuance of commitment made under some form of intergovernmental commodity agreement. However, this exception is only valid if such intergovernmental agreement agrees with the measures presented to the contracting parties provided that the contracting parties do not disapprove them. Paragraph B (i) of Article XX further provides an exception regarding restrictions imposed on exports of domestic products provided that such products are critical to guarantee sufficient quantities of the products within domestic processing industries (WTO 28). However, this provision ensues during instances when the local price of such products falls below the global prices. Essentially, this exception seeks to protect WTO member states in times when the government maintains low prices as part of a stabilization strategy. However, this exception to the imposition of trade restrictions is acceptable only when such restriction does not aim at increasing or protecting the exports of domestic industries. This exception is also enforceable if it does not contravene the provisions of GATT 1994 with regard to nondiscrimination in trade. One of the greatest bones of contention amongst the complainants in the China case was the notion that China was restricting export of certain raw materials in order to put its domestic industry at an unfair advantage. Clearly, exception B (i) denounces the use of trade restrictions to benefit domestic industries. This is perhaps the reason why China did not succeed in its appeal to the Appellate Panel of the WTO. Lastly, Article XX of the GATT 1994 also stipulates that trade restrictions are permissible if such restrictions are vital to the distribution or acquirement of products in times of local short supply. However, GATT 1994 allows such restrictions under the condition that such strategies are consistent with the principle that asserts that all contracting WTO member states can have equitable shares of the international supply of products in question. In addition, the exception requires that if any of these measures contravene the other stipulations provided under GATT 1994, the parties shall do away with the measures as soon as the events giving rise to the measures lapse (WTO 37). It is undeniable that Article XX of GATT 1994 provides succinct exceptions to the provisions of GATT 1994, particularly with regard to the imposition of restrictions on trade. However, WTO still demands that a viable balance should be struck between a WTO member state’s right to invoke any of the aforementioned exception and the duty of such a member state to abide by the treaty of rights held by other member countries. To all intents and purposes, the Panel and Appellate Panel have the mission of deciphering and instigating the chapeau. This task is quite delicate as it involves mapping out a distinct equilibrium between the rights of a WTO member state to refer to an exception provided under Article XX and the rights of the same member state under other GATT 1994 provisions. This task aims at ensuring none of the member states’ rights cancel out other rights hence distorting or impair the balance of rights and duties devised by members of the WTO. With regard to national strategies undertake to protect the environment, despite Article XX’s provisions for the protection of the environment; the Appellate Body asserts that WTO holds that member states have autonomously to determine their national environmental policies. However, WTO only circumscribes member states’ rights to regulate their environmental policies if such measures do not respect the obligations of the GATT 1994 agreement, as well as other agreements covered in GATT 1994 (WTO 44). Therefore, even if countries establish that their trade restrictions strategies aimed at deterring environmental pollution in order to save human, animal and plant life, the reason is essentially insufficient to warrant restrictions if such strategy infringes on GATT 1994, as was the case with China. Article XX of the GATT 1994 allows restriction justifications on the basis of protection, but the Appellate Body provides a two-tiered experiment to gauge the justifications provided by Article XX. Firstly, in order for the justification of protection to become viable, the measure in question should not only meet the requirements of one of any exceptions provided in paragraphs (a) to (i) of Article XX, but the justification must also meet the prerequisites provided by the beginning clauses under Article XX. Essentially; this two-tiered analysis involves the provisional justification with regard to the characterization of the strategy under XX (g). In addition, the two-tiered system allows additional evaluation of the same strategy under the initial clause of Article XX. However, the measures that use the justifications of exceptions provided under Article XX of the GATT 1994 should not be questioned on their terms, but rather in the manner in which the measures are applied. This is because the purpose of the beginning clause of Article XX is to prevent the abuse of exceptions provided within the article. The animation of the chapeau of Article XX ensures that WTO member countries cannot justify their strategies through the exceptions as a matter of fact. This means that member states should not evoke the exceptions in an effort to frustrate their legal obligations as members of WTO under the GATT 1994. When countries implement measures that meet the exceptions of Article XX and do not misuse or abuse such provisions, such measures become reasonably