CHINA'S EXPORT RESTRICTIONS OF RAW MATERIALS AND RARE EARTHS: A NEW BALANCE BETWEEN FREE TRADE AND ENVIRONMENTAL PROTECTION?
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CHINA’S EXPORT RESTRICTIONS OF RAW MATERIALS
AND RARE EARTHS: A NEW BALANCE BETWEEN FREE
TRADE AND ENVIRONMENTAL PROTECTION?
RUTH JEBE*
DON MAYER**
YONG-SHIK LEE***
ABSTRACT
On March 13, 2012, Japan, the United States, and the European
Union filed Requests for Consultations (Requests) with the World Trade
Organization (WTO), contesting China’s export restrictions on rare
earth elements (REE). The Requests were long expected, given the grow-
ing importance of REE, coupled with China’s near-total dominance in
the REE market. This Article predicts that, in light of the WTO’s recent
Appellate Body decision in the China – Raw Materials case, China will
not successfully defend its REE export restrictions under the General
Agreement on Tariffs and Trade (GATT 1994).
The legal issues that arise in both China – Raw Materials and
China’s export restrictions of REE are significant for WTO jurispru-
dence because they address long-standing tensions between free trade and
environmental protection. This Article discusses the Raw Materials
Appellate Body’s analysis of the environmental and conservation
defenses China raised under GATT 1994 Articles XI, XX(b), and
XX(g). While China’s export restrictions were held to violate its WTO
obligations, the interpretation of Articles XX(b) and XX(g) left WTO
jurisprudence largely unchanged and demonstrated the Appellate Body’s
willingness to uphold legitimate environmental and conservation mea-
sures. This Article then evaluates the factual and evidentiary issues
China faces in the REE dispute, in light of China – Raw Materials, and
identifies potential hurdles that will impair China’s ability to prevail in
the REE case.
* Senior Lecturer in Business Ethics and Legal Studies, Daniels College of Business,
University of Denver. Member of the Connecticut and Colorado bars. M.S.M. 2004, Dan-
iels College of Business, University of Denver; J.D. 1986, University of Minnesota Law
School; B.A. 1979, University of Minnesota.
** Professor in Residence, Daniels College of Business, University of Denver. Mem-
ber of the North Carolina bar. LL.M. 1985, Georgetown University Law Center; J.D. 1973,
Duke University Law School; A.B. 1970, Kenyon College.
*** Professor (Chair) of International Economic Law, University of Manchester,
United Kingdom. Ph.D. 2004, University of Cambridge, United Kingdom; M.A. 1997, B.A.
1993, B.A. 1991, University of California at Berkeley.
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580 The Geo. Wash. Int’l L. Rev. [Vol. 44
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580 R
II. RARE EARTH ELEMENTS AND THEIR IMPORTANCE IN
WORLD TRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586 R
A. Overview of the Global REE Market. . . . . . . . . . . . . . . . . . 586 R
B. Environmental Problems of Rare Earth Mining . . . . . . . 589 R
C. Overview of China’s REE Export Regime . . . . . . . . . . . . . 591 R
III. THE WTO CONSULTATIONS ON CHINA’S REE EXPORT
RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592 R
IV. THE CHINA – RAW MATERIALS DISPUTE . . . . . . . . . . . . . . . . 594 R
A. Article XI Issues and Defenses . . . . . . . . . . . . . . . . . . . . . . . 596 R
B. Article XX Issues and Defenses . . . . . . . . . . . . . . . . . . . . . . 599 R
1. China’s Article XX(b) Defense . . . . . . . . . . . . . . . 600 R
2. China’s Article XX(g) Defense Claims . . . . . . . 608 R
a. Relating to the Conservation of an
Exhaustible Natural Resource . . . . . . . . . . . . 609 R
b. What is “Effective in Conjunction with
Domestic Restrictions”? . . . . . . . . . . . . . . . . . . 612 R
c. The Broader Context of Article XX(g):
Sovereignty Over Natural Resources . . . . . . 618 R
V. IMPLICATIONS OF THE CHINA – RAW MATERIALS
DECISION FOR RAW MATERIAL EXPORTS . . . . . . . . . . . . . . . . 619 R
VI. THE TENSIONS BETWEEN FREE TRADE AND
ENVIRONMENTAL PROTECTION IN CHINESE EXPORT
RESTRICTIONS CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621 R
VII. LEGAL IMPLICATIONS OF THE CHINA – RAW MATERIALS
DECISION FOR THE CURRENT REE DISPUTE . . . . . . . . . . . . 627 R
A. China’s Article XX(b) Defense . . . . . . . . . . . . . . . . . . . . . . . 628 R
B. China’s Article XX(g) Defense . . . . . . . . . . . . . . . . . . . . . . . 635 R
VIII. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 R
I. INTRODUCTION
On March 13, 2012, Japan, the United States, and the European
Union filed Requests for Consultation (Requests) with the World
Trade Organization (WTO) contesting China’s export restrictions
on rare earth elements (REE).1 REE are critical raw materials for
1. Request for Consultations by the United States, China—Measures Related to the
Exportation of Rare Earths, Tungsten and Molybdenum, WT/DS431/1 (Mar. 15, 2012) [herein-
after Request for Consultations by the United States]; Request for Consultations by the
European Union, China—Measures Related to the Exportation of Rare Earths, Tungsten and
Molybdenum, WT/DS432/1 (Mar. 15, 2012) [hereinafter Request for Consultations by the
European Union]; Request for Consultations by Japan, China—Measures Related to the Expor-\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 3 28-JAN-13 10:30
2012] China’s Export Restrictions 581
both “high-tech” and “clean tech” products (for example, products
as diverse as cell phones, hybrid automobiles, and wind turbines all
rely on REE as basic materials), as well as for certain defense appli-
cations.2 The Requests came as no surprise, given the growing
importance of REE coupled with China’s near-total dominance in
the REE market.3 China produces upwards of 95% of the global
supply of REE and, in 2010, instituted export restrictions on its
REE.4 These export restrictions had the effect of constricting for-
eign access to REE, while increasing the availability of REE to Chi-
nese downstream processors. As the world’s primary REE supplier,
China’s export restrictions are enormously important for busi-
nesses that rely on REE in their product technologies and require
consistent supply of these minerals. The legal issues presented by
China’s REE export regime are equally important. As a WTO
member, China is bound by obligations created under the most
recent General Agreement on Tariffs and Trade (GATT 1994), as
well as by obligations in its Accession Protocol with the WTO.
The REE controls were preceded in 2009 by a similar set of
export restrictions placed on a variety of China’s raw materials,
including bauxite, fluorspar, and coke.5 Several nations chal-
lenged China’s export restrictions in a WTO panel proceeding,
tation of Rare Earths, Tungsten and Molybdenum, WT/DS433/1 (Mar. 15, 2012) [hereinafter
Request for Consultations by Japan]. Although the requests and pending consultations
also address tungsten and molybdenum along with rare earth elements (REE), this paper
will focus solely on Chinese export restrictions of REE. REE (sometimes referred to as rare
earth minerals) are a group of seventeen chemical elements in the periodic table, specifi-
cally the fifteen lanthanoids plus scandium and yttrium. CINDY HURST, INST. FOR ANALYSIS
OF GLOBAL SEC., CHINA’S RARE EARTH ELEMENTS INDUSTRY: WHAT CAN THE WEST LEARN? 3
(2010), available at http://www.iags.org/rareearth0310hurst.pdf.
