Foreign Policy Blogs

An Important Win at the WTO

In case you missed it, the U.S., along with the European Union and Mexico, won an important ruling at the World Trade Organization earlier this week. The parties had lodged complaints against China, whom they accused of unfairly restricting exportation of a variety of key raw materials commonly found in a wide range of manufactured products from consumer goods to high-tech products. The ruling should result in greater access to Chinese minerals for foreign firms that rely on them, and that’s a good thing for U.S. manufacturers, consumers and the global economy.

The gist of the case was that the U.S., EU and Mexico accused the Chinese government of seeking to gain an unfair competitive advantage for its manufacturers by restricting foreign access to Chinese markets for bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc through a series of quotas and duties. China supplies big shares of the global market for these elements, so their actions had the effect of creating artificial scarcity that raised the costs of manufacturing for foreign firms. The Chinese government countered that the measures were necessary due to the toll that extraction of the elements was taking on their environment and the health of their citizens, but after weighing both sides, the WTO quite sensibly ruled against China on the grounds that if the export restrictions were truly about protecting the environment, they would have been paired with domestic measures to the same end. The fact that the measures only applied to exports and not extraction generally revealed their true motive, and since they were also not exempted by the terms of China’s WTO accession agreement, the WTO panel ruled against the Chinese.

The ruling will ultimately help American manufacturers compete, and it important because it can be used as a precedent in similar cases of resource nationalism, including China’s protection of its rare earth element market (for an excellent briefing on this issue, take a look at this report by the Center for a New American Security’s Christine Parthemore). Like the elements in this WTO case, rare earth elements are critical to the manufacture of many kinds of goods, but that market is also currently dominated by China’s massive share of global output and market restrictions. In fact, the Chinese government already seems to expect just such a challenge.

An Important Win at the WTO

(Courtesy: Google Images)

American policymakers and business leaders are increasingly worried about foreign resource nationalism given the fragile state of the U.S. economy and the vulnerability of key industry sectors to supply chain disruptions. Parthemore notes that meaningful diversification in the critical mineral sector is probably years away given the time it takes to get new mining operations up and running, so diplomacy and appeals to the WTO are going to be important tools for ensuring fair access to existing supply sources.

In times of economic duress, protectionism can be politically appealing, but history tells us that it is not the path to global economic rehabilitation. Our current economic predicament suggests that we will need to be alert to this threat for the foreseeable future, and the U.S. should continue to be a robust proponent of open markets and fair competition in its trade relationships.

 

Author

Ryan Haddad

Ryan Haddad is the Senior Blogger for U.S. Foreign Policy at FPA. A foreign affairs and national security analyst based in Washington, D.C., he worked in European and Eurasian affairs at the U.S. Department of Commerce during the Bush Administration and is a graduate of the London School of Economics and Providence College. He can be followed on Twitter at @RIHaddad.

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