A closer look at the US and China's dispute over raw material export duties

Industry News | | MIC Customs Solutions |

The US and China have become engaged in a dispute over Chinese export tariffs on key raw materials, with the World Trade Organization having now been called upon to intervene.

As the world's two largest economies by a considerable margin, the US and China have long occupied pivotal positions in the international trade landscape, with the majority of companies that do business globally having dealings with one or both of these nations.

Given their status as leading global superpowers, competition between the countries has often been fierce and diplomatically fraught - a state of affairs that threatens to be escalated by a new dispute that has arisen between the nations over China's policy on export duties for a number of key raw materials.

Earlier this month, the US launched a new trade enforcement action against China at the World Trade Organization (WTO) to protest what it considers to be protectionist and anti-competitive tariffs. China's response to this challenge will be watched with great interest over the coming weeks, as it will determine the level to which the WTO will need to intervene before this matter can be resolved.

The background

While the US has been a member of the WTO since its foundation on January 1st 1995, China's relationship is less developed, having joined in December 2001. As part of the terms of its WTO accession, the Asian nation agreed to eliminate export duties for all products other than those included on a predetermined list.

However, there have been a number of occasions on which it has failed to do so, with two previous WTO disputes having been launched to call China to account for its lack of progress on this front. The US has often been at the forefront of these challenges, with this latest episode being the 13th trade enforcement case the US has launched against China at the WTO during Barack Obama's presidency alone. This is more than any other WTO country over the same period - and the US is keen to note that it has won every case that has been decided so far.

The US complaint

The complaint launched earlier this month pertains to the duties China levies on exports of antimony, cobalt, copper, graphite, lead, magnesia, talc, tantalum and tin, which range between five and 20 percent. The US alleges that all of these are materials for which China had pledged to eliminate export tariffs, but is yet to do so.

Of particular concern is the fact these materials are key components used by vital industrial sectors in the US such as aerospace, automotives, electronics and chemicals, meaning the levies create an unfair competitive advantage, allowing Chinese manufacturers to offer lower-priced goods than their counterparts in the US and elsewhere, thereby putting pressure on producers to shift their production operations, technologies and jobs to China.

Since this original complaint, the US has supplemented its request to include China's export duties on chromium and the quotas it imposes on antimony, indium, magnesia, talc and tin, which it claims are serving to create an uneven playing field.

US trade representative Michael Froman said: "These duties are China's attempt to game the system so that raw materials are cheaper for their manufacturers and more expensive for ours. This scheme is directly at odds with WTO commitments China has made, and as we've shown time and again, we will hold them accountable to their commitments."

What happens next?

This dispute remains in the consultation phase, which marks the first step in the broader WTO dispute settlement process. At this point, the responsibility lies with the two countries to reach a mutually agreed solution through a series of conversations, but if this fails, they are able to ask the WTO director-general to mediate or offer other assistance.

The US has already stated its willingness to request the WTO establish a dispute settlement panel to examine the matter, which could lead to a report and ruling being put in place to compel China to take action on this matter, or put itself at risk of facing compensation claims or other sanctions.

Mr Froman said: "Today's action again makes clear that we will not hesitate to challenge export policies that harm US manufacturers by restricting their access for key inputs into products made here in America ... We will continue to stand up for American workers and manufacturers in order to ensure a level playing field and protect the good jobs that trade supports."