Global trade law - China's export restraints found to be inconsistent with its obligations as a member of the World Trade Organization - China - measures related to the exportation of various raw materials.

• Author: DeMedeiros, Jose F.

GLOBAL TRADE LAW--CHINA'S EXPORT RESTRAINTS FOUND TO BE INCONSISTENT WITH ITS OBLIGATIONS AS A MEMBER OF THE WORLD TRADE ORGANIZATION--CHINA-MEASURES RELATED TO THE EXPORTATION OF VARIOUS RAW MATERIALS, WT/DS394/R, WT/DS395/R, WT/DS398/R, (JULY 5, 2011).

The World Trade Organization (WTO) discourages restraints on trade based on a theory that liberalized trade between nations better facilitates overall economic growth. (1) Through the enforcement of the General Agreement on Tariffs and Trade (GATT) and Accession Protocol agreements specific to some of its members, the WTO seeks to eliminate barriers to trade and achieve an international trading system that is non-discriminatory, predictable, and transparent. (2) In China--Measures Related to the Exportation of Various Raw Materials, (3) a WTO dispute settlement panel (Panel) addressed whether various export restraints exercised by the People's Republic of China (China) were inconsistent with China's WTO obligations. (4) The Panel held that most of the export restraints in question violated China's WTO Accession Protocol and its general obligations as a member of the organization under the GATT. (5)

In 2009, the United States, the European Union, and Mexico (collectively, Complainants) initiated WTO dispute settlement procedures with China with regard to restraints in the form of duties, quotas, licensing requirements, and minimum price requirements imposed on the exportation of various raw materials. (6) At the time the dispute was initiated, China was a leading producer of the raw materials at issue, which were widely used in a variety of industries. (7)

In November 2009, after failing to resolve their dispute directly with China in the preliminary phases of WTO dispute settlement procedures, the Complainants formally requested that the WTO's Dispute Settlement Body (DSB) form an adjudicatory panel to rule on the matter. (8) The DSB granted the Complainants' request for a panel in December 2009. (9)

China's general defense to the existence of export restraints centered around what it claimed was its sovereign right as a nation to manage its own natural resources in a manner that promotes domestic economic development. (10) China conceded to the existence of export restraints, but argued that they complied with specific exceptions provided for in the GATT, which authorizes the use of export restraints to advance natural resource conservation, public health, and limited other interests. (11) China's Accession Protocol sets out additional obligations limiting China's ability to employ export restraints, including requirements to eliminate all taxes and charges applied to exports, and to afford equal treatment to foreign traders. (12) China acknowledged the unique obligations existing in its Accession Protocol, but argued that it nevertheless retained its "inherent power" as a sovereign nation to regulate trade. (13)

The Complainants argued that China, through the use of export restraints, engaged in economic protectionism that was plainly inconsistent with the requirements of its Accession Protocol, and unjustifiable under any of the GATT exceptions. (14) The United States specifically asserted that China's use of export restraints was the "linchpin" of an overall strategy to gain advantage in the global marketplace, resulting in the disruption of international trade. (15) The Complainants further charged that China's claim that GATT exceptions related to environmental protection and public health justified its export restraints, was merely an afterthought that could not be supported by evidence. (16) The Complainants accused China of failing to exercise evenhandedness and impartiality in its treatment of foreign traders as evidenced by the conflicting standards applicable to domestic entities. (17) The European Union specifically complained that China's interpretation of exceptions justifying export restraints available under the GATT went too far and, if given credence, would render the exceptions meaningless. (18) The Panel agreed with the Complainants and found that China's export restraints were inconsistent with its WTO obligations and unjustified under the exceptions available under the GATT. (19)

