EU, Japan and U.S. vs. China - Rare Earth Panel established

(Labourers work at a site of a rare earth metals mine at Nancheng county, Jiangxi province March 14, 2012.

Credit: Reuters/Stringer)

I had blogged about China "blocking" the establishment of a Panel to examine complaints into the restrictions on export of rare earths imposed by China. As rightly pointed by two comments on the post, the "blocking" was permitted in the first meeting where the request was placed. The WTO website has reported setting up of  Panel in the subsequent meeting of the DSB. The establishment of the panel was widely reported here, here, here and here. With China producing 90% of the world's rare earth output, this decision of the WTO would have significant impact on the trade in rare earth minerals like tungsten and molybdenum. The NYT and Reuters had earlier reported on the genesis of the dispute.

The European Union's main contention in the DSB meeting was:

"The European Union said that export restrictions in this dispute constitute a violation of China’s WTO commitments undertaken under the General Agreement on Tariffs and Trade (GATT) as well as commitments undertaken in China’s Accession Protocol specifically aimed at these types of restrictions. According to the EU, the export restrictions significantly distort the market and create competitive advantages in favour of China’s manufacturing industry to the detriment of foreign competition."

This dispute would be interesting in terms of the contours of permissible export restrictions under GATT, domestic policy space under Article XX GATT available to China as well as the special obligations China has under its special Accession Protocol (WTO plus obligations).With the U.S., EU and Japan being the complainants, and a host of other countries (11 to be precise) signing up as third parties, it promises to be a keenly fought battle.

China "blocks" dispute panel constitution

The recent Dispute Settlement Body (DSB) meeting had an interesting development regarding China's "blocking" of the request by the U.S. and the EU for establishment of a panel in the "rare earths" export restriction case. Bloomberg Businessweek reported it here. The U.S. and EU had requested for setting up a Dispute Settlement Panel under the DSU against China. 

As reported in the WTO website:

"China, at the Dispute Settlement Body (DSB) meeting on 10 July 2012, said it was not in a position to accept the establishment of a panel requested by the United States, the European Union and Japan regarding its measures related to the exportation of rare earths, tungsten and molybdenum.

...

China said that its policies in question are aimed at protecting natural resources and achieving sustainable economic development. It said it was puzzled by the complainants’ initiation of the panel process as it has no intention of protecting its domestic industry through means that would distort trade. It added that at the present meeting, it was not in a position to accept the establishment of a panel.

The DSB deferred the establishment of a panel."

I was intrigued by the "blocking" of the request for setting up of a panel? Can a request for setting up of a panel be blocked at all? What are the preconditions for setting up of a panel? The "blocking" sounds similar to "maintainability" of a domestic judicial petition where jurisdiction or competence of the Court itself is questioned without going into the merits of the case.

The Agreement on  Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) deals with this issue.

Article 6 of the DSU states:

"  Article 6: Establishment of Panels 

1.         If the complaining party so requests, a panel shall be established at the latest at the DSB meeting following that at which the request first appears as an item on the DSB's agenda, unless at that meeting the DSB decides by consensus not to establish a panel.

2.         The request for the establishment of a panel shall be made in writing.  It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.  In case the applicant requests the establishment of a panel with other than standard terms of reference, the written request shall include the proposed text of special terms of reference."

A simple reading of this provision indicates that a panel "shall" be establishment at the DSB unless the DSB decides by consensus not to establish a panel. The other requirement is that of consultations. Read with Article 4 of the DSU, after a request for consultations and the process of consultations, a member can seek for establishment of a panel. Is China arguing on the merits of the case at the stage of initiation of the establishment of the panel? is it just another example of China innovatively interpreting the WTO rules to further its national interest? Is China's stand of non-establishment of a panel legally tenable? Is it just a matter of time before the panel is established? Are not constitutions of panels (after consultation) a non-contestable matter, unless it is decided so by consensus?

Will await the next meeting of the DSB in this matter.