Export Restraints of Natural Resources and the SCM Agreement

Lee, Jaemin

doi:10.1007/978-4-431-56426-3_16

Jaemin Lee⁴

Part of the book series: Economics, Law, and Institutions in Asia Pacific ((ELIAP))

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Abstract

Exports restraints have raised controversies recently due to the importance of the natural resources and the scarcity of them. The core aspect of the export restraints can ultimately lead to the claims and disputes over subsidy issues under the WTO’s Agreement on Subsidies and Countervailing Measures (“SCM Agreement”). Based on prevailing jurisprudence of the subsidy norms, an argument can be made that certain types of export restraints are found to satisfy the elements of a subsidy within the meaning of the SCM Agreement. It can be shown that these export restraints constitute financial contribution by the government that confer benefit on the recipient companies which are specific to certain confined industries. All the unique aspects of the export restraints programs should be put under careful scrutiny of the collective discussions of the international community including the analyses under the SCM Agreement. Export restraints should be adopted and applied in a manner consistent with the applicable WTO Agreements including, most notably, the SCM Agreement.

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Notes

1.
Panel Reports, China-Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum, WT/DS431/R, WT/DS432/R, WT/DS433/R (Mar 26, 2014) (“China-Rare Earths”), at para. 7.367; Nawshad Haque, Anthony Hughes, Seng Lim & Chris Vernon, Rare Earth Elements: Overview of Mining, Mineralogy, Uses, Sustainability and Environmental Impact; Ann Norman, Xinyuan Zou & Joe Barnett, Critical Minerals: Rare Earths and the U.S. Economy, National Center For Policy Analysis (Sep 2014); Bradley S. Van Gosen, Philip L. Verplanck, Keith R. Long, Joseph Gambogi & Robert R. Seal, II, The Rare-Earth Elements – Vital to Modern Technologies and Lifestyles, USGS Mineral Resources Program, U.S. Department of the Interior, U.S. Geological Survey Fact Sheet 2014–3078 (Nov 2014), at 4; Julia Ebner, Europe’s Rare Earth Dependence on China Future Perspectives, European Institute for Asian Studies (Dec 2014), EIAS Briefing Paper 2014, at 5–6; Bernd Lehmann, Economic geology of rare-earth elements in 2014: a global perspective, European Geologist (May 2014), at 24; Natalie Greve, Tungsten, Tantalum, Rare Earths Emerging As ‘Critical’ Global Metals, Creamer Media’s Mining Weekly (July 3, 2013).
2.
See U.S. First Written Submission submitted in China-Rare Earths, at para. 7 (available at the USTR website at www.ustr.gov visited on Apr 14, 2016); Bradley S. Van Gosen et al., The Rare-Earth Elements – Vital to Modern Technologies and Lifestyles, U.S. Department of the Interior, U.S. Geological Survey Fact Sheet 2014–3078 (Nov 2014), at 1; Ann Norman, Xinyuan Zou & Joe Barnett, Critical Minerals: Rare Earths and the U.S. Economy, at 1; Christopher Blakely et al., Rare Earth Metals & China, at 2–4; Nicholas Jepson, A 21st Century Scramble: South Africa, China and the Rare Earth Metals Industry, South African Institute of International Affairs (2012), at 6–7; John Prendergast & Sasha Lezhnev, From Mine to Mobile Phone The Conflict Minerals Supply Chain; Bernd Lehmann, Economic geology of rare-earth elements in 2014: a global perspective, European Geologist (May 2014), at 21-22; Päivi Pöyhönen & Eeva Simola, Connecting Components, Dividing Communities Tin Production for Consumer Electronics in the DR Congo and Indonesia, Finn Watch (Dec 2007); John A. Shields, Applications of Molybdenum Metal and its Alloys, International Molybdenum Association (2013, London), at 39.
3.
See Christopher Blakely et al., Rare Earth Metals & China, at 4; Charles J. Butler, Rare Earth Elements: China’s Monopoly and Implications for U.S. National Security, the Fletcher Forum of World Affairs, vol.38:1 (winter 2014), at 26; Jesse Salazar, Securing Rare Earth: Leveraging U.S. Drug Policy for Technological Advantage, Yale Journal of International Affairs, Vol. 6, 2011, at 127; Marc Humphries, Rare Earth Elements: The Global Supply Chain, Congressional Research Service, 2010, at 2, available at, http://medallionresources.com/wp-content/uploads/2012/08/Congressionnal-Report-July2010.pdf Accessed on Apr 15, 2016; Nicholas Sanders, A Response to Ryan P. Carpenter’s “The Bottom of the Smart Weapon Production Chain: Securing the Supply of Rare Earth Elements for the U.S. Military”, Public Contract Law Journal Vol. 41, No.4, Summer 2012, at 958.
4.
See Appellate Body Reports, China-Measures Related to the Exportation of Various Raw Materials, WT/DS394, 395, 398/AB/R (adopted on Feb 22, 2012) (“China-Raw Materials”).
5.
See Appellate Body Reports, China-Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS431, 432, 433/AB/R (adopted on Aug 29, 2014) (“China-Rare Earths”).
6.
See U.S. First Written Submission submitted in China-Raw Materials, at para. 4.
7.
See Panel Reports, China-Raw Materials, at para. 2.1.
8.
See id., at paras. 3.2–3.4.
9.
In Feb 2012, the Dispute Settlement Body (“DSB”) adopted its recommendations and rulings in the dispute, concluding that the restrictions at issue were inconsistent with China’s WTO obligations. See Appellate Body Reports, China – Raw Materials, Panel Reports, China – Raw Materials.
10.
See the World Trade Organization, Summary of the Disputes, available at https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds394_e.htm (last visited on Apr 10, 2016).
11.
See Panel Reports, China-Rare Earths, at para. 3.1.
12.
See id., at paras. 2.5–2.7.
13.
See id., at para. 2.8.
14.
See id., at para. 3.1.
15.
See the World Trade Organization, Summary of the Disputes, available at https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds431_e.htma (last visited on Apr 10, 2016).
16.
U.S. First Written Submission submitted in China-Rare Earths, at para. 7.
17.
Id. at para. 8.
18.
Ibid.
19.
Ibid.
20.
See id., paras. 1, 8, and 29–30.
21.
See id.
22.
See SCM Agreement, Part V.
23.
See id., Part III.
24.
Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/R (Aug 20, 1999), at para. 9.119.
25.
See Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R (Jan 19, 2004) (“US-Softwood Lumber IV”), at para. 52; Panel Report, United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R (June 29, 2001), at para. 8.65:

