WTO Indictment of Chinese Export Restrictions Unearths U.S. Hypocrisy

Last week a WTO dispute settlement panel ruled that certain Chinese restrictions on exports of “rare earth” minerals are inconsistent with China’s WTO obligations and recommended that the PRC government bring its policies into compliance with the rules. The decision was hardly surprising, as export restrictions are prohibited under the WTO agreements – except under certain limited circumstances, which were not demonstrated to exist.

Formal complaints about these export restrictions were lodged in the WTO by the United States, the European Union, and Japan, whose manufacturers require rare earth minerals for production of a variety of high tech products, including flat-screen televisions, smart phones, and hybrid automobile batteries. By restricting exports, the complainants alleged, China’s actions reduce supply and raise prices abroad, putting foreign downstream manufacturers at a disadvantage vis-à-vis China’s domestic rare earth-using companies, who enjoy the effective subsidies of greater supply and lower input prices.

The WTO decision was lauded across Washington, but more for its dig on China than for its basis in principle or sound economics. Emblematic of official sentiment was the following statement from arch-import-foe-temporarily-turned-globalization-advocate, House Ways and Means Committee Ranking Member Sander Levin (D-MI):

Through the aggressive efforts of the Obama Administration, the WTO has struck down China’s efforts to block our companies from having access to key inputs.  Our high-tech industries, from smartphones to medical equipment to wind turbines, depend on access to these rare earths and other chemicals. Holding China accountable, and enforcing the rules of international trade are vital to U.S. businesses and workers and key to trade expansion efforts (emphasis added).

You’ll have to forgive my skepticism that Congressman Levin is genuinely concerned about U.S. companies having access to key imported inputs. As a dogged supporter of the U.S. antidumping law, Rep. Levin has devoted years of energy to the task of ensuring precisely that U.S. companies be cut off from foreign suppliers. Strengthening the antidumping law so that domestic upstream producers have an easier time securing restrictions on their U.S. customers’ purchasing options has been one of Levin’s top priorities.

During the last decade (2000-2009), four out of every five antidumping measures (79.4%) were imposed on imported intermediate goods.  Over the past 12 months, all of the 15 U.S. antidumping investigations initiated concerned imported intermediate goods, such as ferrosilicon, chlorinated isocyanurates, calcium hypochlorite, and sugar.  Access to each of these products – just like access to rare earth minerals – is essential to the competitiveness and viability of U.S. companies.  Each of these inputs is the lifeblood of numerous downstream industries.  And don’t think consumers don’t feel the pinch.  Keep an eye on your grocery bill over the next year, as higher sugar prices make their way through the food processing, confectionary, and bakery industries and into your pantries.

Yet, under the antidumping law, these American import-consuming companies never get their days in court.  Whether antidumping duties (import taxes) are imposed on these crucial inputs is decided entirely without their input and without any consideration of the impact on their bottom lines.  By statute, it is only the material condition of the domestic supplier of that input that is taken into consideration.  This is ludicrous.  This is the status quo. Read about it here.

Meanwhile, the hypocrisy doesn’t end there.  While our policymakers impugn China for restricting exports of its mineral bounty and decry the impact on downstream U.S. industries, the United States engages in the same kind of protectionism, restricting exports of oil and natural gas.  According to separate analyses by Scott Lincicome and Jim Bacchus, those restrictions likely would be found to violate U.S. WTO commitments just as China’s raw materials export ban (a previous case) and rare earths restrictions were found to be out of compliance.

There are reasons to celebrate the WTO's decision against Chinese export restrictions.  There are also lessons to learn from it.  A period of introspection and adjustment wouldn't hurt.