applicable. This applicability is with regards to the legal obligations of the member state claiming the exceptions, as well as the legal rights of all other parties in question (WTO 53). In view of the WTO Appellate Body, paragraphs (a) to (i) of Article XX explicitly provide limited and conditional exceptions that guard the obligations contained in other duties of GATT 1994. Article XX of the GATT 1994 is essentially a principle of good faith. Article XX’s chapeau is fundamentally an expression of the notion of good faith. This principle is not only a principle of law, but one of international law, as well. This is because the principle governs the exercise of rights amongst member states. Abus de droit is one application of the said principle that governs against the abusive conduct of the rights of WTO member states. The principle commands that on every occasion that the assertion of a right intrudes on an event encompassed within a treaty obligation, then the exercise should be conducted reasonably. When a WTO member country conducts itself in a manner than abuses any section of its own treaty, then the country can be considered to be in utter contravention of the rights of other WTO members. In addition, such abusive exercise constitutes an infringement of the treaty of commitments of the member state in question (WTO 56). Another notable issue that emerged from China’s case is the issue of licensing. Article XX of the GATT 1994 seeks to ensure that member state follow due process. The process through which member states such as China grant certification for exportation must be transparent and predictable. Clearly, China’s export licensing procedures did not meet these requirements; thus constituting a breach of the provisions of GATT 1994. With regard to certification processes, Section 609 of the GATT 1994 dictates the proper administration of licenses to exporters. China’s initial argument in its defense was essentially an economic one. This is because China sought to assert that it has the right to exert export restrictions. This was despite China’s duties under Article XI of GATT, as well as China’s Accession. With regard to its imposition of export duties, China did not challenge the fact that its export duties were in contravention of its duties under paragraph 11.3 of its Accession Protocol. In addition, China did not seek to challenge the claim that such export fell outside the exceptions provided under paragraph 11.3. Rather, China essentially evoked the justifications provided under Article XX of the GATT 1994’s exceptions. However, as the above discussion shows, Article XX did not provide sufficient justifications for China’s breach of its inherent obligations found within paragraph 11.3 of its Accession Protocol. This is because the terms of Article XX of the GATT agreement strictly prescribe that the exceptions should not appear to condone arbitrariness of discrimination in measures (WTO 68). The main issue in China’s case was whether the nation’s export restrictions were at par with the provision of the GATT 1994, as well as the exceptions provided under Article XX of the agreement. In addition, China did not challenge the fact that its import quotas broke its obligations under part I of Article XI of the GATT 1994. In its place, China justified its imposition of export quotas on the raw materials according to Article XI: 2(a). On the other hand, if the provisions of Article XI: 2(a) was insufficient to warrant China’s imposition of export quotas; China would justify such quotas under paragraph (g) of Article XX of GATT 1994. China’s export quotas were unjustified under paragraph (g) of Article XX since the WTO member state failed to provide sufficient argument to show that the exportation of the raw materials in question centered on the conservation of the raw materials. Conclusion The Panel and Appellate Body found China to be in utter contravention of its obligations under GATT 1994, as well as the countries Accession Protocol. However, instead of directly dealing with the question of whether or not China’s contentious export measures were made effective through connection with restrictions on domestic consumption and production of the raw materials. On its part, China only asserted that it adopted a comprehensive array of measures regarding conservation of raw materials and other metals. China instituted most of these measures in the year 2010 (WTO 91). Nonetheless, the Appellate Body proved that China was not able to address the root of its export restrictions in a manner that showed sufficient fulfillment of the exceptions of Article XX. The dispute over China’s export measures only exemplifies the inherent problems of trade amongst WTO members. Although China contended that a number of its export restrictions such as duties and quotas were justifiable since low exports translated to low environmental pollution, the measures did not fully satisfy paragraph (b) of Article XX. In essence, the Appellate Body put into consideration all the exceptions provided by Article XX, as well as WTO’s jurisprudence of the provisions of Article XX but did not find due cause for China’s imposition of export restrictions on the raw materials in question. The exceptions under Article XX were insufficient to protect China against the claims leveled against it. Work Cited World Trade Organization (WTO). China – measures related to the exportation of various raw materials. Web. 2012. 30 January. 2012. http://www.wto.org/english/tratop_e/dispu_e/394_395_398abr_e.pdf Read More