US, EU Go to WTO on PRC Raw Materials Use

♠ Posted by Emmanuel in ,,, at 6/24/2009 04:17:00 PM
From the US Trade Representative's site comes word of a joint US-EU filing regarding China's restrictions on the availability of PRC raw materials to the would-be plaintiffs. That is, there is unequal access to PRC-produced raw materials granted to Chinese firms not given to foreign ones in alleged contravention of WTO rules:

What Chinese Policies Are at Issue?

China maintains a number of measures that restrain exports of raw material inputs for which it is the top, or near top, world producer. These measures skew the playing field against the United States and other countries by creating substantial competitive benefits for downstream Chinese producers that use the inputs in the production and export of numerous processed steel, aluminum and chemical products and a wide range of further processed products. The principal measures include:

  • Export quotas that tightly restrict the volumes of material that can be exported from China

  • Export duties that raise the export price for the raw material inputs

  • Other export restraints, including export licensing, minimum export price requirements, and export quota administration procedures that appear, among other problems, to limit eligible exporters and require exporters to pay substantial fees for the right to export these materials

Why Is This a WTO Problem?

  • Export Quotas: World Trade Organization (WTO) rules generally prohibit a WTO Member from imposing restrictions on exports such as export quotas.

  • Export Duties: When China joined the WTO in December 2001, China also specifically committed not to impose duties or taxes on exports, except for limited duties on a small number of products specifically identified in an annex to China's WTO protocol of accession. The export duties the United States is challenging are not covered by those exceptions.

Other Export Restraints: The WTO generally prohibits export restraints such as export licensing and minimum export prices and imposes limits on the amount of export fees that can be charged. Furthermore, when China joined the WTO in December 2001, it specifically committed not to place limits on who can export products.

How do China's Export Restraints Disadvantage U.S. Manufacturers and Workers?

China's export restraints on raw material inputs can create enormous competitive advantages for downstream Chinese manufacturers and exporters in markets around the world. At the same time, the restraints seriously disadvantage U.S. and other foreign manufacturers, exporters, and workers in many downstream industries that make or use processed steel, aluminum and chemical products.

  • China's export quotas limit foreign access to these raw material inputs.

  • Because China is a leading world source of the raw materials, the export quotas can also raise world market prices for these inputs. The duties that China places on exports of the inputs further contribute to increased world prices.

  • At the same time, the export quotas increase the availability of the raw material inputs in China, creating lower domestic prices that can translate into significant cost advantages for China's downstream producers when they compete against foreign counterparts in China or around the world.

  • A prime example of the highly distortive effects of China's export restraints: the raw material input coke, a key steel input processed from a type of coal known as coking coal. In 2008, China was the world's leading producer of coke, accounting for approximately 60 percent of global production. China's production totaled 336 million metric tons (MT), but China placed export quotas on coke that limited annual exports to only 12 million MT. In addition, China imposed substantial duties on coke allowed to be exported - first, 25 percent export duties, and later in the year, 40 percent duties. The price effects were dramatic. In August 2008, when the world price for finished steel was approximately $1,150 per MT, China's domestic price for coke was $472 per MT, while the world price for coke was $740 per MT. Because it takes about one MT of coke to make one MT of steel in China, China's downstream steel producers obtained a dramatic competitive advantage by incurring input costs for coke that were $268 per MT less than their foreign counterparts.

Which Raw Material Inputs Are at Issue in This Dispute?

China imposes export restraints on numerous raw materials and partially processed raw materials. The dispute filed today addresses various unprocessed and processed forms of nine inputs of key interest to a wide range of U.S. industries: bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.

  • These raw material inputs are used to make many processed products in a number of primary manufacturing industries, including steel, aluminum and various chemical industries. These products, in turn become essential components in even more numerous downstream products.

  • Just some of the products incorporating the raw material inputs at issue include:

- semi-finished and finished aluminum and aluminum alloy products and numerous products made with aluminum components, such as beverage cans, foil, baseball bats, windows and siding, compact discs and consumer electronics

- semi-finished and finished steel and steel alloy products and numerous products made with steel components, such as building supports and building materials, motor vehicles, equipment and major appliances

- fluorine-based chemicals, which are used in a wide variety of applications, including chemical processing, electrical products, textile laminates, automotive, consumer and industrial coatings, refrigerants, foam blowing agents and fiber products

- chemicals such as silanes and silicones, which are used in waterproofing treatments, molding compounds and mold-release agents, mechanical seals, high temperature greases and waxes, caulking compounds, contact lenses and pyrotechnics

- phosphorus-based chemicals, which are used in a wide range of applications, from flame retardants and pigments to additives and vitamins

- abrasives, cutting tools, ceramics, refractory materials, cosmetics, semiconductor chips, microprocessors, solar cells, rubber products, batteries, paints and medicines

- semi-finished and finished brass products and numerous products made with brass components, such as plumbing fixtures, door hardware and electrical accessories

The continuation of the USTR link discusses US cases against China to date. (Baroness Ashton does not appear to have put in her comments on behalf of the EU.) The IELP also has a helpful summary of news clippings about this filing.

What is interesting to me at least is that the developed countries are now complaining of not having enough access to Chinese exports! Think about if for a minute and this does represent a change of emphasis. Instead of inadequate US/EU market access to the PRC, we have talk about inadequate Chinese access to developed markets being argued for by the developed countries. Sounds strange, no? Keith Bradsher of the New York Times discusses the story further in light of China's supposed turn towards a domestic instead of an export orientation (yeah, sure). It's a protectionism complaint still, but its resolution would have somewhat different implications for world trade balances.