2. MARC HUMPHRIES, CONG. RESEARCH SERV., R41347, RARE EARTH ELEMENTS: THE
GLOBAL SUPPLY CHAIN 2–4 (2010); GORDON B. HAXEL ET AL., DEP’T OF THE INTERIOR, USGS
FACT SHEET 087-02, RARE EARTH ELEMENTS – CRITICAL RESOURCES FOR HIGH TECHNOLOGY
(Peter H. Stauffer & James W. Hendley II eds., 2002), available at http://pubs.usgs.gov/fs/
2002/fs087-02/fs087-02.pdf.
3. See infra notes 30–52 and accompanying text. R
4. See, e.g., Keith Bradsher, China Said to Widen Its Embargo of Minerals, N.Y. TIMES,
Oct. 20, 2010, at B1; R. Colin Johnson, Rare Earth Supply Chain: Industry’s Common Cause,
ELEC. ENG’G TIMES (Oct. 24, 2010), http://www.eetimes.com/electronics-news/4210064/
Rare-earth-supply-chain—Industry-s-common-cause; N.V., The Difference Engine: More Pre-
cious than Gold, ECONOMIST (Sept. 17, 2010), http://www.economist.com/blogs/babbage/
2010/09/rare-earth_metals; Rodd Zolkos, China’s Move on Metal Exports Presents Big Supply
Chain Risk, BUS. INS. (Jan. 16, 2011), http://www.businessinsurance.com/article/999999
99/NEWS060101/399999925?tags=%7C331; Digging in: China Restricts Exports of Some
Obscure but Important Commodities, ECONOMIST, Sept. 2, 2010, at 82.
5. See infra Part IV.\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 4 28-JAN-13 10:30
582 The Geo. Wash. Int’l L. Rev. [Vol. 44
which the Appellate Body ruled on in January 2012.6 This Article
predicts that China will not successfully defend its REE export
restrictions under the GATT 1994 and China’s other WTO obliga-
tions, especially in light of the WTO’s recent Appellate Body deci-
sion in the China – Raw Materials case (Raw Materials). The legal
issues present in both China’s REE export restrictions and the Raw
Materials case are especially significant for WTO jurisprudence.
In particular, these legal issues relate to long-standing tensions
between free trade and environmental protection that have been
richly debated in both scholarly journals and the popular media.7
Free trade advocates, who tend to see disguised protectionism
behind every claimed environmental measure, are at one extreme
of this debate; environmentalists, who tend to view the GATT 1994
and the WTO as consistently subordinating environmental values
to the interests of free trade, are at the other extreme.
The Tuna-Dolphin Case, a pro-free trade GATT Panel decision,
markedly increased discontent with GATT Panel decisions on the
environment.8 In this case, the U.S. government—after considera-
ble pressure by environmentalists—sought to limit its domestic
6. Appellate Body Reports, China—Measures Related to the Exportation of Various Raw
Materials, WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R (Jan. 30, 2012) [here-
inafter Appellate Body Reports, China]; Panel Report, China—Measures Related to the Expor-
tation of Various Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R (July 5, 2011)
[hereinafter Panel Report, China].
7. See infra notes 15–28 and accompanying text. R
8. The controversy is well described in Nancy Kubasek et al., Protecting Marine Mam-
mals: Time for a New Approach, 13 UCLA J. ENVTL. L. & POL’Y 1, 3–12 (1994–1995). See
Report of the Panel, United States—Restrictions on Imports of Tuna, ¶ 5.36, DS21/R (Aug. 16
1991), GATT B.I.S.D. (39th Supp.) at 155, 201 (1992) [hereinafter Tuna/Dolphin I].
Mexico did not seek the adoption of this report at the time of its release, and the General
Agreement on Tariffs and Trade (GATT) Council rejected a request by the European
Union to adopt the report. See Timothy Goplerud, The Struggle to “Green” GATT: Free Trade
and Environmental Responsibility in the Wake of the United States-Mexico Tuna-Dolphin Dispute, 17
WM. & MARY J. ENVTL. L. 215, 219–20 (1993) (“Because Mexico did not press the GATT
Council to adopt the panel report, the ruling has no legal force.”). The European Union
and the Netherlands subsequently initiated their own challenge to the secondary import
ban, which is designed to discourage “tuna laundering” by intermediary nations that
purchase yellow fin tuna abroad and export it to the United States. Report of the Panel,
United States—Restrictions on Imports of Tuna, ¶¶ 2.1–2.2, DS29/R (June 16, 1994) [hereinaf-
ter Tuna/Dolphin II]. This panel report, like the first, found that the secondary import
prohibition is inconsistent with the United States’ obligations pursuant to the GATT. Id.
Neither report was adopted by the GATT Council, which ceased to exist as of the end of
1995. Hence, these two reports do not represent authoritative interpretations of GATT/
WTO obligations by the contracting parties to the GATT. The literature reacting to the
apparent conflicts under the GATT between free trade and environmental protection
mushroomed. Part of this discussion in the early 1990s was a reaction to perceived defi-
ciencies in the Tuna/Dolphin I panel decision, and some of these concerns were remedied
in Tuna/Dolphin II.\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 5 28-JAN-13 10:30
2012] China’s Export Restrictions 583
market for tuna not deemed “dolphin safe” tuna.9 In the Eastern
Tropical Pacific, tuna fishing fleets would often use purse seine
nets to encircle pods of dolphins, with the aim of catching yel-
lowfin tuna that would often swim in schools just beneath the
pod.10 Such purse-seine netting of tuna may have killed over six
million dolphins in the Eastern Tropical Pacific over the past fifty
years.11 Tuna boats registered in the United States, Mexico, or
Vanuatu often set upon the same dolphin pods repeatedly, impos-
ing serious levels of death and injury to the dolphins that could
easily become disoriented and get caught in the nets or the blocks
as the net was raised.12 The GATT Panel, however, determined
that the United States could not impose its environmental stan-
dards extraterritorially by excluding from its market certain prod-
ucts that were not produced or processed according to U.S.
standards.13 For GATT purposes, a tuna was a tuna, regardless of
how it was “harvested” from the ocean.14
9. See Tuna/Dolphin I, supra note 8, ¶¶ 2.7–2.8. R
10. Id. ¶¶ 2.1–2.2.
11. Over six million dolphins have died as a result of purse-seine netting operations
since the late 1950s, when purse-seine netting began. See The Tuna-Dolphin Issue, SW. FISH-
ERIES SCI. CTR., http://swfsc.noaa.gov/textblock.aspx?Division=PRD&ParentMenuId=228&
id=1408 (last updated Nov. 6, 2008).
