The European Union and the U.S. complained at the World Trade Organization about Chinese export restrictions on raw materials such as magnesium, their third joint complaint against the Asian nation.
The EU and the U.S. said they filed a request for consultations at the WTO in Geneva today, setting off a period of discussions with China aimed at resolving the dispute. If talks fail, WTO judges can be asked to rule on the issue.
"We are most troubled that it appears this is a conscious policy to subsidize Chinese industry," U.S. Trade Representative Ron Kirk told journalists in Washington. "China is a leading global producer and exporter of the raw materials in question, and access to these materials is critical for U.S. industrial manufacturers."
The complaint accuses China of using special taxes intended to discourage the export of 20 metals or chemicals as a way to provide domestic manufacturers with inexpensive access to those raw materials. The materials include antimony, bauxite, indium, yellow phosphorous, magnesium, molybdenum, tungsten and rare earths. Trade tensions between China and the two Western governments have grown as the economic crisis crimps exports and sparks job cuts.
"China has made a specific commitment not to apply export restrictions on certain products and it is applying those restrictions, so it'll lose," said Daniel Crosby, a trade attorney at Budin & Partners in Geneva, who has represented clients on WTO compliance issues.
Unlevel Playing Field
Export restrictions, which have multiplied in recent years because of surging prices for raw materials, discourage companies from being more productive and competitive, according to the European Commission, the EU's trade authority. Such curbs drive up prices and choke off supplies of raw materials, which affects a broad range of finished products including airplanes, semiconductors, detergent and steel, the commission says.
In September, then EU Trade Commissioner Peter Mandelson said China was failing to honor pledges it made on export constraints when it joined the WTO in 2001. He said he raised the issue "repeatedly" with the Chinese government. In December, the EU imposed five-year duties on steel pipes and tubes from China to help European producers including ArcelorMittal and Vallourec SA fend off cheaper imports.
Trade Ties
The EU is China's largest trading partner and China is the 27-nation bloc's second-biggest. Trade volume between the two governments grew to more than 326 billion euros ($455 billion) last year, according to the commission.
"The Chinese restrictions on raw materials distort competition and increase global prices, making things even more difficult for our companies in this economic downturn," EU Trade Commissioner Catherine Ashton said in a statement from Brussels. "I hope we can find an amicable solution to this issue through the consultation process."
China applied duties on EU imports worth 4.5 billion euros last year, the commission said. It also imposes quantitative restrictions on exports of bauxite, coke, fluorspar, silicon carbide and zinc. The industries in the EU that are potentially affected by the restrictions represent about 4 percent of the bloc's industrial activity and a half-million jobs.
Yesterday, China said it would reduce or scrap export taxes on a number of products including yellow phosphorous, molybdenum and tungsten starting on July 1. These items are included in the joint EU-U.S. complaint because the taxes are still in place, said a spokesman for the commission.
'Critical Step'
The Bush administration also tried to push China to cut quotas on the export of coke, silicon, tungsten and other products used to make steel, arguing that these caps give Chinese producers an unfair advantage. U.S. goods and services trade with China amounted to $410 billion in 2007, according to the latest data from the U.S. Trade Representative's office.
"For American industrial manufacturers, this is a critical step toward market equality," the USTR said today in a statement. "China's export restrictions on a broad range of raw materials have given unfair competitive advantages to their own manufacturers while raising the costs of doing business for U.S. companies, and we believe they violate bedrock WTO rules."
Chinese restrictions on raw materials and minerals are "just another way in which China favors its domestic manufacturing industries at the expense of the rest of the world," said five U.S. steel industry organizations including the American Iron and Steel Institute and the United Steelworkers.
No one from China's mission to the WTO in Geneva was available to comment.
Appeal Fails
The EU and the U.S. have also complained at the WTO about Chinese duties on imported auto parts and restrictions on foreign financial news providers.
China lost its appeal of the WTO's July 18 ruling that it was violating trade rules by requiring automakers operating there to buy most components from local suppliers or face higher duties. It was the first time China lost a case since it joined the WTO.
The case on media curbs was resolved in November, when the three governments reached what the EU called a "landmark agreement" that established a regulatory framework to ensure a level playing field for all operators in the Chinese market.
More WTO complaints against China are likely as the Asian nation tries to shield its industries from the effects of the global financial slump, Crosby said.
"China is reacting in the context of the financial crisis in a protectionist manner, and this exacerbates ongoing concerns on long-established violations and introduces new ones," he said. "In both cases, it presents a difficulty that I don't see getting any better."
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