… negotiating history demonstrates … that the requirement of a financial contribution from the outset was intended by its proponents precisely to ensure that not all government measures that conferred benefits could be deemed to be subsidies. This point was extensively discussed during the negotiations, with many participants consistently maintaining that only government actions constituting financial contributions should be subject to the multilateral rules on subsidies and countervailing measures.
26.
See SCM Agreement, Article 1.1(a)(1).
27.
See id., Article 1.2.
28.
See id., Article 2.
29.
See id., Article 1.1(a)(1)(i).
30.
See id., Article 1.1(a)(1)(ii).
31.
See id., Article 1.1(a)(1)(iii).
32.
For instance, this happens when the government provides $100 worth of governmental service and receives only $50 in return. Financial contribution occurs in the amount of $50 ($100–$50) in the case.
33.
See SCM Agreement, Article 1.1(a)(1)(iv).
34.
See Appellate Body Report, United States – Countervailing Duty Investigation on DRAMs from Korea, WT/DS296/AB/R (July 20, 2005) (“U.S.-DRAMs”), at paras. 108–116.
35.
See SCM Agreement, Article 1.1(b).
36.
See Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R (Aug 20, 1999) (“Canada-Aircraft”), at para. 157.
37.
See SCM Agreement, Article 3.1.
38.
See id., Article 3.2.
39.
See id., Articles 5 and 6.
40.
See id., Article 15.
41.
Richard Silberglitt, James T. Bartis, Brian G. Chow, David L. An & Kyle Brady, Critical Materials Present Danger to U.S. Manufacturing, National Defense Research Institute, at 17; Christopher Blakely et al., Rare Earth Metals & China, at 3; Julia Ebner, Europe’s Rare Earth Dependence on China Future Perspectives, at 4.
42.
Christopher Blakely et al., Rare Earth Metals & China, at 3.
43.
Renewable Energy Policy Network for the 21st Century, Renewables 2011: Global Status Report (2011), at 42, available at, http://germanwatch.org/klima/gsr2011.pdf, Accessed on Apr 15, 2016.
44.
Richard Silberglitt et al., Critical Materials Present Danger to U.S. Manufacturing, National Defense Research Institute, at 17.
45.
Mirko Woitzik, Pure Business, Law Enforcement or Sheer Politics? The EU’s WTO Complaints against Chinese Export Restrictions on Raw Materials, College of Europe, Department of EU International Relations and Diplomacy Studies (June 2013), at 3; Christopher Blakely et al., Rare Earth Metals & China, at 9.
46.
See U.S. First Written Submission submitted in China-Rare Earths, para. 26; Christopher Blakely et al., Rare Earth Metals & China, at 11–12; Wayne M. Morrison & Rachel Tang, China’s Rare Earth Industry and Export Regime: Economic and Trade Implications for the United States, Congressional Research Service (Apr 30, 2012), at 26.
47.
See U.S. First Written Submission submitted at China-Rare Earths, at para. 27; Mirko Woitzik, Pure Business, Law Enforcement or Sheer Politics?, at 3.
48.
See U.S. First Written Submission submitted at China-Rare Earths, at para. 27; Wayne M. Morrison & Rachel Tang, China’s Rare Earth Industry and Export Regime: Economic and Trade Implications for the United States, Congressional Research Service (April 30, 2012), at 29.
49.
See U.S. First Written Submission submitted at China-Rare Earths, at para. 27; David L. An, Critical Rare Earths, National Security, and U.S.-China Interactions, A Portfolio Approach to Dysprosium Policy Design, Pardee RAND Graduate School, at 19 and 27; Nicholas Jepson, A 21st Century Scramble, at 18.
50.
See U.S. First Written Submission submitted at China-Rare Earths, at paras. 28–29; David L. An, Critical Rare Earths, National Security, and U.S.-China Interactions, at 20; Julia Ebner, Europe’s Rare Earth Dependence on China Future Perspectives, at 4.
51.
Nicholas Jepson, A 21st Century Scramble, at 29; Colonel Charles J. Butler, Rare Earth Elements, at 31.
52.
See Panel Reports, China-Rare Earths, at para. 7.252; David L. An, Critical Rare Earths, National Security, and U.S.-China Interactions, at 32; Government of the People’s Republic of China (2012), Situation and Policies of China’s Rare Earth Industry, Information Office of the State Council (Beijing: Foreign Language Press, June 2012).
53.
See Panel Reports, China-Rare Earths, at para. 7.252; China’s First Written Submission, para. 55.
54.
China’s First Written Submission, para. 56.
55.