12. See Tuna/Dolphin I, supra note 8, ¶¶ 2.1–2.2. Dick Russell has described part of R
the purse-seine netting operations as follows:
When the seiner closes to within a mile of the activity, speedboats are dispatched.
These race in to circle the dolphins, forcing them into an ever-tighter array. A
heavy skiff is launched off the seiner’s stern to anchor its enormous net. The
seiner then moves away from the skiff and begins to release the massive, mile-long
fence of red-mesh net buoyed by large yellow floats and reaching a depth of sev-
eral hundred feet. From cables the net is drawn taut at the bottom—similar to
drawstrings on a purse—to prevent any escape of the frantic dolphins. The ves-
sel’s powerful hydraulic system hauls the net close and pulls it upward. Dozens of
dolphins are slung together in the middle. Nursing calves are separated from
their mothers. Some dolphins are severely injured, others are utterly exhausted.
A tapered flipper bends precariously, a white-tipped beak gasps for air. The great
spool conveys the dolphins ever higher.
Dick Russell, Tuna-Dolphin Wars, DEFENDERS, Summer 2002, at 18, 20.
13. Tuna/Dolphin I, supra note 8, ¶ 6.2 (“[U]nder these provisions, a contracting R
party is free to tax or regulate imported products and like domestic products as long as its
taxes or regulations do not discriminate against imported products or afford protection to
domestic producers, and a contracting party is also free to tax or regulate domestic pro-
duction for environmental purposes. As a corollary to these rights, a contracting party may
not restrict imports of a product merely because it originates in a country with environ-
mental policies different from its own.”).
14. Id. ¶ 2.3 (noting that the Marine Mammal Protection Act governs “the taking of
marine mammals incidental to harvesting of yellowfin tuna in the ETP, as well as importa-
tion of yellowfin tuna and tuna products harvested in the ETP”).\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 6 28-JAN-13 10:30
584 The Geo. Wash. Int’l L. Rev. [Vol. 44
Those who saw environmental interests as losing to free trade
broke into two broad camps.15 Environmental activist organiza-
tions depicted the international trade regime as “GATTzilla,” a free
trade monster that destroyed all other interests.16 These groups
saw trade and environmental issues as inevitably conflicted, with
the forces of business as represented by the international trade
regime always the winner.17 Many called for the GATT/WTO
regime to be disbanded or, at least, for the U.S. to withdraw.18
Andrew Strauss refers to this approach as “environmental
isolationism.”19
A somewhat different approach was taken by certain academic
commentators who were dissatisfied with the GATT’s environmen-
tal record identified institutional issues that they argued would
consistently tip the balance in favor of trade. Some of these writers
identified issues with the GATT text or with the interpretation of
GATT provisions.20 The arguments advanced by these writers have
resulted in multiple suggestions for amending specific GATT provi-
sions, most notably Article XX, to more specifically incorporate
environmental and resource criteria.21 Some environmentalists in
this camp have called for a “green round” of GATT negotiations
15. See DANIEL C. ESTY, GREENING THE GATT: TRADE, ENVIRONMENT, AND THE FUTURE
34–35 (1994).
16. See id.
17. See id.; Belinda Anderson, Unilateral Trade Measures and Environmental Protection Pol-
icy, 66 TEMPLE L. REV. 751, 751–52 (1993).
18. Andrew Strauss, From GATTzilla to the Green Giant: Winning the Environmental Battle
for the Soul of the World Trade Organization, 19 U. PA. J. INT’L ECON. L. 769, 770 (1998).
19. Id. at 769–70. Contra Daniel C. Esty, GATTing the Greens, Not Just Greening the
GATT, FOREIGN AFF., Nov.–Dec. 1993, at 32, 35 (calling the GATT “not hostile to the envi-
ronment but agnostic”).
20. See, e.g., Matthew Hunter Hurlock, The GATT, U.S. Law and the Environment: A
Proposal to Amend the GATT in Light of the Tuna/Dolphin Decision, 92 COLUM. L. REV. 2098,
2010 (1992) (identifying the absence of the word “environment” as suggesting that the
Agreement fails to address environmental issues); Janet McDonald, Greening the GATT:
Harmonizing Free Trade and Environmental Protection in the New World Order, 23 ENVTL. L. 397,
422–23 (1993) (arguing that GATT jurisprudence to date seemed to bode ill for environ-
mental regulation as they indicated that discriminatory practices would not be tolerated
under GATT, even if there was some environmental justification for them).
21. See, e.g., Hurlock, supra note 20, at 2145 (Article XX can be amended to better R
protect the environment); McDonald, supra note 20, at 466 (recommending revisions of R
Articles I and III to include distinctions based on production); Robert Housman &
Durwood Zaelke, Trade, Environment, and Sustainable Development: A Primer, 15 HASTINGS
INT’L & COMP. L. REV. 535, 606 (1991–1992) (advocating a broadened definition of “neces-
sity” in Article XX(b) to encompass a cost–benefit analysis).\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 7 28-JAN-13 10:30
2012] China’s Export Restrictions 585
that “would specifically address international environmental
issues.”22
Commentators also identified institutional issues that they saw as
inevitably advancing trade interests ahead of environmental inter-
ests. Belinda Anderson argues that if decision makers view trade
and environmental policy goals as mutually exclusive, the trade
goals will prevail because of trade’s well-established institutional
framework,23 while Steve Charnowitz contends that there is no
inherent conflict between the environment and trade, but there is
conflict between environmental protection and GATT rules.24 San-
ford Gaines identifies the weakness in international environmental
institutions and robustness in internal trade institutions as influ-
encing the prioritization of trade over environmental norms.25
These institutional biases were strengthened by the fact that dis-
pute settlement panelists lacked expertise in social welfare or envi-
ronmental issues, and that there are limited opportunities for
environmental groups to participate in disputes.26 Further, trade
ministries of member countries generally control the WTO, rein-
forcing the institutional bias in favor of trade issues.27 These con-
cerns with the strong institutional structure of the international
trade regime have given rise to calls for the creation of a corre-
sponding international environmental organization. Proponents
of this approach include Daniel Esty, C. Ford Runge, and Steven
Charnovitz.28
22. See Carol J. Miller & Jennifer L. Croston, WTO Scrutiny v. Environmental Objectives:
Assessment of the International Dolphin Conservation Program Act, 37 AM. BUS. L.J. 73, 82 (1999).
23. See, e.g., Anderson, supra note 17, at 752. R
24. See Steve Charnovitz, The Environment vs. Trade Rules: Defogging the Debate, 23 ENVTL.
L. 475, 477 (1993).
25. See Sanford E. Gaines, The Problem of Enforcing Environmental Norms in the WTO and
What to Do About It, 26 HASTINGS INT’L & COMP. L. REV. 321, 323 (2003).
