U.S., EU Seek WTO Probe of Chinese Raw-Materials Export Curbs

Nov. 5 (Bloomberg) -- The U.S. and the European Union requested a World Trade Organization investigation of China’s restrictions on exports of raw materials used by the steel and chemical industries.

The complaint says China uses special taxes intended to discourage the export of 20 metals or chemicals as a way to keep them inexpensive and available to domestic manufacturers.

Officials from the U.S. and the EU, along with Mexico, asked the WTO yesterday to determine the legality of the curbs on materials that are “critical” to manufacturers and workers, the U.S. Trade Representative’s office and the EU said in separate statements. The materials, including coke, bauxite and manganese, are used by the steel, aluminum and chemicals industries.

Trade tensions between China and the U.S. and the EU have grown as the economic crisis crimps exports and sparks job cuts. China is the 27-nation EU’s second-biggest trading partner. China also passed Canada to become the largest source of U.S. imports in 2007.

The request to the WTO was made more than four months after the U.S. and EU filed a request for consultations at the Geneva- based WTO, setting off a period of discussions with China aimed at resolving the dispute. The EU, the U.S. and Mexico, which filed a request for talks on Aug. 21, “tried to resolve this issue through consultations, but did not succeed,” said Debbie Mesloh, a USTR spokeswoman in Washington.

Hurting Competition

Export restrictions, which have multiplied in recent years because of surging prices for raw materials, discourage companies from being more productive and competitive, according to the European Commission, the EU’s trade authority. Such curbs drive up prices and choke off supplies of raw materials, which affects a broad range of finished products including airplanes, semiconductors, detergent and steel, the commission says.

“China’s restrictions on raw materials continue to distort competition and increase global prices, making conditions for our companies even more difficult in this economic climate,” European Trade Commissioner Catherine Ashton said in a statement. The nation is either a major supplier or the only source of the materials at issue, according to the EU.

China, the world’s fastest-growing major economy and biggest consumer of metals, has defended its policy. The measures are designed to protect the environment and natural resources and are “in accordance with WTO rules,” the government said on June 24.

Measures and Products

The panel requested yesterday focuses on a specific batch of measures and products, said the EU, adding that “further legal action cannot be ruled out if these concerns are not effectively addressed.”

Trade volume between China and the EU grew to more than 326 billion euros ($484 billion) last year. The industries in the EU that are potentially affected by the Chinese restrictions represent about 4 percent of the bloc’s industrial activity and a half-million jobs. Trade between the U.S. and China expanded to $408 billion last year.

U.S. steelmakers and unions have ramped up their complaints of China this year, arguing that cheap government loans, tax rebates and grants give manufacturers an unfair advantage. After filing a WTO case in 2007 against Chinese tax breaks, which the U.S. argued was another subsidy, China agreed to drop them.

The WTO’s dispute settlement body will consider the request for the establishment of a panel at its Nov. 19 meeting, the USTR said.