China defends export policies against WTO complaint

By Chris Buckley and Lucy Hornby

BEIJING (Reuters) - China on Wednesday rejected U.S. and European charges that its restrictions on raw materials exports violate international trade rules, saying that its policies were in keeping with WTO regulations.

The European Union and the United States said on Tuesday they were taking a complaint to the World Trade Organization over China's export curbs on some industrial raw materials used in steel, cars, microchips, planes and other products.

By arguing that the export taxes and quotas keep a lid on Chinese firms' costs, the WTO complaint takes the view that they are essentially a subsidy and distort competition for chemical, steel and non-ferrous metal producers outside China.

The latest WTO case comes as Washington and Brussels look for China's cooperation in pulling the world economy out of a slump. It could add to recent friction over military modernization, Internet controls and United States' own economic policies.

"The main objective of China's relevant export policies is to protect the environment and natural resources. China believes the policies in question are in keeping with WTO rules," the Ministry of Commerce press office said in a mildly-worded response.

"Following the WTO procedures for dispute resolution, China will appropriately handle the request for consultations."

The case is an unusual one, since most WTO complaints argue that a country restricts imports through taxes or other barriers, or otherwise subsidizes or protects domestic firms. Export taxes or quotas are thus rarely a concern.

China's massive industrial overcapacity, its low labor costs and efficient infrastructure mean that Chinese goods are spilling out into world markets, threatening profit margins, jobs, and the very existence of some sectors in Europe and the United States.

The complaint does not name other items on which China also imposes export taxes, for example steel products or semi-finished aluminum, which it would otherwise export in even greater amounts, at lower prices.

China's reasons for restricting exports are varied. They stem from an effort to limit unbridled expansion in hot sectors, often by private companies, that has strained electricity supplies, added to rampant pollution, driven up the cost of raw materials and ruined profits for more established Chinese firms.

Chinese officials argue that the export restrictions, which are tweaked regularly, help stabilize supply to world markets.

THE CASE FOR THE Defense

China is likely to defend itself by turning the spotlight on similar restrictions by other countries, as well as by arguing that there is no violation, said an official who advises the Ministry of Commerce on WTO strategy.

"China will strongly question the motive of this case," the official said.

"A lot of countries have this type of export restriction, for instance restrictions on the export of raw logs, allowing only processed wood to be shipped instead."