26. See Myung Hoon Choo, An Institutionalist Perspective on Resolving Trade-Environmen-
tal Conflicts, 12 J. ENVTL. L. & LITIG. 433, 438 (1997); Strauss, supra note 18, at 800–02. R
27. See David M. Driesen, What Is Free Trade? The Real Issue Lurking Behind the Trade and
Environment Debate, 41 VA. J. INT’L L. 279, 314, 324 (2001).
28. See, e.g., Esty, supra note 19, at 36 (the formation of an International Environmen- R
tal Organization would help define general environmental principles); C. FORD RUNGE ET
AL., FREER TRADE, PROTECTED ENVIRONMENT: BALANCING TRADE LIBERALIZATION AND ENVI-
RONMENTAL INTERESTS 100–07 (1994) (calling for creation of a “World Environmental
Organization”); Steve Charnovitz, A World Environment Organization 16–18 (U.N. Univ. Inst.
of Advanced Studies Project on Int’l Envtl. Governance Reform, Feb. 2002), available at
http://archive.unu.edu/inter-linkages/docs/IEG/Charnovitz.pdf. Variations on this insti-
tutional theme include proposals for the United Nations Environmental Programme to
play a larger role in trade and environment disputes and the creation of a new forum to
hear trade-environment disputes. See Choo, supra note 26, at 457 (first suggestion); Jeffrey R
L. Dunoff, Institutional Misfits: The GATT, the ICJ & Trade-Environment Disputes, 15 MICH. J.
INT’L L. 1043, 1108–09 (1994) (second suggestion).\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 8 28-JAN-13 10:30
586 The Geo. Wash. Int’l L. Rev. [Vol. 44
This Article begins with a general discussion of REE including an
overview on extraction, processing, and uses of the elements. It
also provides background on the global REE market, environmen-
tal problems associated with REE mining, an overview of China’s
REE export regime, and the request for consultations on China’s
export restrictions on REE. The Article then turns specifically to
the Raw Materials WTO dispute. It focuses on the defenses China
raised to its export restrictions under the GATT 1994 Articles
XI:2(a), XX(b), and XX(g) and describes the implications of the
dispute on China’s REE export controls given that China is likely to
raise all of these defenses in the pending REE dispute. The Article
then discusses the new WTO jurisprudential balance between free
trade and environmental protection after the Raw Materials case.
The Article concludes with an analysis of the legal and business
implications of the Raw Materials dispute.
II. RARE EARTH ELEMENTS AND THEIR IMPORTANCE
IN WORLD TRADE
REE are not truly “rare”—they are relatively abundant in the
earth’s crust.29 Because of their geochemical properties, however,
most REE deposits are not concentrated enough to be exploitable
economically.30 The complex and costly method for mining and
processing REE further complicates commercial exploitation.31
Additionally, REE have unique properties, making their applica-
tions very specific and very valuable.32
A. Overview of the Global REE Market
Global demand for REE has risen dramatically over the past two
decades along with the increase in innovative new technologies
that rely on the unique properties of REE. Global demand in 2010
was estimated at 134,000 tons per year and was projected to exceed
200,000 tons annually by 2014.33 At the same time, global produc-
tion has lagged behind demand.34 REE reserves are dispersed
worldwide, with the largest reserves in China (36% to 48% of
global reserves), the Commonwealth of Independent States (17%
29. See HUMPHRIES, supra note 2, at 1. R
30. See id. at 2.
31. See HURST, supra note 1, at 4–5. R
32. See HUMPHRIES, supra note 2, at 4. R
33. See id. at 3.
34. See id. (noting that the shortfall is covered using stockpiled REE inventory).\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 9 28-JAN-13 10:30 2012] China’s Export Restrictions 587 of global reserves) and the United States (12% of global reserves).35 Despite the presence of REE reserves in a variety of countries, China is the dominant global producer of REE concentrates, pro- viding in excess of 95% of world supply.36 China’s rise to domi- nance is astounding, considering that until the 1980s, China’s REE production was “insignificant.”37 Several historical factors com- bined to propel China to the forefront of REE production. China began an overall push for technological innovation in the 1980s, and the use of REE was an important component of this push.38 Chinese scientists developed improved techniques for rare earth products and this, combined with increasing global demand, fueled China’s focus on REE.39 In 1990, the Chinese government declared REE to be protected and strategic minerals, then took a larger role in regulating the REE industry.40 During the 1990s, high profit margins on REE attracted many start-up enterprises in China.41 The resulting competition and oversupply pushed REE prices downward, even though exports of REE increased.42 The low prices for Chinese REE placed price pressure on producers outside of China that they simply could not 35. See id. at 6; see also BRITISH GEOLOGICAL SURVEY, RARE EARTH ELEMENTS 24–25 (2011) (showing China’s REE reserves at 48% of world totals). Estimates of China’s rare earth reserves vary. WAYNE L. MORRISON & RACHEL TANG, CONG. RESEARCH SERV., R42510, CHINA’S RARE EARTH INDUSTRY AND EXPORT REGIME: ECONOMIC AND TRADE IMPLICATIONS FOR THE UNITED STATES 8 n.21 (2012) (“The U.S. Geological Survey estimates this level at 50% . . . while China’s own estimate puts it at 36%. . . .”). 36. See, e.g., id. at 27; HURST, supra note 1, at 3; LUISA MORENO, JACOBS SEC. INC., RARE R EARTH ECONOMIC WAR 1 (2011), available at http://research.jacobsecurities.com/wp-con- tent/uploads/2011/10/Rare-Earths-Economic-War-Oct-17-2011-JSI.pdf. 37. See MORRISON & TANG, supra note 35, at 9 (noting that the U.S. was the top pro- R ducer of REE until 1986, when China surpassed the United States and has remained the dominant supplier ever since). 38. See HURST, supra note 1, at 6, 8–9 (noting that, for example, China has two govern- R ment laboratories that focus on REE, the primary of them, the State Key Laboratory of Rare Earth Resource Utilization, was established in 1987; these government laboratories made significant progress in developing new processes for the separation of REE during the 1980s). 39. MORRISON & TANG, supra note 35, at 9–10. R 40. PUI-KWAN TSE, U.S. GEOLOGICAL SURVEY, OPEN-FILE REPORT 2011–1042, CHINA’S RARE-EARTH INDUSTRY 5 (2011). Examples of government involvement included the gov- ernment prohibition on foreign investment in mining or processing REE except in joint ventures with Chinese firms and the requirement of government permits for all REE min- ing or processing operations, regardless of size. Id. 41. MORRISON & TANG, supra note 35, at 10. R 42. Id. Production overcapacity was so severe that, between 2002 and 2005, average rare earth prices dropped to $5.50 per kilogram, an historic low. Id.