Appellate Body Report, U.S.-Softwood Lumber IV, at para. 52; Panel Report, United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R (June 29, 2001), at para. 8.65. (“… negotiating history demonstrates … that the requirement of a financial contribution from the outset was intended by its proponents precisely to ensure that not all government measures that conferred benefits could be deemed to be subsidies. This point was extensively discussed during the negotiations, with many participants consistently maintaining that only government actions constituting financial contributions should be subject to the multilateral rules on subsidies and countervailing measures”); Panel Report, China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States, WT/DS414/R (June 15, 2012); Appellate Body Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R (Mar 25, 2011) (“U.S.-AD/CVD”). Indirect subsidization measures have been raised and examined in Appellate Body Report, U.S.-DRAMs; Panel Report, European Communities – Countervailing Measures on Dynamic Random Access Memory Chips from Korea, WT/DS296/R (Aug 3, 2005); Appellate Body Report, Japan-Countervailing Duties on Dynamic Random Access Memories from Korea, WT/DS336/AB/R (Dec 17, 2007); Panel Report, Korea – Measures Affecting Trade in Commercial Vessels, WT/DS 273/R (Apr 11, 2005).
56.
See SCM Agreement, Article 1.1(a)(1)(i)
57.
See id., Article 1.1(a)(1)(i) – (iv).
58.
See U.S. First Written Submission submitted in China-Rare Earths, at paras 27–28.
59.
See ibid.
60.
See Panel Report, China-Rare Earths, at para. 2.16.
61.
See SCM Agreement, Article 1.1(a)(1)(i); Appellate Body Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector/Canada – Measures Relating to the Feed-In Tariff Program (WT/DS412/AB/R,WT/DS426/AB/R), at paras. 5.131. (in determining whether a particular program falls under the direct transfer of funds or potential direct transfer of funds, the core scheme of the transaction should be considered instead of the consequential effect as a result of exchange of rights and obligations stemming from any other types of transaction).
62.
See id., at paras. 5.119–120. (“the transaction may naturally fit into one of the types of financial contributions listed,” but sometimes a transaction can “be complex and multifaceted,” and as a result “different aspects of the same transaction may fall under different types of financial contribution.”)
63.
See id., at para. 120.
64.
See Appellate Body Report, Canada-Aircraft, at para. 157.
65.
See Appellate Body Report, Canada-Renewable Energy/FIT, at paras. 5.162–166.
66.
See id., at paras. 5.183–184.
67.
See Marian Paschke & Shi Cheng, The Applicability of Environmental Exceptions of The GATT To China’s WTO-Plus Obligations – WTO Panel And Appellate Body Rulings on the Chinese Export Restrictions of Rare Earths, Tungsten and Molybdenum, Frontiers of Law in China, Vol.10, No.2, June 2015, at 213; Andrew W. Eichne, More Precious than Gold: Limited Access to Rare Elements and Implications for Clean Energy in the United States, University of Illinois Journal of Law Technology and Policy, 2012, at 262; Marc Humphries, Rare Earth Elements: The Global Supply Chain, Congressional Research Service, 2010, at 2, available at, http://medallionresources.com/wp-content/uploads/2012/08/Congressionnal-Report-July2010.pdf Accessed on Apr 15, 2016; Jesse Salazar, Securing Rare Earth: Leveraging U.S. Drug Policy for Technological Advantage, Yale Journal of International Affairs, Vol. 6, 2011, at 127.
See Marian Paschke & Shi Cheng, The Applicability of Environmental Exceptions of The GATT To China’s WTO-Plus Obligations – WTO Panel And Appellate Body Rulings on the Chinese Export Restrictions of Rare Earths, Tungsten and Molybdenum, Frontiers of Law in China, Vol.10, No.2, June 2015, at 213;
See Katherine Weatherford, The Real Cost of China’s Rare Earth Export Quotas on American Job Security, Sustainable Development Law and Policy, Vol. 12, 2011, at 18.
68.
See U.S. First Written Submission submitted in China-Rare Earths, at para. 7.
69.
The WTO panel and the Appellate Body have previously addressed the issue of de facto export subsidy on various occasions. In particular, the Appellate Body in Canada-Aircraft sets out a three-prong threshold for the demonstration of de facto export contingency: the threshold is whether (1) the “granting of a subsidy”; (2) “is tied to”; (3) “actual or anticipated exportation or export earnings.” Appellate Body Report, Canada-Aircraft, at para. 169.
With respect to the second prong of the “tied to” analysis, the Appellate Body further elaborated that:

