WTO trade and environment standard rendering China-Rare Earths GATT article XX exemptions impossible and other international laws incompatible.

Author:Gao, Fengping
 
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  1. INTRODUCTION

    This article critically reviews China--Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum (the China-Rare Earths (1) case), from the perspective of the Article XX (b) and (g) of The General Agreement on Tariffs and Trade (GATT). (2) The purposes of this article include: 1) to reveal, regarding the World Trade Organization ("WTO") trade and environment, that the China-Rare Earths case could have been decided through an alternative legal basis, and 2) to evaluate the international scholars who thought that the Panel's isolated textual approach was wrong and the theoretical judgment of the case was not sound. An empirical study at both the macroeconomic level and the microeconomic level demonstrates the comprehensive policy in dispute actually has been working "as a whole" since the early 2000s. Also, this research shows that the China-Rare Earths case ruling has caused a devastating consequence on the whole rare earth industry.

    Part I of this article provides background on the rare earth industry and its trade, while Part II briefly summarizes the principle substantive issues of the China-Rare Earths case. Part III reviews GATT Article XX (b) and (g). Part IV analyzes the rules of GATT Article XX (b) and (g) as applied to the China-Rare Earths case and finds that this case is extraordinary. First of all, it is arguable that China might deserve a different application of law. (3) In light of the fundamental importance of the flexibilities provided in GATT Article XX, China invoked both Article XX (b) and (g), respectively, for protection of human, animals and plants life and conservation of exhaustible natural resources. (4) The Panel decided the environmental issue under Article XX (g); however, Article XX (b) policy issues were not decided under Article XX (b) law, but on a different basis. (5) Scholars emphasize that the policy space governments enjoy to pursue legitimate objectives under GATT Article XX (g) is more likely to be considered "disguised trade restrictions" to pursue regulatory objectives and then tips the balance towards their obligations under the GATT, while issues under Article XX (b) regarding protection of human, animals and plants life require a lower standard of "burden of persuasion." (6) Secondly, the standard of the Article XX (g) has become next to impossible to qualify domestically legitimate environmental policy for the specified exemption, although there could be a theoretical chance. Part V reiterates that this extreme standard contradicts the Preamble of the WTO, the Marrakesh Agreement, and the purpose of the GATT Article XX. Moreover, as illustrated in the China-Rare Earths case, McRae's summarization of the WTO as a market access agency is apt. (7) The WTO's continuing reliance on the working principles of trade and environment in order to make its rulings is outdated and inconsistent with human rights and the international community environmental efforts for better living conditions. (8) Part VI follows the study in the transitional economy on both China's "continuing" reform policy and the case study on the China Northern Rare Earths, the world's number one rare earths producer. (9) The findings echo the scholar's view that the objectives of industry reorganization, resource conservation, and environmental protection are integrated. Part VII presents empirical follow-up research that has found the disastrous consequence is directly related to the application of the Panel's recommendations. Lastly, the article restates that the standard of the law in the China-Rare Earths case should be updated and the Panel's discretion on the approach shall be confined.

  2. THE BACKGROUND OF THE RARE EARTHS INDUSTRY

    Rare earths are a set of fifteen chemical elements in the periodic table. (10) Actually, they are not rare but relatively abundant in the Earth's crust. (11) However, it is rare to find them in quantities significant enough to support economic mineral development. (12) Rare earths have both market value and national security implications. (13)

    On the one hand, rare earths are important. (14) Rare earth precious metals are important to a variety of United States commercial industries. Rare earth products relate to our daily life. Rare earth metals are used to produce your iPhone and laptop. (15) Rare earths make up a key part of your hybrid and conventional automobiles. (16) They make your house lighting work in a more energy-efficient manner. (17) Rare earths are also used in the oil and gas industry, advanced electronics, chemicals, medical equipment, "as well as [in the] U.S. defense industries that produce various weapon systems." (18) For instance, high purity beryllium, one rare earth metal, possesses "unique properties that make it indispensable in many of today's critical U.S. defense systems, including sensors, missiles and satellites, avionics, and nuclear weapons." (19) The exhibit below illustrates the broad application of rare earths elements.