\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 10 28-JAN-13 10:30
588 The Geo. Wash. Int’l L. Rev. [Vol. 44
meet.43 Thus, most of the world’s REE mines outside of China
were closed by the early 2000s.44 China continued to invest
resources in developing better extraction and refining technolo-
gies and, as a result, currently has the most advanced technologies
for REE processing.45 At the same time, China moved to expand
its REE capabilities beyond mining and refining to capture more of
the downstream REE value chain.46 China soon took the lead in
the production of REE alloys, magnetic parts, and components.47
China’s rise to prominence as a global REE provider was not
without problems. The rush to develop REE mines resulted in a
fragmented industry consisting of thousands of mines, some of
them illegal (i.e., operating without government permits).48
Smaller mines tended to ignore safety and environmental regula-
tions to maximize profits, which were especially important in the
43. Id.
44. Id. A case in point is the U.S. REE mining company Molycorp Inc., which had
operated a mine in Mountain Pass, California until costs associated with environmental
issues, coupled with the low price of Chinese REE, caused the mine to close in 2002. See
Katherine Bourzac, Undermining China’s Monopoly on Rare Earth Elements, MIT TECH. REV.
(Dec. 22, 2010), http://www.technologyreview.com/energy/26980/?mod=related.
45. MORRISON & TANG, supra note 35, at 10. Chinese innovations include developing R
a process called in-situ mining, which does not require drilling or blasting, thereby reduc-
ing environmental damage resulting from mining. BRITISH GEOLOGICAL SURVEY, supra note
35, at 12. Chinese processing technology now delivers REE concentrates at 99.9999% R
purity. Id. at 15. Such processing innovations are significant. See infra Part VIII.
46. BRITISH GEOLOGICAL SURVEY, supra note 35, at 32. R
47. Id. The expanded capacity had proved critical to China’s dominance of the REE
industry as the primary uses for REE shifted from traditional areas of metallurgy, machin-
ery, and petroleum and chemical industries to new materials such as magnets, phosphors,
catalysts for automobile exhausts, and polishing powder. TSE, supra note 40, at 5. By 2007, R
53% of REE use was in new materials. Id. This shift is nowhere more evident than in the
permanent magnet industry. HURST, supra note 1, at 12–13. In 1998, 90% of world perma- R
nent magnet production was in the United States, Europe, and Japan. Id. By 2007, leader-
ship in permanent magnet production had shifted to China, which had approximately 130
permanent magnet manufacturers. Id. The United States has only one remaining perma-
nent magnet manufacturer. Kevin Craft, Grant Helps Make U.S. Rare Earth Magnets More
Common, ENERGY.GOV (Aug. 6, 2010), http://energy.gov/articles/grant-helps-make-us-rare-
earth-magnets-more-common. Industry commentators have also recognized the impor-
tance of building a vertically integrated supply chain to revitalize the REE industry outside
of China. HUMPHRIES, supra note 2, at 10. One REE investor analyst stated that “it is not R
enough to develop REE mining operations alone without building the value-added refin-
ing, metal production, and alloying capacity” needed to turn REE ores into components
for end-use products. Id. U.S. REE mining company Molycorp Inc. acted on this advice
early in 2012 when it acquired Neo Material Technologies, a Canadian company that
processes REE that it sells to Chinese customers. Julie Gordon, DEALTALK— Molycorp, Neo
Material Deal a Rare Earth Game Changer, REUTERS (Mar. 11, 2012), http://www.reuters.
com/article/2012/03/11/neomaterial-molycorp-idUSL2E8E9AZW20120311.
48. MORRISON & TANG, supra note 35, at 11. R\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 11 28-JAN-13 10:30
2012] China’s Export Restrictions 589
hotly competitive REE industry of the time.49 Additionally, the
operation of illegal mines led to smuggling of REE out of the coun-
try in contravention of export regulations.50 At the same time, the
environmental issues consequent to REE mining were multiplying,
particularly in regions with many illegal mines, which, like small
mines, ignored relevant environmental regulations.51 Finally, the
Chinese government was concerned with the depletion of China’s
REE reserves; producing over 95% of global supply with at most
48% of global reserves was simply not a sustainable production
level.52
B. Environmental Problems of Rare Earth Mining
Because of the way in which REE are dispersed throughout rock
and ores, they are more complicated and costly to extract than
most other minerals.53 In addition to the environmental issues cre-
ated by any mining operation, REE processing also results in envi-
ronmental concerns specific to REE.
Most REE now come from open pit mines.54 Ore is extracted
from these mines and then crushed into small particles.55 These
small particles begin the process of separating into the different
elements that comprise the ore.56 The crushing and screening
process leaves huge amounts of ore particles that will not be fur-
ther refined.57 Ordinarily, tailings are graded into large piles.58 As
with any mining operation, the extraction process creates air pollu-
tion through dust emitted into the air and results in destruction of
vegetation and consequent soil erosion.59 The crushing process
49. Id.
50. Id. In 2008, estimated smuggled REE accounted for approximately one-third of
total REE leaving China that year. Id. Illegal production and smuggling are often the
reason for discrepancies between official data and actual data of REE production and
exports. Id.
51. See, e.g., Keith Bradsher, After China’s Rare Earth Embargo, A New Calculus, N.Y.
TIMES (Oct. 29, 2010), http://www.nytimes.com/2010/10/30/business/global/30rare.
html?pagewanted=all&_r=0.
52. MORRISON & TANG, supra note 35, at 11. R
53. HURST, supra note 1, at 4. This dispersed nature of REE means that they are fre- R
quently processed as a by-product of other mining activity. BRITISH GEOLOGICAL SURVEY,
supra note 35, at 11. R
54. BRITISH GEOLOGICAL SURVEY, supra note 35, at 11–12. R
55. Id. at 13–14.
56. HURST, supra note 1, at 4. R
57. Id.
58. See U.S. ENVTL. PROT. AGENCY, OFFICE OF SOLID WASTE, EPA530-R-94-038, TECHNI-
CAL REPORT: DESIGN AND EVALUATION OF TAILINGS DAMS 1, 4–5 (1994).
59. Chen Zhanheng, News: Outline on the Development and Policies of China Rare Earth
Industry, CHINESE SOC’Y RARE EARTHS (Apr. 7, 2010), http://www.cs-re.org.cn/en/modules.\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 12 28-JAN-13 10:30
590 The Geo. Wash. Int’l L. Rev. [Vol. 44
poses an additional problem in the release of radioactive uranium
or thorium; both are commonly embedded in the ores that also
have REE.60
Once the ore has been crushed and screened, the REE must still
be separated from the non-REE particles.61 The initial separation
process can include up to six separate treatments with different
toxic chemical reagents, all of them toxic.62 The high value of REE
depends on their separation into individual elements of the high-
est purity.63 Because each individual REE has its own unique
properties, each also has its own unique separation process.64
Thus, processing to attain what is called a rare earth concentrate of
an individual REE entails more highly specialized steps.65 Once
the elements are separated, the resulting elements are dried to be
processed into metals and alloys, which involves an additional set
of steps.66
The refining process for REE can be particularly hazardous for
the environment due to the many steps involved and the chemicals
necessary to separate REE. The primary environmental issues
involve chemical solutions running off into surface water sup-
plies.67 The initial separation process usually takes place in large
chemical impoundments that are constructed close to the mine
site; tailings are sometimes disposed of in the original mining
pit.”68 If the sides of the impoundment are not high enough or
php?name=news&file=article&sid=35. REE mining practices in China have threatened
worker health. See Chris Buckley, China’s Green Dream for Rare Earths Masks Reality, CHINA
POST (Nov. 4, 2010), http://www.chinapost.com.tw/china/china-business/2010/11/04/27
8572/Chinas-green.htm.
