On 7 August 2014, the Appellate Body Report of the China - Rare Earths case was released. This report upheld the findings that China’s export restrictions on certain industrial mineral products such as rare earths were WTO-inconsistent and could not be justified by WTO general exceptions on environmental protection. As a result, those export restrictions should be nullified.
With the aim of balancing trade liberalization and public policy objectives such as environmental protection, WTO law provides general exceptions for WTO Members to justify their WTO-inconsistent measures. It is the second time that China’s WTO-inconsistent export restrictions failed to pass the test of WTO general exceptions on environment protection. Compared to the previous case, China – Raw Materials in 2012, this time China had provided more supplementary measures in order to prove its export restrictions are part of its environmental policy instruments.
However, as in the China – Raw Materials case, the Panel in the China - Rare Earths case was still not convinced by China’s argument that export restrictions would reduce the production of mineral products and therefore reduce the harm caused through production. Instead, the Panel was more inclined towards the argument from the complainants, the United States, the European Union and Japan, that China’s export restrictions serve to protect the domestic industry since domestic consumers would have access to mineral products at a lower price compared to foreign consumers under export restrictions.
Moreover, in the China - Rare Earths case the Panel also confirmed a controversial finding from the China – Raw Materials case that WTO general exceptions were not available to China’s export duties. China’s commitments on export duties, which were made in 2001 during China’s accession to the WTO, are usually considered as WTO-plus commitments because export duties of most WTO Members are not regulated under WTO law. Therefore, the finding that China’s WTO-plus obligation cannot invoke WTO general exceptions makes China’s already narrowed policy space more restricted.
After the release of the Appellate Body Report , a newsletter from the Ministry of Commerce of the PRC showed China’s disappointment about the result and emphasized that the WTO should balance trade liberalization and environment protection. However, the newsletter did not mention China’s recent industry plan concerning the rare earths industry which was closely related to the China - Rare Earths case.
According to this plan, there would be an integration in China’s rare earths industry in order to promote sustainable development. This integration would be led by 6 big enterprises. The most updated information showed that 5 enterprises have already been permitted to lead this integration and all of them were either owned by central government or by local governments. This integration, which might lead to the nationalization of the rare earths industry in China, could raise other issues under WTO law in the future.