Agenda

12:30 Welcoming lunch and introductory remarks

13:00 Panel discussion

• Moderator, Christophe Bellmann (ICTSD)
• Key issues, overview, and comments, Hannes Schloemann (WTI Advisors)
• The availability of Article XX to non-GATT claims, Cherise Valles (ACWL)
• Implications for resource conservation in the mining sector, Gilles Carbonnier (HEID)
• Implications beyond extractive resources; an outlook for future disciplines, Baris Karapinar (WTI)

13:45 Open Discussion

Registration required. Please register by Monday, 6 February with Matt Fleszar at mfleszar@ictsd.ch

Environmental regulations tightened for rare earths extraction

The start of the new year has brought increased uncertainty regarding the 2012 global rare earths supply. Rare earths are used in essentially every area of high-tech production, including pharmaceuticals, military equipment, green energy technology, and information technologies.

In late December, Beijing announced its new export quota on the precious materials, which seem to suggest that the market could see a slight increase in exports throughout 2012. However, China has also introduced a new approach to allocating the quotas that could indeed reduce supply of the most precious materials.

As of 2012, Beijing will distinguish between the fairly accessible light rare earths and the most precious heavy rare earths, allocating only about 15 percent of the quota to the latter category.

While light rare earths are generally available for lower prices in the global market, heavy rare earths are as scarce as they are needed. In addition, four of the six main rare earths materials that are expected to face supply shortage by 2015 are heavy rare earths, including europium, terbium, dysprosium and yttrium.

Dysprosium and neodymium are jointly required for virtually every magnet used in modern technology, including renewable energy technology. Europium, on the other hand, is needed for TV screens. Exports of the only light rare earths materials that are of equal importance and that might face shortage over the coming years (neodymium) have already been strategically limited over the past years by China. Neodymium is needed for wind turbines and electric vehicles, among other products.

This new distinction and its impact for rare earths exports are expected to reduce supply in heavy rare earths in the foreseeable future.

The 2012 quota is further subject to a new environmental protection regime. Export licenses can only be allocated to companies that comply with tightened environmental regulations. At this stage, according to data from the Financial Times, nearly two-thirds of all allocated licences for 2012 are pending - meaning that the already allocated quotas may only be used once environmental compliance has been approved.

As an example, Baotou Steel, which accounts for nearly half the world’s rare earth production and which has been found guilty of environmental violations in the past, will have to implement additional environmental regulations by July 2012 in order to be able to execute its allocated quota.

The initial 2012 batch gives 10,546 tonnes of rare earth exports to nine companies that have met environmental protection standards.

The new policy comes after a turbulent year that was characterised by large price fluctuations and a tight export quota from China that accounts for about 97 percent of global rare earths supply. Many analysts, along with importing countries such as Japan, the EU, and the US, saw this as a strong signal of the country’s willingness to implement export restrictions to control domestic supply and manipulate world market prices.

Even when prices and demand crashed in mid-2011 the protests continued, further fuelled by a WTO panel decision that outlawed a similar Chinese export restriction regime (DS394, DS395, and DS398; see Bridges Weekly, 6 July 2011). Although panel and Appellate Body reports have no precedential effect in the WTO, the China-Raw Materials case was generally seen as a ‘testing ground’ for a potential rare earths dispute.

Beijing continuously rejected these accusations, justifying its export restrictions with environmental protection objectives. Indeed, throughout 2011 Beijing implemented a new environmental policy by limiting the illegal extraction of rare earths in China and establishing cleaner extraction policies through enforcing technology updates and limited extraction.

The announcement of the new policy comes only weeks before the appeal report in China-Raw Materials is expected to be released by the WTO. As China argued in favour of its export restriction regime subject to that dispute on the basis of environmental justifications, the Appellate Body’s position might provide important guidance for China’s new rare earths quota.

Appellate Body upholds distilled spirits panel report

On 21 December 2011, three members of the WTO Appellate Body issued a final report in the Philippines-Spirits case(DS396 and DS403), upholding an earlier panel finding that had ruled the archipelago’s differential taxes for foreign and locally distilled spirits illegal (see Bridges Weekly, 7 September 2011). The Appellate Body agreed with the panellists that the products in question were ‘like’ for the purpose of WTO law, even though different feedstock was used to produce them.