60. BRITISH GEOLOGICAL SURVEY, supra note 35, at 17. R
61. Id. at 13–16; HURST, supra note 1, at 4–5. R
62. BRITISH GEOLOGICAL SURVEY, supra note 35, at 14–15 (noting that the primary R
chemicals used are hydrochloric acid, sulfuric acid, and caustic soda).
63. Id. at 15.
64. HURST, supra note 1, at 5 (noting that it takes approximately ten days from ore R
extraction to REE production).
65. See id. (explaining that REE is first separated as an oxide using a unique extraction
process).
66. See id. (explaining that REE is next turned into a metal, then alloys). The REE
metals and alloys are then processed into a variety of components, such as permanent
magnets for electronic devices, wind turbines, and hybrid cars, phosphors for television
and computer screens, and cerium for petroleum refining. HUMPHRIES, supra note 2, at 2. R
67. See BRITISH GEOLOGICAL SURVEY, supra note 35, at 17 (“Reports indicate that the R
chemicals used in the refining process have been responsible for disease and occupational
poisoning of local residents, water pollution and destruction of farmland.”).
68. See, e.g., Mine Tailings, GROUND TRUTH TREKKING (Dec. 15, 2010), http://www.
groundtruthtrekking.org/Issues/MetalsMining/MineTailings.html; Gretchen Gavett, Tail-
ings Dams: Where Mining Waste Is Stored Forever, PBS FRONTLINE (July 30, 2012), http://www.
pbs.org/wgbh/pages/frontline/environment/alaska-gold/tailings-dams-where-mining-\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 13 28-JAN-13 10:30
2012] China’s Export Restrictions 591
their integrity is breached by chemical solution soaking through
the tailings, the chemical solution can escape and contaminate
nearby surface water.69 The dumping of tailings into local water
supplies is an additional concern.70 Chinese companies have devel-
oped a process called “in situ” mining, in which the ore is left in
the ground, and is injected with the chemicals to separate the REE
from the non-rare earth elements.71 While this process eliminates
the environmental hazards associated with open pit extraction, it
does not ameliorate the concerns about chemicals seeping into
water supplies or contaminating farmland.72 The amount of illegal
mining occurring in China only exacerbates environmental
problems associated with REE mining and processing.73 These ille-
gal mines operate without any regular environmental inspections
and are often the worst polluters.74
C. Overview of China’s REE Export Regime
In 2005, the Chinese government decided to overhaul its
existing REE regime and, in the ensuing years, employed a series of
restrictions to begin to manage its REE industry. China began its
overhaul by abolishing the rebate of the value-added tax assessed
on REE exports75 and instituting annual reductions in REE export
quotas.76 In 2007, China introduced a tax on REE exports of
waste-is-stored-forever (describing “upstream” design of tailings impoundments, which
often uses tailings for physical support).
69. See, e.g., Zhang Jiawei, The Plight of China’s Rare Earth Mining, CHINA DAILY (Mar.
24, 2011), http://usa.chinadaily.com.cn/china/2011-03/24/content_12225592.htm (pro-
viding as an example a mine in Gengbei Mountain closed in 2009 for contaminating a
river).
70. See Buckley, supra note 59. R
71. BRITISH GEOLOGICAL SURVEY, supra note 35, at 12. R
72. Id.
73. See MORRISON & TANG, supra note 35, at 11 (noting illicit mines ignore safety and R
environmental regulations for higher profits).
74. See id. (finding repeated instances of water and farmland contamination in several
provinces).
75. A value-added tax of 10% was levied on foreign exporters of Chinese REE in 2006,
and over the next two years was raised to rates ranging from 15% to 25% depending on the
REE. See Jane Korinek & Jeonghoi Kim, Export Restrictions on Strategic Raw Materials and
Their Impact on Trade 21 (Org. for Econ. Cooperation & Dev., Trade Policy Working Paper
No. 95, 2010). Prior to 2007, the Chinese government had rebated 16% of this tax to the
foreign exporting entity. See id. The effect of abolishing the tax rebate when combined
with the export taxes on REE was to increase the price of REE raw materials for foreign
REE processors. See id.
76. Export quotas were reduced anywhere from 4% to 12% annually between the
years 2006 and 2009. Id. By 2011, the annual export quota was less than one-half of what
the 2005 export quota had been. See MORRISON & TANG, supra note 35, at 17. R\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 14 28-JAN-13 10:30
592 The Geo. Wash. Int’l L. Rev. [Vol. 44
10%.77 Since then, the government has increased the number of
REE products subject to export taxes and has increased tax rates.78
Export tax rates now range from 15% to 25%.79 Finally, China
began a gradual reduction in the number of REE export licenses
granted, beginning in 2006. That year, the government granted
fifty-nine licenses (forty-seven licenses to Chinese companies and
twelve to domestic-foreign joint venture enterprises).80 By 2009,
the number of licensed companies had shrunk to thirty-four
(twenty-three Chinese companies and eleven joint venture
companies).81
With the imposition of Chinese REE export restrictions, Chinese
export quotas decreased 40% between 2008 and 2010.82 This
decline concentrated more power in the Chinese REE supply
chain, as non-Chinese REE processors and magnet manufacturers
were unable to obtain the REE ore they needed at competitive
prices.83 Countries with REE deposits (including the United States
and Australia) began the process of revitalizing their REE mines to
attain some independence from Chinese sources.84 However, new
mining activity does not sufficiently increase supply to provide sig-
nificant relief in the short term.85
III. THE WTO CONSULTATIONS ON CHINA’S
REE EXPORT RESTRICTIONS
With no apparent relief from domestic REE supply and no
change in the Chinese REE export picture, Japan, the United
States, and the European Union sought relief from China’s export
restrictions through the WTO dispute settlement process. The first
step in this process is a request for consultations; requests are
mechanisms for the disputing countries to attempt to “obtain satis-
77. Id. at 16.
78. Id. The new product categories are largely customs codes for ores that may con-
tain REE as a secondary product. For example, China recently added an export tax for
ferroalloys containing more than 10% of REE. Id.
79. Korinek & Kim, supra note 75, at 21. R
80. MORRISON & TANG, supra note 35, at 16. R
81. Id.
82. MORENO, supra note 36, at 1. R
83. See id. The market prices of many REE increased more than 1,700% in the two
years between 2008 and 2010. Id.
84. See Katherine Bourzac, The Rare Earth Crisis, MIT TECH. REV., May–June 2011, at
58, 60–61.
