The United States and the European Union on Tuesday filed separate complaints with the World Trade Organization (WTO) alleging that China is unfairly benefiting domestic industries by restricting exports of certain raw materials.

WTO rules generally prohibit a WTO member country from imposing restrictions on exports such as export quotas. Moreover, when China joined the WTO in December 2001, it specifically committed to not imposing duties or taxes on exports, except for limited duties on a small number of products specifically identified in an annex to China's WTO protocol of accession.

The export duties being challenged in the latest trade spat are not covered by those exceptions. The materials at issue — coke, bauxite, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus and zinc — are key inputs for many downstream products in the steel, aluminum and chemical sectors across the globe. China ranks as a top global producer of these materials.

The U.S. alleges that, "by limiting exports on those products through quotas, export duties, licensing and other restraints, China gives an unfair leg up to its manufacturers that use those materials," the Wall Street Journal reports (subscription required).

"For several years, China has applied export restrictions (quotas and export duties) to key raw materials of which China is the leading extractor and exporter," according to the European Commission. "These export restrictions distort competition and increase global prices, as some of these resources cannot be found elsewhere.

"Export quotas are made more restrictive every year, increasing the supply issue industry is facing," the European Commission continues. "Moreover, for many of the raw materials under export quotas, China also imposes export duties."

U.S. Trade Representative Ron Kirk on Tuesday called China's alleged export restraints on raw materials "a giant thumb on the scale in favor of Chinese producers." Kirk said that "China's measures appear to be part of a troubling industrial policy aimed at providing substantial competitive advantages for the Chinese industries using these inputs."

The measures could help ensure that China's economy continues to grow, "but at the risk of increasing global trade tensions at a sensitive time when more countries are resorting to administrative measures to restrict trade and the WTO has warned against protectionism," the New York Times notes. The policies also "fly in the face of China's own promises and incentives to build an economy based on domestic consumption as well as international exports." (See: Industry Leaders Address Protectionism at National Summit and U.S. Protectionist Clause Sparks Loud Protest)

Although the latest trade spat is the eighth time the U.S. has gone to the WTO over China's practices (China has filed four complaints against the U.S.), this week's trade action was the first against the Asian giant under the administration of President Barack Obama, who, leading up to his November 2008 election, campaigned for a robust trade policy against China.

"In his 2009 trade policy agenda, President Obama promised Americans that his administration, including USTR, would stand up for the rights of American workers and businesses in the rules based global trading system," Kirk said during Tuesday's press conference.

However, "after a surprise attack on China over its currency policy in the early days after Obama became president in January, his administration was seen by some groups to have become soft with Beijing on trade issues," Agence France-Presse says.

Immediately following Tuesday's formal filing, the United Steelworkers union, the American Iron and Steel Institute and three other steel industry organizations, whose workers and member companies represent all of America's steel-making capacity, commended the Obama administration's complaints against China, saying removal of current "barriers" would improve the ability of U.S. manufacturers to compete with Chinese producers on a more level "playing field."

Likewise, Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers, expressed strong support of the administration's complaints against China over export restraints of raw materials. "China's export restriction of nine key raw materials has distorted trade and caused economic injury to NAM members," Vargo said in a statement. "In our view, this is a clear violation of commitments China made when joining the WTO."

For two years, U.S. officials tried to persuade China to abandon the export limits on the materials at issue, but "the decision to bring the protest to the WTO comes as manufacturers suffer from the recession," the Financial Times says (subscription required).

"It is regrettable that China did not resolve this issue during the extensive bilateral discussions that preceded this filing," Vargo commented.

Under WTO rules, Tuesday's coordinated complaints formally request WTO consultations. If this does not lead to a sudden settlement, the U.S. can ask the WTO in 60 days to convene a dispute panel. The WTO process, including a panel report and any Appellate Body ruling, takes approximately one year.

Recent/Related: China Accused of Steel Dumping

Resources

United States Files WTO Case Against China Over Export Restraints on Raw Materials
Office of the U.S. Trade Representative, June 23, 2009

Ambassador Kirk Announces WTO Case Against China Over Export Restraints on Raw Materials
Office of the U.S. Trade Representative Blog, June 23, 2009

Factsheet: WTO Case Challenging China's Export Restraints on Raw Material Inputs
Office of the U.S. Trade Representative, June 23, 2009

EU Requests WTO Consultations with China Over Export Restrictions on Raw Materials
European Commission, June 23, 2009

Factsheet: EU Requests WTO Consultations on Chinese Export Restrictions on Raw Materials
European Commission, June 23, 2009

U.S., Europe File Trade Complaint Against China (subscription required)
by Brian Blackstone
The Wall Street Journal, June 24, 2009

As China Stirs Economy, Some See Protectionism
by Keith Bradsher
The New York Times, Jun e 23, 2009

Obama Takes First Trade Action on China
by P. Parameswaran
Agence France-Presse, June 24, 2009

American Steel Industry Supports New WTO Case Against China
The American Steel Institute, the Committee on Pipe and Tube Imports, the Steel Manufacturers Association, the Specialty Steel Institute of North America and the United Steelworkers, June 23, 2009

NAM Supports Administration's WTO Case Against China
The National Association of Manufacturers, June 23, 2009

US Lodges WTO Case in China Dispute (subscription required)
by Tom Braithwaite, Joshua Chaffin and Kathrin Hille
Financial Times, June 24 2009