On March 13, 2012, the United States, the European Union and Japan launched a World Trade Organization (WTO) challenge of China’s export restrictions on rare earth minerals, and tungsten and molybdenum, which are key inputs in automobiles, computers, cameras, mobile phones, flat panel screens, medical equipment, steel and chemicals, as well as “green” products such as wind turbines, catalyzers, electric and hybrid vehicles, and energy-saving bulbs. The rare earth minerals covered by the case possess unique magnetic and other properties, and are largely non-substitutable. More than 95 percent of the world production of these minerals is in China.
The new WTO action, which could lead to a dispute settlement case, follows a January WTO Appellate Body ruling that found almost identical Chinese export restrictions on raw materials illegal. The Chinese export restrictions being challenged in this case, like the prior case, include export quotas, export duties, minimum export prices and other export restrictions and requirements. The United States, European Union and Japan argue they create serious disadvantages for non-Chinese producers by limiting the availability of these rare, but essential components, and artificially increasing export and world prices.
The first step in the WTO proceeding is a 60-day consultation period. If China fails to agree on reforms during the consultation period, the United States, European Union and Japan are likely to take the case to the next stage, which is formal litigation. If the case is successful, China will be required to remove its export restrictions, making access to rare earths for U.S., EU and other non-Chinese companies more available and affordable.
The McDermott Difference
McDermott Will & Emery’s International Trade Group is actively engaged in WTO and U.S.-China matters, and has the support of our Shanghai-based strategic alliance partner MWE China Law Offices. Our lawyers can advise and assist clients with interests in the high-tech and green energy sectors by counseling on strategies for their business operations affected by the trade action, assisting in preparing comments and other communications to the participating governments, or otherwise participating in the case to help safeguard client interests. Even businesses that prefer to avoid being directly involved in the action may have an interest in understanding and monitoring the case, as the outcome could have a large impact on future global trade in the high-tech and green technology sectors.