United States trade representatives (USTR) are close to filing a request for consultations at the World Trade Organisation (WTO), challenging China's export restrictions and tariffs on raw materials used in steel-making, the Financial Times reports. The potential action against China is the result of months of investigation by the USTR and at the urging of U.S. steelmakers for government action.

The Financial Times lays out the case saying:

The U.S. is expected to argue that Chinese export quotas and taxes on raw materials such as metallurgical coke, molybdenum, silicon carbide and fluorspar used in steel production artificially deflate domestic prices and inflate global prices, putting U.S. producers at a disadvantage in violation of WTO rules.

According to the International Centre for Trade and Sustainable Development (ICTSD), China's protocol for accession to the WTO back in 2001 obligates it to eliminate "all taxes and charges applied to exports" — apart from customs-related fees — on all but 84 items. Those products are allowed export levies of 20 percent to 40 percent. Most of those exceptions deal with the metallurgical industry, but the raw materials the USTR is targeting are not among those, the ICTSD says.

The USTR's 2007 report noted that China limited coke exports to 14 million metric tons and imposed a 15 percent duty on coke exports, Reuters reveals (via the American Iron and Steel Institute (AISI)).

AISI, the main trade association representing U.S. steelmakers, claims that China has more than doubled that export tax to 40 percent this August and reduced the export quota for coke to 12 million tons, Reuters adds.

"Coke is not the only steel input where China has tightened its grip on exports," Barry Solarz, senior vice president for trade and economic policy at AISI, tells Reuters. "China recently doubled the export tax on coking coal from 5 percent to 10 percent. China also raised the export tax on ferrochromium, ferronickel, ferromolybdenum and ferrotungsten to 20 percent in early 2008."

AISI blames these unfair trade practices for more than doubling Chinese steel production between 2004 and 2007 to 489 million metric tons — approximately five times U.S. steel output, Reuters says.

Along with high export taxes, the U.S. International Trade Commission ruled in June that China was "dumping steel pipe and tube products on the U.S. market at below-cost prices and illegally subsidizing its steel industry" as the U.S. Department of Commerce had determined earlier that month, notes the Northwest Indiana Times.

The $1.4 billion U.S. steel pipe-making industry successfully won protection from subsidized Chinese products as the Department of Commerce will impose duty of up to 700 percent on the imported goods, according to BBC News. Last month, China filed a case at the WTO challenging this policy change, Reuters adds.

The European Union, which already has three investigations regarding steel dumping by Chinese steel producers but hasn't yet decided to impose anti-dumping duties (Sources: China Radio International (CRI) and Reuters), is expected to join the Americans in challenging China regarding the export taxes and restrictions on raw materials.

In his address to the European Commission at the "Trade and Raw Materials — Looking Ahead" conference in Brussels, Belgium, European Trade Commissioner Peter Mandelson warned:

Countries that use export duties to subsidise domestic industries and subsequently dump products on European markets must also expect to attract scrutiny of our trade defence system.

Mandelson goes on to say that the U.S. and Europe will see a shift of concerns from steel dumping to anxiety about access to steel. "The next phase of globalisation will be defined by pressure for access to basic resources," according to the commissioner.

The growth in demand for raw materials from China and other emerging economies such as India raise the risk that countries will introduce trade-distorting tariffs or exploit the demand with windfall taxes on exports, Mandelson tells the UK Times.

The European trade commissioner concludes: "Beggar-thy-neighbour export restrictions invite a cycle of retaliation that is as economically counter-productive as it is politically hard to resist."

In a similar case, the WTO in July ruled against China regarding the country's tariffs on automotive parts. China said it intended to challenge the decision and officially filed an appeal in September. The appeals procedure can last up to 90 days.

What's your say on the matter? Should the USTR file a formal complaint to the WTO about China's export tax increases and export limits?

Earlier/Related:

The Steel Situation: Production, Prices and Shipments

Chinese Subsidies Hobble U.S. Steel Industry

Resources

US to Challenge China over Steel Prices
By James Politi and Geoff Dyer
The Financial Times, Sept. 3, 2008

US Mulls WTO Case over Chinese Export Restrictions
International Centre for Trade and Sustainable Development, Sept. 10, 2008

US Steelmakers Want WTO Action on Chinese Export Restrictions
by Doug Palmer
Reuters, Sept. 24, 2008

ITC Affirms Chinese Steep Dumping
The Northwest Indiana Times, June 20, 2008

Chinese Steel Imports 'Injure' US
BBC News, June 20, 2008

EU Decides Not To Levy Anti-Dumping Duties on Chinese Steel
China Radio International, Sept. 16, 2008

"Trade and Raw Materials — Looking Ahead" Conference (The EU's Trade Policy on Raw Materials): extracts from the conclusion on future prospects by Commissioner Peter Mandelson
Transmission by the European Commission, Sept. 29, 2008

Peter Mandelson Prepares to Fight Chinese Export Taxes alongside US
by Carl Mortished
The Times (UK), Sept. 29, 2008

W.T.O. Rules Against China for Its Tariffs on Auto Parts
by Bloomberg News
The New York Times, July 19, 2008

China Appeals WTO Ruling Against Car-Parts Tariffs
by Jennifer M. Freedman
Bloomberg (Canada), Sept. 15, 2008