WTO Names China the Loser in REE Export Quota Dispute

In a decision that’s been two years in the making, the World Trade Organization (WTO) yesterday ruled that China’s export restrictions on rare earth elements (REEs), molybdenum and tungsten are inconsistent with its obligations as a WTO member. 

The news comes five months after China said it had lost the case, and four months after the WTO was supposed to notify the parties involved in the case of its outcome, The Wall Street Journal states.

Despite the delay, the United States, European Union and Japan, which brought the case to the WTO back in 2012, have expressed no hard feelings. Quite the opposite, in fact. Reuters quotes EU Trade Commissioner Karel De Gucht as saying, “[t]oday’s ruling by the WTO on rare earth shows that no one country can hoard its raw materials from the global market place at the expense of its other WTO partners.”

On a similar note, US Trade Representative Mike Froman said, “[w]e hope this will discourage further breaches of WTO rules that hurt American manufacturers. This victory shows that we stand prepared to take action whenever necessary to protect the high-quality, middle-class American jobs that trade supports,” as per The Wall Street Journal.

China, on the other hand, is not pleased at all. The country, which according to the Financial Times first implemented export restrictions in 2009, has long decried the idea that they were put in place to give the country a competitive edge, maintaining that they are aimed at protecting the environment and conserving minerals.

Based on recent comments from China’s Ministry of Commerce, it seems the country’s stance has not changed since the WTO ruling. It said in a statement, “China believes that these regulatory measures are perfectly consistent with the objective of sustainable development promoted by the WTO,” Reuters notes.

It’s that attitude that has many expecting China to appeal the WTO’s ruling. One such person is an official at the Chinese Society for Rare Earths who thinks “China will definitely appeal because the WTO ruling is unfair,” as per the Financial Times. A member of China’s Ministry of Commerce expressed the same belief back in October, when China first came forward to say it lost the case.

For its part, China has not commented one way or the other, The New York Times notes. However, market watchers won’t have to wait long to see what the Asian nation decides to do — it now has just 60 days to appeal. If that happens, the Appellate Body, the permanent appeals tribunal of the WTO, should reach a decision by the end of July.

However, don’t expect the tribunal to reach a “significantly different” ruling than the one just provided by the WTO, James Bacchus, a former Appellate Body chairman who is not involved in the current case, told The New York Times. “[T]he judges there can rule only on matters of legal principle, not on the panel’s findings of fact,” he explained.

Also don’t necessarily expect the ruling to significantly impact the market. While another Reuters article quotes Ryan Castilloux, founding director at Adamas Intelligence, as saying that if yesterday’s ruling “leads to a softening of China’s rare earth industry policy measures, the nation’s only tangible defence becomes competing head-to-head on price with emerging global producers,” not everyone agrees. For instance, The Wall Street Journal states that “[t]he decision is unlikely to have a dramatic effect on world prices.”

For now, investors had best wait to see if China appeals.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading:

Market Focused on Potential WTO Investigation into Chinese Rare Earth Trade Policies

Could Investigation into Rare Earth Quotas be Just What the Market Needed?

Prices, Quotas and Smugglers: Making Sense of Rare Earths in China