In March 2010, the EU and the US sought WTO dispute settlement panel rulings on Filipino tax laws for distilled spirits. These laws gave favourable tax treatment to spirits produced from ‘designated’ raw materials, which included only local resources like sugarcane and coconut. Spirits from ‘non-designated’ raw materials - the majority of which were imported - were subjected to tax rates up to 40 times higher (see Bridges Weekly, 31 March 2010).

Nonetheless, local coconut or sugar cane based spirits are marketed and sold as brandy, whiskey, tequila, and gin.

The Appellate Body now confirmed the panel’s position that the products had to receive the same favourable treatment, as they were essentially ‘like’ due to their “directly competitive or substitutable” nature. The ruling once more confirms that the competitive nature of products, generally speaking, determines “likeness” more than the natural input. The finding further informs discussion on other natural resource-based products and their relationship, such as that of different biofuels or of different bio-diesels produced from different feedstock.

US appeals clove cigarettes decision

In other trade dispute news, Washington has decided to appeal the WTO panel ruling in the clove cigarette case (DS406) between the US and Indonesia. The report from 2 September 2011 found that the US 2009 Family Smoking Prevention and Tobacco Control Act banning flavoured cigarettes was in violation of WTO law, as it discriminated among domestic and foreign products (see Bridges Weekly, 7 September 2011).

Indonesia had complained that the ban discriminated against its clove flavoured cigarettes, as the law did not ban menthol flavoured cigarettes. Indonesia accounts for almost 100 percent of the US clove cigarette market, while nearly all menthols sold in the US are produced domestically.

The case was the first out of three cases dealing with the Technical Barriers to Trade (TBT) Agreement in 2011 and the first out of three consumer protection cases that the US lost at the panel stage that same year due to flawed policy implementation. The panel ruling had provoked an outcry among advocacy groups in the US that saw the ruling as an attack on US’ public health regulation. A decision is expected in spring 2012. The US’ submissions are already available online.

Deadline in origin labelling dispute extended

The WTO Dispute Settlement Body also agreed at its 5 January meeting to extend the deadline for adoption or appeal of the panel rulings in the country-of-origin labelling requirements (COOL) cases (DS384 and DS386) to 23 March 2012.

The COOL disputes involved challenges by Canada and Mexico to the US Farm Bill, which requires sales packaging to inform consumers about the country of origin of meat. The panel reports in these cases found the labelling requirements inconsistent with Washington’s WTO obligations (see Bridges Weekly, 23 November 2011).

ICTSD reporting; “China rare earths move unlikely to buoy prices,” FINANCIAL TIMES, 29 December 2011; “China’s Rare Earths Export Quotas for 2012: Rules and Regulations - Part Two,” METAL MINER, 10 January 2012; “Investing in Rare Earth: Heavy vs. Light,” RARE EARTH INVESTING NEWS, 24 March 2011.

Questions on the consistency with WTO provisions have been frequently raised as sustainability criteria and implementation measures were defined and adopted under the RED and FQD. However, no thorough analysis has been carried out on this topic. The objective of the worksho is to engage in an informed and constructive discussion on the technical and legal arguments surrounding the compatibility of the EU sustainability requirements with international trade rules. Special attention will be given to recent WTO jurisprudence.

Speakers include Andrew Shoyer, chair of Sidley Austin’s international trade and dispute resolution practice; Dr. Alan Swinbank, Emeritus Professor of Agricultural Economics at Reading University; Malena Sell, Senior Programme Officer, Environment and Natural Resources, ICTSD; and high-level representatives from the European Commission and the European Parliament.

The issue formally entered the halls of the WTO when a dispute was lodged with the WTO’s Dispute Settlement Body (DSB) in September 2010 over Ontario’s feed-in tariff scheme (Canada-Renewable Energy (Japan)). A second case on the same measure followed in August 2011 (Canada-Feed-in Tariff (EU)).

The FIT programme in question contains a controversial local-content provision which requires up to 60% of project input to be sourced in Ontario. Japan and the EU argue that this disadvantages producers outside Ontario and amounts to an illegal subsidy. In particular this decision to file the dispute under the WTO’s subsidy accord has attracted great attention.

