Earthquake tremors are being felt as earlier this week, President Obama announced that the U.S., Japan and the E.U., are bringing a WTO case against China for its export quotas and other restrictions on the export of rare earth minerals covering about 100 tariff lines (tungsten, molybdenum and other intermediate products produced from these raw materials.) Rare earth minerals are an indispensable ingredient in many technology products, such as computers, and China produces more than 95% of these minerals. The quotas have led to dramatic increases in prices in these products over the last couple of years.
According to the U.S. Trade Representative, China quotas and restrictions violate Article XI:1 of the General Agreement on Tariffs and Trade 1994 which generally prohibits restrictions on exports other than taxes, duties, and charges. USTR is also citing commitments under China’s WTO Accession Protocol to avoid restrictions on exports.
In an also ”rare” show of unity in Congress and with the White House, leading Members of Congress applauded the action and called on the White House to do even more, signaling a strong shift in Congress in support of a tougher trade enforcement policy against China.
Ways and Means Chairman Camp stated:
“I strongly support the Administration’s latest enforcement effort to address China’s unfair trade practices that cost U.S. jobs…Today’s announcement…addresses additional Chinese barriers that distort the market. The United States should not hesitate to enforce its rights at the WTO, and I hope the Administration will bring additional cases to address China’s barriers. I look forward to consulting closely as this – and other WTO cases – move forward.”
Ways and Means Trade Subcommittee Chairman Brady added:
“China’s export restraints distort the free market, and I commend Ambassador Kirk and his team for filing this case. WTO cases like this are important to ensuring economic freedom and enforcing our rights when China violates the WTO. The United States must aggressively pursue its rights whenever we believe China has violated its WTO obligations.”
Senator Schumer went even further:
“This is a worthwhile step, but more must be done to stop China’s hoarding of rare earth minerals. There are faster ways to assert leverage on China than relying on the WTO, which could take years to resolve the case. Secretary Geithner should immediately urge the World Bank to block financing for Chinese mining projects, and the Interior Department should block Chinese-funded mining projects in the United States. These two steps would get China’s attention right away and force them to reconsider their unfair practices.”
China’s Minister of Industry and Information responded that China is prepared to defend the export restrictions citing WTO rules allowing for exceptions to the ban on export quotas in the interest of environmental preservation and resource sustainability. China’s state-run Xinhua news agency went even further stating “past experiences have shown that policy makers in Washington should treat such issues with more prudence, because maintaining sound China-U.S. trade relations is in the fundamental interests of both sides.”
With a difficult economy coupled with presidential and congressional elections in the United States and a transition of power in China this year, we could see significant strain in trade tensions as the U.S. Congress ratchets up pressure in response to a growing trade deficit with China and the Chinese government responding with measures of its own. We could see a potential trade spat explode into something more grave.
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