United States and Europe Take on China’s Export Restraints

by Shu on July 12, 2009

in News

In a case with potentially major implications for the global trading system, the United States and Europe have decided to challenge a growing problem of China’s use of various export restraints on raw materials vital to core manufacturing industries like steel, aluminum and chemicals.

 

On June 23, 2009, both the US and the EC filed formal requests for consultations with China to address various export restraints that China imposes on various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.  While China modified its practices on some items ahead of the filing, both the US and EC remain concerned about China’s export restraints because these products are important inputs into various products including steel, aluminum and chemicals.  China is an important global producer of many of the products – producing 15% of the world’s bauxite, 56% of the world’s fluorspar, 84% of the world’s magnesium, 45% of the world’s silicon carbide, 58% of the world’s silicon metal, 29% of the world’s yellow phosphorus. 

 

When China uses a variety of means to reduce exports of these important raw materials, it creates two artificial disadvantages.  First, it increases the cost of the materials to importing countries.  Second, it reduces the cost of these materials to companies within China, which gives Chinese users of these inputs an artificial competitive advantage. 

 

In a new {Trade Flow} posted on the firm’s website, Terry Stewart provides more detail about case and explains how it raises a number of important issues in how the multilateral trading system will function moving forward.  In it he argues, “Beggar-thy-neighbor policies in the area of raw materials, if not checked, have potentially devastating consequences for global commerce moving forward, as a race to lock up and restrict resources would be the obvious likely outcome.”

 

Right now it would seem unlikely that China will decide to settle without a multiple year fight.  If consultations do not result in progress, expect a request for formation of a panel from the US and the EC in late August with panel formation likely to occur by early October.

 

            Let us know if Stewart and Stewart can provide additional information on this issue and others affecting companies and workers in the global trade arena. 

 

 

 

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