85. Id. at 61.\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 15 28-JAN-13 10:30
2012] China’s Export Restrictions 593
factory adjustment of the matter” by themselves.86 The requests
are confidential between the countries involved and are without
prejudice to the rights of member countries in the event additional
proceedings are required.87
The Requests filed by Japan, the United States, and the Euro-
pean Union claim that China has violated its WTO obligations
through a variety of export restrictions related to REE.88 China has
imposed taxes on its REE exports, limited exports of REE through
quotas, imposed export licensing requirements, and maintained a
minimum export price system for REE.89 The complaining coun-
tries argue that these export restrictions violate China’s obligations
under the GATT 1994 and under its Accession Protocol, both by
imposing prohibited quantitative restrictions on REE and by
administering its restrictions in a manner that is not “uniform,
impartial, reasonable, or transparent.”90
Specifically, the Requests claim violations of Articles VII (Valua-
tion for Customs Purposes), VIII (Fees and Formalities connected
with Importation and Exportation), X (Publication and Adminis-
tration of Trade Regulations), and XI (General Elimination of
Quantitative Restrictions) of the GATT 1994.91 With regard to
China’s Accession Protocol, the Requests claimed violations of
paragraphs 2(A)2 and 2(C)1 (Administration of the Trade Regime
and Transparency), 5.1 and 5.2 (Right to Trade), 7.2 (Non-Tariff
86. Understanding on Rules and Procedures Governing the Settlement of Disputes
arts. 4.2, 4.5, Apr. 15, 1994, Marrakesh Agreements Establishing the World Trade Organi-
zation, Annex 2, 33 I.L.M. 1226, 1869 U.N.T.S. 401 [hereinafter DSU].
87. Id. art. 4.6.
88. See generally Request for Consultations by the United States, supra note 1; Request R
for Consultations by the European Union, supra note 1; Request for Consultations by R
Japan, supra note 1. The requests refer to materials falling under but not limited to 212 R
eight-digit Harmonized Schedule Chinese Customs Commodity Codes. Request for Con-
sultations by the United States, supra note 1, at 1, 2 nn.1–3; Request for Consultations by R
the European Union, supra note 1, at 1, 2 nn.1–3; Request for Consultations by Japan, R
supra note 1, at 1, 2 nn.1–3. R
89. See Request for Consultations by the United States, supra note 1, at 2; Request for R
Consultations by the European Union, supra note 1, at 2; Request for Consultations by R
Japan, supra note 1, at 2; MORENO, supra note 82, at 1; Korinek & Kim, supra note 75, at 13, R
20–21.
90. Request for Consultations by the United States, supra note 1, at 2; Request for R
Consultations by the European Union, supra note 1, at 2; Request for Consultations by R
Japan, supra note 1, at 2. R
91. See Request for Consultations by the United States, supra note 1, at 5; Request for R
Consultations by the European Union, supra note 1, at 5; Request for Consultations by R
Japan, supra note 1, at 5. See generally General Agreement on Tariffs and Trade 1994, Apr. R
15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 33
I.L.M. 1154, 1867 U.N.T.S. 187 [hereinafter GATT 1994] (incorporating by reference the
General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-3, 55 U.N.T.S. 194).\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 16 28-JAN-13 10:30
594 The Geo. Wash. Int’l L. Rev. [Vol. 44
Measures), 8.2 (Import and Export Licensing) and 11.3 (Taxes
and Charges Levied on Imports and Exports).92
The nature of the WTO consultation process does not require
responding countries to file formal defenses to the allegations in
requests.93 Thus, the arguments China made during the consulta-
tion process are unknown. However, public statements made by
the Chinese government since the imposition of its REE export
restrictions provide a basis for educated speculation as to China’s
defenses. In addition, the recent WTO case regarding similar types
of export restrictions that China placed on a variety of raw materi-
als provides a framework to anticipate China’s defenses to the REE
action and predict the likely outcome of any further WTO pro-
ceedings in the REE case.
IV. THE CHINA – RAW MATERIALS DISPUTE
China has large deposits of many important raw materials. How-
ever, these deposits are not sufficient for the demands of China’s
growing economy, and “the amount of natural resources available
per capita in China is far below the international average in most
cases.”94
China has also awakened to the environmental consequences of
the extraction of raw materials and has instituted measures
directed to reducing the environmental degradation associated
with mining. Ostensibly to further such ends, China instituted
export restrictions in 2009 on nine raw materials, including baux-
ite, coke, and manganese.95 The export restrictions included both
92. See Request for Consultations by the United States, supra note 1, at 5; Request for R
Consultations by the European Union, supra note 1, at 5; Request for Consultations by R
Japan, supra note 1, at 5; see also World Trade Org., Protocol on the Accession of the Peo- R
ple’s Republic of China, ¶ 11(3), WT/L/432 (Nov. 10, 2001) [hereinafter Protocol on
China’s Accession].
93. See DSU, supra note 86, art. 4.3–4. The World Trade Organization (WTO) Under-
standing on Rules and Procedures Governing the Settlement of Disputes requires that a
request be in writing and identify the basis for the complaint, including identification of
the measures at issue, but does not require the member country to whom the request is
addressed to file or otherwise publicly disclose defenses to the claims. See id.
94. KARIN GREGOW, THE RAW MATERIALS RACE: HOW THE EU USES TRADE AGREEMENTS
TO GRAB RESOURCES IN AFRICA 12, 18 (2010), available at http://comhlamh.org/assets/
files/pdfs/alternatrade/Raw%20Materials%20Race_report.pdf (“China accounted for
more than half of the growth in world consumption of industrial metals between 2002 and
2005.”); see also supra note 47 and accompanying text. R
95. See Panel Report, China, supra note 6, ¶¶ 2.1–2.2. The nine minerals were: baux- R
ite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phos-
phorus, and zinc. Id.\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 17 28-JAN-13 10:30
2012] China’s Export Restrictions 595
temporary and special export duties on certain raw materials and
export quotas on other raw materials.96
On June 23, 2009, the United States and the European Commu-
nities and on August 21, 2009 Mexico (the Complainants) each
requested consultations under the relevant provisions of the World
Trade Organization Understanding on Rules and Procedures Gov-
erning the Settlement of Disputes (Dispute Settlement Under-
standing, or DSU) with the People’s Republic of China.97 The
issues focused on China’s export restraints (duties and quotas) on
nine raw materials.98 On November 4, 2009, the Complainants
requested the Dispute Settlement Body establish a panel pursuant
to Article 6 of the DSU, and in March 2010 a panel was created.99
The Complainants argued that the Chinese export quotas were
contrary to Article XI:1 of the GATT 1994.100 That article prohibits
WTO members from imposing quantitative restrictions on the
import or export of any product to or from another WTO mem-
ber.101 China defended its export restraints by invoking both Arti-
cle XI:2(a) and provisions from Article XX of the GATT 1994.102
The Panel ultimately concluded that China had failed to demon-
strate that its export restrictions were justified under either Article
XI:2(a) or Article XX(g).103
Following the Panel’s issuance of its final report in July 2011,
China appealed certain issues of law and legal interpretation to the
96. Id. ¶ 2.1. Export duties applied to bauxite, coke, fluorspar, magnesium, manga-
nese, silicon metal, yellow phosphorus, and zinc. Id. ¶¶ 3.2–3.3. Export quotas applied to
bauxite, coke, fluorspar, and silicon carbide. Id.
