The WTO and China
A ruling with ramifications
Jul 7th 2011 | from the print edition
WHEN China joined the World Trade Organisation (WTO) in late 2001, its share of world exports stood at 4.3%. By last year that share had soared to 10.6%, and the country had become the world’s biggest exporter. In addition to awe and envy, its rise has spawned a rapidly growing list of trade quarrels. China was a party to only two of the 93 trade disputes that were taken to the WTO between its accession and the end of 2005. But in the five years to the end of 2010, it was involved in 26 of the 84 cases filed at the forum.
On July 5th the WTO’s dispute-settlement body found against China on three linked complaints. The cases were brought by America, the European Union and Mexico in 2009 and took issue with China’s policy of restricting the exports of certain industrial raw materials, including bauxite, magnesium, zinc and silica, of which it is a leading producer. The plaintiffs argued that China’s policies gave domestic firms that use these commodities an unfair competitive advantage, while also restricting world supply of these inputs and causing their prices to soar.
China says its restrictions were motivated by its desire to conserve the world’s limited supply of these materials and to protect the environment from the pollution caused by their extraction. The problem with this line of argument, as the WTO panel noted, was that although China restricted the export of these commodities, it had done nothing to reduce their actual production. China’s policies were in clear violation of its WTO commitments, it found.
China expressed “regret” at the WTO’s ruling and has up to 60 days to lodge an appeal. Jeffrey Schott of the Peterson Institute for International Economics, a think-tank in Washington, DC, expects “several more big cases against China soon”. But the significance of this judgment goes beyond China. Many countries banned some food exports during the food-price spike of 2008. A renewed period of buoyant commodity prices and demand could easily tempt more governments to emulate China’s restrictions on exports of raw materials. The WTO’s judgment may dissuade at least some countries from doing so. And given the rotten state of the Doha round of trade talks, a show of teeth in defence of a rules-based trading system is more useful than ever.