WTO ruling not end of the road for China

If China were to impose a direct tax on the output of raw materials, it would require relatively a more complicated monitoring system to impose tax on production and domestic sales. This will increase taxation costs - and should be the last resort to protect the environment if China loses the case.

Yet we cannot be pessimistic because American and European interest groups at times change their minds fast.

The West accuses China of imposing export restrictions on raw materials when supply is falling in the primary product market. If the bullish market ends, it is highly likely that the West would ask China to impose export restrictions to protect Western industries and sales.

There is precedence for that. The EU is now criticizing China for imposing export restrictions on resources such as coal and coke, but several years ago it criticized China for exactly the opposite reason: unrestricted exports of coke. It even threatened to level official dumping charges against China.

This bullish market for primary products has lasted an unprecedented nine years. But the possibility of the bull run's end is increasing with each passing day, as indicated by the market fluctuations since May.

More importantly, China has to fight to get the unequal clauses in the Protocol on the Accession of China to the WTO revised. The failure to do so until now has cost China heavy.

Last year's WTO evaluation report on China's trade policy said the main reason why the country is implementing export restrictions on raw materials is to meet its domestic demand, which also constitutes hidden subsidies for domestic manufacturing. Even if that is true, it is in accordance with the fundamental rules of the WTO. Article 20 on "General Exceptions" of the General Agreement on Tariffs and Trade (GATT), the forerunner of the WTO, says that a contracting party can adopt "restrictions on exports of domestic materials necessary to ensure essential quantities of such materials to a domestic processing industry". The WTO report, however, insists that China cannot quote the article according to the clauses in the Protocol.

But Protocol Article 11 on "Taxes and Charges Levied on Imports and Exports" says "China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994". And Protocol Annex 6 on "Products Subject to Export Duty" lists 84 kinds of products on which export duty can be levied, and they include products now under dispute such as yellow phosphorus and zinc.

The author is a scholar with the Chinese Academy of International Trade and Economic Cooperation.

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