A feed-in tariff is a policy tool defined by three key characteristics: guaranteed electricity purchase prices, guaranteed grid access and long-term contracts. Increasingly these tools, or programmes, are designed in a way to encourage the adoption of renewable energy sources. In these cases, eligible renewable energy producers (including homeowners and businesses) are generally paid a premium for any renewable energy they produce. Moreover, electric grid utilities are obliged to purchase the electricity, ensuring a return on the renewable energy producers’ investments. In other words, a FIT programme is a purchasing guarantee.

However, government support for clean air energy production may be in conflict with World Trade Organization (WTO) rules, if it involves subsidies that can disadvantage foreign manufacturing and distort competition. With a recently launched case over the Canadian province of Ontario’s FIT system, the issue has now entered the sphere of WTO dispute settlement.

This study does not intend to make any recommendations about whether WTO rules should limit governmental policies implemented with the aim to increase the generation of renewable energy. Rather, it aims at reviewing the current legal situation in order to inform policy discussion.

This is a preliminary version, comments can be forwarded to Marie Wilke.

The aim is to serve the needs of professors, researchers and lawyers who require updated and specific analysis on WTO Law. The monograph series is intended to support teaching on this subject-matter.

Materials can be freely accessed here.

Despite having lost several WTO cases on the issue, most recently against Brazil for duties on orange juice, Washington responded coldly to China’s challenge.

“The decision now by China to pursue new claims against the United States on zeroing only complicates resolution of this issue,” said Nefeterius McPherson, a spokesperson for the US trade representative’s office.

WTO rules authorise governments to levy ‘anti-dumping’ duties on goods it determines to be ‘dumped’, i.e., sold abroad for less than  the price they command in the exporter’s home market, if they are injuring domestic competitors.  ‘Zeroing’ refers to the practice by US commerce authorities of ignoring (or ‘zeroing out’) instances where imported goods cost more in the US than in the exporter’s market. Critics of zeroing argue that it artificially inflates anti-dumping margins, making them even more trade-restrictive.  Last December, the US Department of Commerce proposed to end the use of zeroing in annual reviews of existing anti-dumping measures, in an effort to stave off retaliation from major trading partners (for more information on that proposal see here).   The proposal is still open for public comment, but has drawn the ire of some lawmakers and industry representatives, according to Inside US Trade, a Washington-based trade publication.

China has decided to pursue what it sees as a legitimate claim. “Once the cancellation of zeroing was approved officially, it should have applied to all global trade cases,” Zhang Aiqing, a former director of the department of treaty and law in the commerce ministry, told China Daily.

At issue in the complaint are US anti-dumping duties on Chinese shrimp that date back to 2005. Initially fixed in the realm of 27 to 82 percent, the duties were dropped to 5 to 8 percent after Beijing  successfully appealed to the US International Trade Commission (ITC), the quasi-judicial body that determines the rate of duties. Nevertheless, China’s Ministry of Commerce complains that the levies remain in violation of WTO rules, and continue to impair the interests of its shrimp producers.

The US ITC will next month vote on whether to extend its duties on imported shrimp from China and other countries for an additional five years. US shrimpers in the Gulf of Mexico are still reeling from the effects of last year’s massive BP oil spill, and have pushed for the extension of the duties.

China’s request for consultations is the first step in the WTO dispute settlement process. If the two sides cannot reach a negotiated settlement within 60 days, Beijing will have the option of requesting a panel to hear the dispute.

ICTSD reporting: “USTR statement regarding China’s decision to request WTO consultations on shrimp antidumping measures,” OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, February 2011; “US irked by China’s shrimp duty challenge at WTO,” REUTERS, 28 February 2011; “China calls for proper settlement of disputes over US anti-dumping duties on Chinese shrimp,” XINHUANET.COM, 28 February 2011; “China takes US to WTO,” CHINA DAILY, 1 March 2011;  “Congress urges commerce to alter zeroing proposal, preserve flexibility,” INSIDE US TRADE, 25 February 2011.

In response to this need, ICTSD has engaged in a bottom-up assessment of the strategies that individual developing countries have developed to enhance their ability to make use of WTO dispute settlement and to coordinate such activities among public and private stakeholders on a national level. The outcome is the form of nine country studies is now presented in the book Dispute Settlement at the WTO – The Developing Country Experience. Countries covered in the analysis include Brazil, Argentina, China, India, Thailand, Bangladesh, Egypt, South Africa and Kenya. The publication concludes with a comprehensive list of recommendations. For further information kindly consult our webpage at: http://ictsd.org/i/dsu/98179/.