    As illustrated by Congressional Research Service exhibit above, the United States Congress attempted to pass The National Strategic and Critical Minerals Production Act of 2013. (21) This makes it clear that some rare earth elements are both strategic and critical to the United States' economic and national security and manufacturing competitiveness.

    On the other hand, the mining and production of rare earths is hazardous, (22) and some countries like the United States and Australia have stopped domestic production. (23) The production starts with mining crude ore, which in turn is milled into fine powder. (24) "In order to separate the valuable rare earth metals from the rest of the ore, this powder is floated on water to which chemicals are added." (25) "Flotation creates large waste streams, ... which lead to large ponds called 'impoundment areas.'" (26) According to the Institute for the Analysis of Global Security (IAGS), "China produced over 130,000 metric tons of rare earth elements in 2008." (27) Rare earth production yields 1.2 billion to 1.6 billion cubic meters of waste gases per year, and (9). (8) million cubic meters of hazardous waste water. (28)

    "These tailings contain toxic substances including radioactive uranium and thorium, fluorides, sulphites, acids, and heavy metals, and constitute a major environmental health risk." (29) "Rare earth element ores tend to contain a range of different metals in their structure, including aluminum, arsenic, barium, beryllium, cadmium, cobalt, copper, lead, manganese, and zinc." (30) Further, "some reagents or heavy metals, such as cyanide and mercury, are valuable for use." (31) All three environmental mediums the air, the water, and the soil, are so damaged. (32)

    China learned both the environmental harms caused by the industry and the importance of the resource. (33) In order to begin campaigning to "rationally utili[ze] [the] rare earth resource," China started regulating the rare earths industry in the 2000s, including through the use of trade controls. (34) Japan, the European Union, and the United States, which were the complainants, contended that the regulations were against the trade rules and brought China's trade regulatory measures to the WTO in 2012. (35) Subsequently, the Dispute Settlement Body established the China-Rare Earths case. (36)

    1. Facts of the China-Rare Earths Case

      The environmental burden is critical to the rare earth industry and this case. The black market and stockpiling made the issue controversial. (37) The hazard transfer from rich countries to developing countries (38) could be a critical issue to be considered by the WTO Panel.

      1. Traditional Leading Rare Earths Producers Stopped Market Contribution

        Australia (39) and the United States (40) were the main producers of rare earths. According to the Australian Government research report on rare earth deposits, (41) Australia produced 18,735 tons in 1985. (42) From the mid- 1960s through the 1980s, the United States' Molycorp's Mountain Pass mine was "world's dominant source of rare earth oxides"; however, both nearly stopped rare earths production in 2000s. (43)

        China, the respondent in the China-Rare Earths case, is the only state that increased its annual production about ten times from 16,500 tons to 135,000 tones. (44) According to the China Rare Earths White Paper, China claimed it is not proportional or sustainable that it provides more than 90% of market supplies with its total 23% deposit of the world, even if the data might be different than that supplied by complainant. (45) However, it is also true that there are many other international rare earth mines according to various government research reports. (46)

        China became the dominant seller of rare earths, and produced 97.3% of the output of rare earths for the international community because of "preferential policies by the Chinese government and "lax environmental standards." (49) This lax environmental standard quickly enabled China to become a dominant, low-cost producer of rare earths by the late 1990s. (50) China realized that the situation was not sustainable. (51)

      2. Stockpiling Smuggling Goods Holding "the Fate" of Global Producers

        Rare earths smuggling has been a serious issue in China for decades. (52) The respondent in China-Rare Earths case raised that measures in dispute served to crack down on smuggling. (53) The rare earths smuggling related to the "governmentally-promoted foreign stockpiling" issue was raised in the case. (54)

        Smuggling hurts international rare earths producers. Business Insider reported that "the fate of debt-ridden U.S. rare earth miner Molycorp rests on China's efforts to crack down on networks that smuggled as much as 40,000 tons of the vital technology metals out of the country last year, driving down global prices." (55) This also implies that smuggled rare earths from China, represent a significant share of the global rare earths market. (56)

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