World Trade Organization judges rejected China's appeal of aruling that found restrictions on exports of nine raw materialsbreak global rules and give the country's manufacturers an unfairedge over competitors.

The WTO concluded on July 5 that Chinese quotas, export dutiesand license requirements on overseas shipments of industrialingredients including coke, zinc and bauxite are discriminatory.The restrictions have stoked tensions between China and its tradingpartners, which accuse the Chinese government of having unfaircommerce and currency policies.

U.S. Trade Representative Ron Kirk called the Appellate Bodyreport a “tremendous victory,” particularly for manufacturers andworkers. The decision “ensures that core manufacturing industriesin this country can get the materials they need to produce andcompete on a level playing field,” Kirk said in an e-mailedstatement from Washington.

Today's affirmation of the initial panel ruling may prompt theU.S. and the European Union to make good on threats to complain atthe Geneva-based WTO over Chinese restraints on exports of rareearths, a group of 17 elements used in high-tech products such asBoeing Co. helicopter blades, Nokia Oyj cell phones and ToyotaMotor Corp. hybrid cars.

The outcome of this case obliges China to bring the challengedmeasures into compliance with the rulings, the European Commissionsaid in a statement from Brussels. “However, the EU continues to bedeeply troubled by China's use of export restrictions not only onthe specific products at issue in this dispute, but also on rareearth and many other industrial raw materials.”

Appellate Body judges urged China to modify its policies onraw-material exports to ensure they “do not operate to bring abouta WTO-inconsistent result.”

“China respects the rulings of the WTO and will apply reasonablepolicies to administer resource products in accordance with the WTOrules, so as to realize sustainable development,” the Chinesemission in Geneva said in an e-mailed statement.

China, the world's second-largest economy, is the top producerof cadmium, gold, indium, iron ore, lime, lead, manganese, mercury,molybdenum, phosphate, salt, tin, tungsten, vanadium and zinc. Itsexport restraints have caused worldwide supplies of many rawmaterials to plummet, sending prices higher and providing anincentive for manufacturers to move to China to take advantage ofthe cheaper materials.

Economic Importance

The commodities at issue in the WTO complaint, filed by theU.S., the EU and Mexico, also include magnesium, manganese, siliconcarbide, fluorspar, silicon metal and yellow phosphorus, which areused by the steel, aluminum, automotive and chemicalsindustries.

The EU said imports of the raw materials covered by the casereach 1 billion euros ($1.3 billion) a year and that “the economicimportance is well beyond this figure as those represent inputs forthe production of a large range of products.”

China argued that the restrictions are necessary to conserveexhaustible natural resources and ease overproduction and emissionsof carbon and sulfur gases from furnaces. The U.S., the EU andMexico said the curbs discourage the export of materials that are“critical” for their manufacturers, while keeping them cheaper andreadily available in China.

Rare earths became a political and legislative issue after Chinamoved to limit domestic output and slash export quotas in July 2010by 40 percent, souring ties with major users including the U.S. andJapan, where buyers have cut usage after prices soared in the firsthalf of 2011. The Chinese government, which supplies 95 percent ofglobal rare earths, said on Dec. 28 it was leaving the 2012overseas sales caps virtually unchanged.

The U.S. Energy Department said earlier this month that limitedsupplies of five rare-earth minerals — dysprosium, terbium,europium, neodymium and yttrium — pose a threat to increasing useof clean-energy technologies such as wind turbines and solarpanels. While prices of rare earths fell in the second half of2011, they remain volatile, leading some companies to search forways to consider reducing reliance on the minerals, the EnergyDepartment said.

China has said the curbs protect the environment and are in linewith its WTO commitments. The country's Inner Mongolia Baotouregion produces so-called light rare earths such as lanthanum,cerium and samarium. Heavy rare-earth production, concentrated inthe south of China, includes the elements dysprosium, gadoliniumand terbium.

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