World Trade Organization judges rejected China’s appeal of a ruling that found restrictions on exports of nine raw materials break global rules and give the country’s manufacturers an unfair edge over competitors.

The WTO concluded on July 5 that Chinese quotas, export duties and license requirements on overseas shipments of industrial ingredients including coke, zinc and bauxite are discriminatory. The restrictions have stoked tensions between China and its trading partners, which accuse the Chinese government of having unfair commerce and currency policies.

U.S. Trade Representative Ron Kirk called the Appellate Body report a “tremendous victory,” particularly for manufacturers and workers. The decision “ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field,” Kirk said in an e-mailed statement from Washington. 

Monday’s affirmation of the initial panel ruling may prompt the U.S. and the European Union to make good on threats to complain at the Geneva-based WTO over Chinese restraints on exports of rare earths, a group of 17 elements used in high-tech products such as Boeing Co. helicopter blades, Nokia Oyj cell phones and Toyota Motor Corp. hybrid cars.

The outcome of this case obliges China to bring the challenged measures into compliance with the rulings, the European Commission said in a statement from Brussels. “However, the EU continues to be deeply troubled by China’s use of export restrictions not only on the specific products at issue in this dispute, but also on rare earth and many other industrial raw materials.”

Appellate Body judges urged China to modify its policies on raw-material exports to ensure they “do not operate to bring about a WTO-inconsistent result.”

“China respects the rulings of the WTO and will apply reasonable policies to administer resource products in accordance with the WTO rules, so as to realize sustainable development,” the Chinese mission in Geneva said in an e-mailed statement.

China, the world’s second-largest economy, is the top producer of cadmium, gold, indium, iron ore, lime, lead, manganese, mercury, molybdenum, phosphate, salt, tin, tungsten, vanadium and zinc. Its export restraints have caused worldwide supplies of many raw materials to plummet, sending prices higher and providing an incentive for manufacturers to move to China to take advantage of the cheaper materials.

The commodities at issue in the WTO complaint, filed by the U.S., the EU and Mexico, also include magnesium, manganese, silicon carbide, fluorspar, silicon metal and yellow phosphorus, which are used by the steel, aluminum, automotive and chemicals industries.

The EU said imports of the raw materials covered by the case reach 1 billion euros ($1.3 billion) a year and that “the economic importance is well beyond this figure as those represent inputs for the production of a large range of products.”

China argued that the restrictions are necessary to conserve exhaustible natural resources and ease overproduction and emissions of carbon and sulfur gases from furnaces. The U.S., the EU and Mexico said the curbs discourage the export of materials that are “critical” for their manufacturers, while keeping them cheaper and readily available in China.

Rare earths became a political and legislative issue after China moved to limit domestic output and slash export quotas in July 2010 by 40 percent, souring ties with major users including the U.S. and Japan, where buyers have cut usage after prices soared in the first half of 2011. The Chinese government, which supplies 95 percent of global rare earths, said on Dec. 28 it was leaving the 2012 overseas sales caps virtually unchanged.

The U.S. Energy Department said earlier this month that limited supplies of five rare-earth minerals ― dysprosium, terbium, europium, neodymium and yttrium ― pose a threat to increasing use of clean-energy technologies such as wind turbines and solar panels. While prices of rare earths fell in the second half of 2011, they remain volatile, leading some companies to search for ways to consider reducing reliance on the minerals, the Energy Department said.

China has said the curbs protect the environment and are in line with its WTO commitments. The country’s Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, concentrated in the south of China, includes the elements dysprosium, gadolinium and terbium. 

(Bloomberg)