[T]he ordinary meaning of “tied to” confirms the linkage of “contingency” with “conditionality” in Article 3.1(a). […] This element of the standard set forth in footnote 4, therefore, emphasizes that a relationship of conditionality or dependence must be demonstrated. The second substantive element is at the very heart of the legal standard in footnote 4 and cannot be overlooked. In any given case, the facts must “demonstrate” that the granting of a subsidy is tied to or contingent upon actual or anticipated exports. It does not suffice to demonstrate solely that a government granting a subsidy anticipated that exports would result.

Id, at para. 171.

The Appellate Body also clarified the relationship between the second sentence of footnote 4 and the “tied to” requirement as follows:

[T]here is a logical relationship between the second sentence of footnote 4 and the “tied to” requirements set forth in the first sentence of that footnote. The second sentence of footnote 4 precludes a panel from making a finding of de facto export contingency for the sole reason that the subsidy is “granted to enterprises which export”. In our view, merely knowing that a recipient’s sales are export-oriented does not demonstrate, without more, that the granting of a subsidy is tied to actual or anticipated exports. The second sentence of footnote 4 is, therefore, a specific expression of the requirement in the first sentence to demonstrate the “tied to” requirement. We agree with the Panel that, under the second sentence of footnote 4, the export orientation of a recipient may be taken into account as a relevant fact, provided that it is one of several facts which are considered and is not the only fact supporting a finding.

Id, at para. 173.

In light of these precedents, the current jurisprudence can be summarized that, in order to establish that the challenged program is “tied to” export performance, the question is whether the subsidy would not have been granted to the corporation if the government had known that no export sales may ensue from the subsidy to be provided under the program.
70.
See SCM Agreement, Article 2.3.
71.
See Appellate Body Report, U.S.-AD/CVD, at paras 271–272.

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School of Law, Seoul National University, Seoul, South Korea
Jaemin Lee (Professor of Law)

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The University of Tokyo, Bunkyo-ku, Tokyo, Japan
Mitsuo Matsushita
Law School, George Washington University NW, Washington D.C., USA
Thomas J. Schoenbaum

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Lee, J. (2016). Export Restraints of Natural Resources and the SCM Agreement. In: Matsushita, M., Schoenbaum, T. (eds) Emerging Issues in Sustainable Development. Economics, Law, and Institutions in Asia Pacific. Springer, Tokyo. https://doi.org/10.1007/978-4-431-56426-3_16

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