The rare-earth elements dispute is very similar to a raw-materials dispute settlement the
The body found China's raw materials practice inconsistent with Article XI of the General Agreement on Tariffs and Trade, which states, simply, that a party may not introduce quotas on exports. (It also found China at odds with Article VIII about fees and Article X about transparency.)
In the raw-materials case, the United States alleged China had imposed restraints on exports of materials like bauxite, magnesium and zinc, which created scarcity and caused higher prices in the global market.
Like the current U.S., E.U. and Japan complaints against China's rare earth export practices, the raw materials complaint highlighted their disadvantages to China for technology production."Specifically with the rare-earths case, I think that should be a slam dunk for the U.S. and the E.U. and Japan, because we've just had the raw materials export case come out in the U.S.'s favor," said Lewis. There is one GATT rule that China could use to craft in defense of its rare-earth exports: Article XVIII, which is also known for its "infant industry" language. This article states that developing countries can, under certain circumstances, apply quantitative restrictions and grant tariff protection in order to help establish a specific industry in economic development. An interesting twist China argued in the earlier July 2011 WTO Panel on the raw-materials decision was for Article XXXVI of GATT. Simply, Article XXXVI defends developing countries' ability to gain an increasing share of world export activity. You might be wondering how China's export quota practice would increase its share of world exports. Well, China argued in the July Panel decision that by imposing an export quota it would be able to retain more of its own raw materials to be used for production by Chinese companies. The finished products made using the raw materials would then increase China's share of exports in the world market. It is likely that China could use this same argument against the rare-earth elements dispute by the United States, European Union and Japan. In short, Lewis said the Chinese have tried to justify derogations from the language of Article XI's general prohibition on quota restrictions. Molycorp (MCP - Get Report)