EU launches WTO challenge to Chinese raw material duties

BRUSSELS/BEIJING (Reuters) - The European Union launched a third legal challenge to restrictions on Chinese exports of 11 key metals and minerals, joining the United States in suing Beijing for unfairly favouring Chinese industry.

The bloc is seeking formal consultations with China, the first step in World Trade Organization dispute settlement procedures, over restrictions on graphite, cobalt, copper, lead, chromium, magnesia, talcum, tantalum, tin, antimony and indium.

The United States on Tuesday expanded its WTO challenge filed last week against Chinese export duties on nine raw materials to match the EU complaint. Washington’s trade agency added chromium and indium to its list of materials and said it will challenge China’s export duties on all 11 as well as quota restrictions on five of them.

The European Union said the metals and minerals are among 20 raw materials that are critical to Europe’s economy. China is the biggest producer of most of the 20.

Speaking to reporters in a joint conference call with U.S. Trade Representative Michael Froman, EU Trade Commissioner Cecilia Malmstrom said the restrictions enable China to unfairly influence global market prices for essential raw materials, damaging the long-term competitiveness of European industries that depend on them.

The EU would “not sit on our hands seeing our producers and consumers being hit by unfair trade practices and we hope that this joint U.S.-EU action will motivate China to reconsider its current policy,” she said.The EU’s executive Commission said that China applied export duties to various forms of the 11 materials, with quantitative restrictions on five - antimony, indium, magnesia, talc and tin.

China’s Commerce Ministry rejected the EU challenge, arguing the measures are in line with WTO rules and intended to protect the environment.

“China regrets the EU request for consultations and will appropriately handle it according to WTO dispute resolution procedures,” the ministry said in a statement posted online.

The EU challenge sets it on a collision course with Beijing at a time when it is deciding whether to lower trade barriers to Chinese imports across all sectors and accede to Beijing’s demand that it be treated as a normal market economy.

Malmstrom and Froman insisted in the conference call that the WTO raw materials challenge was completely separate from the discussions on China’s market economy status.

Both trade officials said China’s restrictions distorted the market and favoured Chinese industry at the expense of EU companies and consumers, and that Beijing could support the environment more effectively with other measures that would not hurt trade.

It said China’s total exports of these products are worth 1.2 billion euros ($1.3 billion) per year, one-sixth of which comes into Europe. It said removing the export duties might allow supplies of the materials to the EU to rise by 9 percent, with an even greater increase if other measures were removed.

The 11 raw materials are used in a variety of industries, from battery production to paints, chemicals, plastics and electrical circuits.

The EU challenge follows successful legal actions over rare earths and other materials including bauxite and zinc.

WTO rulings can take two to three years to conclude. China, a strong believer in the WTO system, has previously complied with rulings affecting its exports of rare earths.

The formal consultations between the EU and China, to be conducted in parallel to the similar procedure initiated by Washington, take place over 60 days. If there is no satisfactory solution, the EU can request the WTO to set up a dispute settlement panel.

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Additional reporting by David Lawder in Washington and Tom Miles in Geneva; Editing by Mark Trevelyan