China's Export Restrictions of Raw Materials and Rare Earths: A New Balance between Free Trade and Environmental Protection?

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ABSTRACT

On March 13, 2012, Japan, the United States, and the European Union filed Requests for Consultations (Requests) with the World Trade Organization (WTO), contesting China's export restrictions on rare earth elements (REE). The Requests were long expected, given the growing importance of REE, coupled with China's near-total dominance in the REE market. This Article predicts that, in light of the WTO's recent Appellate Body decision in the China - Raw Materials case, China will not successfully defend its REE export restrictions under the General Agreement on Tariffs and Trade (GATT 1994).

The legal issues that arise in both China - Raw Materials and China's export restrictions of REE are significant for WTO jurisprudence because they address long-standing tensions between free trade and environmental protection. This Article discusses the Raw Materials Appellate Body's analysis of the environmental and conservation defenses China raised under GATT 1994 Articles XI, XX(b), and XX(g). While China's export restrictions were held to violate its WTO obligations, the interpretation of Articles XX(b) and XX(g) leftWTO jurisprudence largely unchanged and demonstrated the Appellate Body's willingness to uphold legitimate environmental and conservation measures. This Article then evaluates the factual and evidentiary issues China faces in the REE dispute, in light of China - Raw Materials, and identifies potential hurdles that will impair China's ability to prevail in the REE case.

I. INTRODUCTION

On March 13, 2012, Japan, the United States, and the European Union filed Requests for Consultation (Requests) with the World Trade Organization (WTO) contesting China's export restrictions on rare earth elements (REE).1 REE are critical raw materials for both "high-tech" and "clean tech" products (for example, products as diverse as cell phones, hybrid automobiles, and wind turbines all rely on REE as basic materials), as well as for certain defense applications. 2 The Requests came as no surprise, given the growing importance of REE coupled with China's near-total dominance in the REE market.3 China produces upwards of 95% of the global supply of REE and, in 2010, instituted export restrictions on its REE.4 These export restrictions had the effect of constricting foreign access to REE, while increasing the availability of REE to Chinese downstream processors. As the world's primary REE supplier, China's export restrictions are enormously important for businesses that rely on REE in their product technologies and require consistent supply of these minerals. The legal issues presented by China's REE export regime are equally important. As a WTO member, China is bound by obligations created under the most recent General Agreement on Tariffs and Trade (GATT 1994), as well as by obligations in its Accession Protocol with the WTO.

The REE controls were preceded in 2009 by a similar set of export restrictions placed on a variety of China's raw materials, including bauxite, fluorspar, and coke.5 Several nations challenged China's export restrictions in a WTO panel proceeding, which the Appellate Body ruled on in January 2012.6 This Article predicts that China will not successfully defend its REE export restrictions under the GATT 1994 and China's other WTO obligations, especially in light of the WTO's recent Appellate Body decision in the China - Raw Materials case (Raw Materials). The legal issues present in both China's REE export restrictions and the Raw Materials case are especially significant for WTO jurisprudence.

In particular, these legal issues relate to long-standing tensions between free trade and environmental protection that have been richly debated in both scholarly journals and the popular media.7 Free trade advocates, who tend to see disguised protectionism behind every claimed environmental measure, are at one extreme of this debate; environmentalists, who tend to view the GATT 1994 and the WTO as consistently subordinating environmental values to the interests of free trade, are at the other extreme. …