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4 February 2012 | Angeline Albert
Buyers are expected to benefit from lower prices and a greater supply of raw materials from China after the country was told to lift its export restrictions.
This week, the World Trade Organization (WTO) declared that China had breached its rules by placing export quotas on the bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorous and zinc produced in the country.
The US, Mexico and the European Union (EU) challenged China’s export duties and quotas arguing the restrictions created scarcity of supply and higher prices in global markets. European companies relying on these raw materials include those in the chemical, steel and non-ferrous metal industries and their downstream customers, such as producers of electronics, cars and medicines.
The EU and US, followed by Mexico, launched the case in 2009 and now the WTO has ruled that China must lift its restrictions. The next step is for representatives of the EU, US, Mexico and China to meet with the WTO to hash out a timetable for the quotas to be withdrawn.
The EU argued China’s export restrictions “create serious disadvantages” for foreign buyers of the raw materials by increasing world prices. Such restrictions also “artificially” lowered the country’s domestic prices due to significant increases in domestic supply, which put pressure on foreign companies to move their operations to China.
The WTO said China had failed to give good reason for its protectionist measures and called its environmental protection reasons unjustified. Upon its accession to the WTO, China promised to eliminate all export duties.
“This final ruling [of the WTO] is a great success in our efforts to ensure fair access to the much needed raw materials for EU industry. It sends a clear signal that such measures cannot be used as a protectionist tool to boost domestic industry at the expense of foreign competition," said EU trade commissioner Karel De Gucht.
In addition to the issue surrounding raw materials, China produces about 97 per cent of the world’s 17 rare earth minerals (REEs), but its government’s drive to decrease export of these minerals and increase its own consumption has created higher global REE prices. These minerals are used in energy-efficient bulbs, LCD/plasma displays, IT equipment and wind turbines. There are more than 1,000 parts in a car that use rare earths. Although China’s export restrictions on REEs remain unaffected by the WTO’s ruling on raw materials, De Gucht intends to exert political pressure to remove the restrictions because the Chinese submitted similar environmental arguments for its restrictions in REEs.