China, the WTO and the Limits of Law

Yesterday’s World Trade Organization (WTO) ruling – holding that a range of China’s raw materials export policies violate its international trade obligations – has roiled the rare metals world and the rare earths sector in particular.  
While the WTO case, brought by the U.S., European Union and Mexico in mid-2009, involved nine industrial metals (bauxite, zinc, yellow phosphorus, coke, fluorspar, magnesium, manganese, silicon carbide and silicon metal) many of the aggrieved parties were quick to apply the ruling to China’s restrictive rare earths export policy.
Witness Reuters, which reports:

“EU Trade Commissioner Karel De Gucht said the decision would force China to drop export restrictions for the materials mentioned in the case and for rare earths.”
I’m not nearly so sure – and not simply because the WTO is not bound to follow prior rulings as precedent. 
It’s a staple of rare earths reporting that China holds a near-monopoly in REE production. But that monopoly is not a force of nature or fact of geology.  China’s may provide 97% of today’s REE supply, but it possesses 36% of the world’s known reserves; the U.S., in comparison, provides perhaps 1% of supply, with 13 to 15% of reserves. 
By way of analogy, I may be able to pay for a nice cool drink, and you may choose to enter the cool drink business.  But can I compel you to sell it to me, with all that entails (developing the skills to find the underground stream and sink the well, fabricating or purchasing the equipment to do so, maintaining a labor force to man the crank for well-water production and a sales and distribution team to deliver it) – when I have my own fresh water potential which, for whatever reason, I choose not to tap?  
Whatever a present or future WTO tribunal might rule, that’s a tough case to make in the court of public opinion.   Fiat exports impinge on sovereignty in so many ways – the right of a nation to manage its own resource wealth for present and future generations; trade-offs on environmental impact versus economic need or national security imperatives – that international law can prove a weak weapon.  
After all, as the New York Times’ Keith Bradsher noted in his story on the WTO ruling:
“Western governments have periodically considered filing an international trade case against nations in the Organization of the Petroleum Exporting Countries for limiting oil exports. But they have refrained from filing, having concluded that even an adverse ruling would be unlikely to prompt heavily oil-dependent countries to change their policies.”

Whether China will accede to the WTO’s ruling, or whether it will emulate OPEC’s indifference will play out in the weeks and months ahead. 
Indeed, China may — for reasons threaded into its larger relationship with the U.S. and the industrialized world — choose to ease or even reverse its raw materials export policies.  But it will do so for its own reasons, and as part of the larger give-and-take of matters of state, and not because of what judges in Geneva order to be so.
If the victory in Geneva results in more uniform and transparent trade practices governing Chinese raw materials, global commerce will be better off.  But a careful consideration of the ruling is a reminder of the limits of law in cases of sovereignty.    
The U.S., EU and industrialized world cannot simply litigate its way out of its resource shortages. Whatever we may offer in the form of commercial compensation, we delude ourselves if we rest our future competitiveness on the ability to compel others to extract for us what we choose not to extract for ourselves.

What Are the Implications of Resource Protectionism in China within the Framework of the WTO?

China’s resource protectionism poses significant challenges within the framework of the WTO. This approach could lead to trade disputes with other member countries and potential violations of WTO principles. The implications of china’s resource protectionism on global trade and economic stability are concerning and require careful consideration.

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