"You Don't Miss Your Water 'Til Your River Runs Dry": Regulating Industrial Supply Shortages after "China Raw Materials"

By Lim, C. L.; Senduk, J. H. | Stanford Journal of Law, Business & Finance, Fall 2012 | Go to article overview

"You Don't Miss Your Water 'Til Your River Runs Dry": Regulating Industrial Supply Shortages after "China Raw Materials"


Lim, C. L., Senduk, J. H., Stanford Journal of Law, Business & Finance


Global industrial production depends on stable access to raw inputs. Food price volatility has emerged as a major concern for Group of Twenty Finance Ministers and Central Bank Governors (G20), while we are hearing new calls for bringing global disciplines to resource cartels like the Organization of the Petroleum Exporting Countries (OPEC). Supply chains that make up globalized production recently demonstrated their potential fragility when Chinese sovereign intervention threatened to bring Japan's high-tech manufacturing to its knees by cutting off its supplies. These wide-ranging issues are now being addressed under the umbrella of trade regulation. As a result, we are witnessing a shift from the old trade regulatory model of the past six decades - where trade negotiators focused on import barriers and reciprocal concessions and export restrictions were justified typically on grounds of national security and foreign policy - towards the realization of an increasing need to tighten global rules on export restrictions. Although commodity and resource prices are at least partly market-driven, sovereign intervention has finally emerged as a clear concern. The Obama Administration's first suit brought before the World Trade Organization (WTO) concerned Chinese export restrictions on nine commodities, including magnesium, coke, yellow phosphorus, and zinc, and resulted in victory. Yet real General Agreement on Tariffs and Trade (GATT) disciplines on export price measures, quotas and other conditions have been sparse.

We argue in this Article that, aside from clear disciplines and a fairly developed body of jurisprudence on export quotas, trade lawyers would be hard pressed to show any "real" form of global regulation. At the same time, a new global regulatory pattern is emerging in place of the old. This regulatory pattern is being driven by global events, WTO litigation behavior, as well as new diplomatic and treaty initiatives. One of the more important shifts, as the recent "China Raw Materials" litigation referred to earlier shows, is the shift away from framing export restrictions as a national security issue, a characterization which had ensured that disciplines remained relatively underdeveloped during the Cold War era. During the litigation, China refrained from invoking the national security card, so familiar to trade lawyers in the field. The case also gives us a glimpse of the shape of future global regulation, as China undertook (as part of its accession obligations) additional requirements beyond the usual GATT-WTO rules. The ruling has also clarified the sheltering scope of the conservation clause under GATT Article XX, which sovereigns are increasingly likely to invoke in their interventions in export supplies. China's and Asia's rising demand for energy and raw materials, industrial rivalry, and growing demand for adequate food supplies means that the WTO is heading into uncharted waters. As free trade has become more widely accepted, the problem has become less about how even more free trade can be achieved, and more about how the demand for commodities which free trade has helped to facilitate can actually be met. The old national security-based understanding, which we had applied to export controls and restrictions, and its accompanying discourse, must now cede to the present-day realities of an unprecedented process of economic globalization. This article takes stock of existing GATT-WTO regulation, a comprehensive review of relevant GATT-WTO jurisprudence, a comparative survey of alternative regional solutions in North America and Europe, and a first look at newly emerging global regulatory approaches.

Introduction

In 2009, the Obama Administration filed its first WTO suit against Chinese export restrictions on nine commodities, including magnesium, coke, yellow phosphorus, and zinc. Trade fairness is back on the agenda. US Trade Representative Ron Kirk said, "We are deeply troubled at what appears to be a conscious policy to create unfair advantages for Chinese industries that use these raw materials. …

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