The WTO was established on January 1, 1995, pursuant to the Marrakesh Agreement, and currently has 153 member countries. (20) States become members of the WTO in one of two ways: original membership and the accession process. (21) Original members are those who were signing parties to the Marrakesh Agreement, which established the WTO. (22) Those countries who did not sign the Marrakesh Agreement may gain WTO membership through the accession process, which includes a period of direct bilateral negotiations with any interested member of the WTO. (23) The advantages of WTO membership include the availability of a forum in which to handle international trade disputes and preferential trading status as a most favored nation among WTO members. (24) The Dispute Settlement Understanding (DSU) of the Marrakesh Agreement outlines the process by which countries handle trade-related disputes; decisions made pursuant to the DSU are binding on WTO members. (25)

The GATT was incorporated into the Marrakesh Agreement and serves as the WTO's main governing regime in the area of international trade. (26) The preamble to the GATT articulates its purpose as establishing "reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce." (27) In addition to the GATT, some WTO members are bound by the provisions of individual membership agreements known as Accession Protocols, which contain additional trade-related obligations. (28) In accordance with its mission of liberalizing trade amongst its members, the WTO regularly reprimands countries that impose unjustified trade restrictions. (29)

China acceded to the WTO in 2001 following a fifteen-year attempt to gain membership. (30) China's prolonged accession was controversial, due largely to unease among existing WTO members about the country's totalitarian history, socialist form of government, and extensive government entanglement in industry. (31) As a result of member resistance and the extraordinary amount of time that passed, China's membership in the WTO was approved only after it had made a remarkable amount of concessions in bilateral negotiations with other members. (32) Prior to its Accession, China had also instituted a significant number of reforms and has continued to do so in the years since. (33) Nevertheless, the country has found itself in a variety of trade-related disputes. (34) Today, China's strained trading relationship with other WTO members, particularly the United States, continues despite a universal acknowledgment of China's rapidly emerging global economic status, and the importance of maintaining trade partnerships with the Asian nation. (35)

In China--Measures Related to the Exportation of Various Raw Materials, the Panel issued a preliminary ruling concluding that it would issue findings solely on challenged measures in place by China at the time the Panel was formed. (36) The Panel noted that China made significant changes to its export trading regime since the dispute was initiated, some of which negated allegations made by the Complainants. (37) The Panel reasoned that allowing China to defend measures instituted after the Panel's formation was akin to turning "due process on its head," creating a scenario where the Complainants' grievances were not the focus of the dispute. (38) In later findings, the Panel reasoned that GATT exceptions were not available to China as a defense to export duties because the language of its Accession Protocol foreclosed their application. (39) China's contention that such an interpretation violated its status as a sovereign nation was summarily dismissed by the Panel, who reasoned that China's voluntary participation in the WTO and its consent to the agreements governing its membership therein were emblematic of China's sovereignty, not violative of it. (40) Nevertheless, the Panel decided that for the sake of argument, it would issue findings as to the GATT exception defenses presented by China, whether or not they were deemed applicable. (41)

In each instance where a GATT exception defense was put forth, the Panel found that China could not meet the burden of proving its applicability. (42) China, reasoned the Panel, could not show that the export restraints were administered in an evenhanded, uniform matter as required by the GATT because domestic traders were not subject to the same burdens as their foreign counterparts. (43) The Panel further concluded that China could not articulate an overall strategy with regard to its conservation policy that might justify the existence of export restraints and validate the applicability of gAtT exceptions. (44) Finally, relative to the GATT exceptions, the Panel determined that the indefinite amount of time they could potentially be in place violated the GATT requirement that allowable restraints be temporary in nature. (45) Overall, the Panel, relying on the plain language of the agreements governing China's membership in the WTO, found that the vast majority of the export restraints were inconsistent with China's obligations as a member. (46)

The Panel displayed sound judgment in its preliminary decision to issue rulings solely on the challenged measures, establishing an approach that would otherwise have had a profound impact on the resolution of the case, and effected an endorsement of China's strategy to evade review of WTO-inconsistent practices. (47)

The Panel was most evidently conflicted by its most controversial finding that GATT exceptions were unavailable to China as a defense of its export duties. (48) The Panel based its conclusion on a valid interpretation...