97. Id.
98. Id. ¶ 1.1. The United States, the European Union, and Mexico (the Complain-
ants) had each brought separate complaints against China. Id. The three Complainants
requested that the WTO Dispute Settlement Body establish a single panel to hear the
claims against China. Id. ¶ 1.3. A panel to hear the combined complaints of the three
parties was established in March 2010 (the Panel). Id. ¶¶ 1.3–1.4.
99. Id. A number of other WTO members reserved their rights to participate in the
Panel proceedings as third parties. Id. ¶ 1.6. These countries were Argentina, Brazil,
Canada, Chile, Colombia, Ecuador, India, Japan, Korea, Norway, Chinese Taipei, Turkey,
and the Kingdom of Saudi Arabia.
100. Id. ¶ 3.2.
101. GATT 1994, supra note 91, art. XI:1. The Complainants also claimed that the R
export duties violated China’s obligations under paragraph 11.3 of its Accession Protocol.
Panel Report, China, supra note 6, ¶ 7.52. Paragraph 11.3 of China’s Accession Protocol R
requires China to eliminate “all taxes and charges applied to exports unless specifically
provided in Annex 6 of this Protocol.” Protocol on China’s Accession, supra note 92, ¶ R
11.3. None of the raw materials that were the subject of this dispute were included in
Annex 6 of the Accession Protocol. See id. annex 6.
102. Panel Report, China, supra note 6, ¶ 3.5. R
103. Id. ¶¶ 8.2–8.3.\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 18 28-JAN-13 10:30
596 The Geo. Wash. Int’l L. Rev. [Vol. 44
WTO Appellate Body.104 The Appellate Body agreed with the
Panel’s ultimate conclusion that China had failed to demonstrate
that its export restrictions were justified and agreed with its inter-
pretation of Article XI:2(a).105 However, the Appellate Body took
a different view as to the correct interpretation of Article XX(g).
The next Sections explain the details of the Chinese defenses and
the WTO Panel and Appellate Body findings.
A. Article XI Issues and Defenses
China had established an export quota regime for bauxite that
consisted of an overall annual quota for bauxite exports accompa-
nied by allocation of quota amounts to bauxite exporters.106
China’s export quota regime involved annual reviews of the total
amount of export quota and of the allocation of that quota.107
Article XI:1 of the GATT 1994 forbids import and export restric-
tions or prohibitions, including those “made effective through . . .
quotas . . . on the exportation . . . of any product.”108 Article
XI:2(a), however, allows certain exceptions for measures “tempora-
rily applied to prevent or relieve critical shortages of foodstuffs or
other products essential” to the exporting country.109 The Panel
agreed with the Complainants that the provisions of Article XI:2
are affirmative defenses and that the burden was therefore on
China, as the respondent, to demonstrate that Article XI:2 was
applicable.110 The Panel ultimately found that China’s export
quota regime for raw materials was inconsistent with China’s Arti-
cle XI:1 obligations,111 using an analysis of three principal terms in
Article XI:2.
104. See generally Appellate Body Reports, China, supra note 6. Specifically, China asked R
the Appellate Body to reverse the Panel’s interpretation of Article XI:2(a) of the GATT
1994, alleging that the Panel erred in its interpretation of the terms “temporarily” and
“critical shortages.” Id. ¶ 40. China also asked the Appellate Body to find that the Panel
erred in its interpretation of the requirements of Article XX(g). Id. ¶ 46.
105. Id. ¶ 362.
106. Panel Report, China, supra note 6, ¶ 7.201. This quota was administered by the R
Chinese Ministry of Commerce (MOFCOM) through a system involving both direct alloca-
tion of quotas and through a quota bidding system. Id. ¶¶ 7.172, 7.173, 7.176. MOFCOM
determines and announces the total amount of annual export quota for bauxite by Octo-
ber 31 of each year. Id. ¶ 7.173. Parties wishing to export bauxite apply to MOFCOM for a
portion of the export quota for the following year. Id. ¶ 7.174.
107. Id. ¶¶ 7.172–7.173.
108. Id. ¶¶ 7.161, 7.205.
109. Id. ¶ 7.163.
110. Id. ¶ 7.210.
111. Id. ¶ 7.224.\\jciprod01\productn\J\JLE\44-4\JLE401.txt unknown Seq: 19 28-JAN-13 10:30 2012] China’s Export Restrictions 597 Article XI:2 permits restrictions that are (1) “temporarily applied” to (2) prevent or relieve “critical shortages” of foodstuffs or (3) other products “essential” to the country imposing the restrictions.112 This dispute was the first opportunity for a panel to consider Article XI:2 in the context of a mineral resource. The Panel determined that bauxite was an “essential” product for China within the meaning of Article XI:2.113 The Panel found the ordinary understanding of the term “essential” to mean impor- tant, necessary, or indispensable, and concluded that a product could fall within the scope of Article XI:2(a) when it was impor- tant, necessary, or indispensable to a particular country.114 Fur- ther, the Panel found nothing in the terms of the Article that excluded products that might be an “input” to a product or indus- try, such as bauxite or other raw materials.115 On the facts presented by China as to the importance of bauxite to its economy, the Panel found that bauxite was an “essential” product for China within the meaning of Article XI:2(a).116 The Panel determined, however, that the restrictions were not “temporarily applied.”117 Complainants had argued that there could be no such thing as temporary measures to remedy shortages of finite resources, claiming that, “[g]iven that the availability of such a good would keep decreasing until the exhaustion of the good’s reserves,” this type of shortage could not be alleviated by any kind of temporary measure.118 The Complainants also argued that the term “critical shortage” must necessarily be understood in the context of the entire provision of Article XI:2(a), including its clear reference to the limited time element.119 Thus, for a shortage to be “critical” the shortage must be temporary, with availa- bility of the good returning to normal levels at some future time. By definition, Article XI:2(a) would not apply if the shortage will never cease to exist because, under that circumstance, it would not 112. GATT 1994, supra note 91, art. XI:2(a). R 113. Panel Report, China, supra note 6, ¶¶ 7.283, 7.340. R 114. Id. ¶ 7.275. 115. Id. ¶ 7.277. China had proposed a broad interpretation of the concept of “essen- tial products,” arguing that the article did not limit the types of “other products” that may be subject to restrictions, except that the products must be “essential.” Id. ¶¶ 7.261–7.262. Thus, the phrase “other products essential to the exporting [Member]” could include “minerals, metals, and other commodities, as well as initial processed downstream products thereof.” Id. 116. Id. ¶ 7.340. 117. Id. ¶¶ 7.346–7.350. 118. Id. ¶ 7.253. 119. Id. ¶ 7.290.
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