Author: Soutric Mallick, University of Calcutta

The WTO dispute regarding rare earths is a landmark case in world trade law which highlights the boundaries of the world trade laws and sets a precedent for all the countries to follow in the future. The effects of this case were massive as the world trade and protectionist policies were at the forefront of this dispute. In a world, where each country is grappling to gain slightest of advantages over their counterparts, this judgement helps determine and standardise the extent of the measures a country can take while competing, without abusing its power or violating any international conventions and treaties. 

Keywords: China, USA, WTO, Rare Earths, GATT, Export Restrictions, International laws

Following World War II, the United States spearheaded the development of an international trade system built on free markets, low tariffs, and international organizations. The goal of creating a worldwide order led to the formation of the General Agreement on Tariffs and Trade (GATT) in 1947 and the World Trade Organization (WTO) in 1995. China, on the other hand, adopted a centrally planned economic strategy. In 1978, Deng Xiaoping implemented market reforms in China. In 2001, it finally became a member of the WTO. On November 11, 2001, during the Fourth Ministerial Conference in Doha, Qatar, China signed its WTO membership agreement. The protocol was signed by China and deposited with the WTO Director-General, and China officially became the 143rd member of the WTO on December 11, 2001. China's ascent to prominence as a global centre for manufacturing was accelerated by its entrance, which also resulted in quick trade integration with the US.

The US used to satisfy its own rare earths needs from domestic sources until the late 1990s. Low-cost ores from China, flooding global markets, ended that practice. As China implemented the reforms and allowed global firms to enter its market, trade with the US and other countries of the world grew. By pressuring businesses to combine into state-owned corporations and compelling smaller manufacturers to shut down, Beijing further tightened control over its rare earths sector. Following the 2008 financial crisis, governments were attempting to increase exports in order to lower unemployment, making the export controls more delicate. The goal of the US and Europe was to boost sales of high-tech items, including those using rare earth elements. Consequently, China and the USA started becoming economically interdependent. Chinese exports grew exponentially as did trade imbalances. The U.S. trade deficit with China widened which made the American bureaucracy become more and more suspicious if China was adhering to the WTO commitments.

Between 2005 and 2010, China reduced their exports by introducing quotas by 50%, resulting in a more than a seven-fold increase in prices of rare earth around the world. As the rare earths are essential for national security and environmental applications, these price increases generated significant public concern in the US, Japan, and European Union. 14 bills were introduced in the US congress in order to address the scarcity of rare earths.

In the 2000’s, China being the biggest supplier of rare earths at the time, started imposing restrictions on its rare earths industries in order to control foreign investment in strategic industries. This policy caused disruption in the global supply chain of rare earths which led to significant increase in the prices of rare earths across the world. China claimed the reasons behind these restrictions were an attempt to curtail pollution and over-mining to preserve natural resources. In 2009 the EU, the United States and Mexico launched a first formal complaint in the WTO against China’s export restrictions on nine raw materials. The WTO Dispute Settlement Body ruled against China in its July 2011 judgement. Following an appeal by China, the WTO Appellate Body confirmed the judgement in January 2012. On March 13, 2012, the United States, the European Union and Japan launched WTO dispute settlement cases against China. Complainants' challenge was regarding export quotas related to 75 rare earth products, 14 tungsten products, and 9 molybdenum products. They argued that the Chinese restrictions were in breach of the accession treaty signed by China in 2001 when it joined the WTO, they further complained that the export restrictions gave Chinese companies an unfair competitive edge. The products subject to the challenged measures consist of both the naturally occurring minerals, as well as a number of intermediate products, that is, materials that have undergone some initial processing, for example, into concentrates, oxides, salts, and metals. 

On July 23, 2012, the dispute was formally established, a single WTO panel was created by the WTO Dispute Settlement Body (DSB) which examined these complaints. The Chinese framework legislation, implementing regulations, other relevant laws, and particular yearly measures were among the legal instruments that the complainants highlighted in relation to their allegations. While the United States made claims on "implementing measures in force to date," the European Union and Japan also made claims regarding replacement and renewal measures.

China responded with a number of arguments in order to justify its decision to impose restrictions. The panel report was issued on March 26, 2014, which decided whether China’s export restrictions were in violation of the obligations under WTO agreement or not.

The legal provisions involved in this case are

1. Part I of the Protocol on the Accession of the People's Republic of China to the WTO, it confirms that upon accession, China accedes to the WTO Agreement pursuant to Article XII of that Agreement and thereby becomes a full Member of the WTO

2. Articles VIII, X and XI of the GATT 1994

3. Paragraph 1.2, 1.3 of Part I of China's Accession Protocol

4. Paragraph 11.3 of China’s Accession Protocol which requires China to eliminate all taxes and charges applied to exports unless one of two conditions is met: (i) the taxes or charges are specifically provided for in Annex 6 of the Protocol, or (ii) they are applied in conformity with the provisions of Article VIII of the GATT 1994. Annex 6 lists 84 products subject to export duties, with maximum rates specified, and includes a note stating that China confirmed it would not increase currently applied rates except under exceptional circumstances.

5. Paragraph 5.1 of Part I of China's Accession Protocol

6. Paragraphs 83 and 84 of China's Accession Working Party Report

7. Article XX(b) and (g) GATT

The main issues of this case were

1. Whether the restrictions imposed by China on export of rare earths were a violation of the Protocols under the Accession of the People’s Republic of China to the WTO.

2. Did the Chinese State violate provisions of GATT 1994 and the scope of the exception for China’s export quota measures relating to conservation under Article XX(g) of GATT

3. whether China’s obligations not to impose export duties under its accession protocol are subject to exceptions under Article XX of GATT

4. Were the export quotas brought in by China inconsistent with its Accession protocol

5. Does these restrictions go against the ethos of free trade and give an unfair advantage to China over other countries

The complainants came up with three main points

1. EU and the United States argued that the export duties imposed by China on rare earths, tungsten, and molybdenum, the relevant measures at issue are at direct contradiction with China's obligations under Paragraph 11.3 of Part I of the Protocol on the Accession of the People's Republic of China to the WTO (China's Accession Protocol);

2. They further argued that China’s export controls over the minerals listed above violate Articles VIII, X and XI of the GATT 1994 as well as China's obligations under Paragraph 1.2 of Part I of China's Accession Protocol, which incorporates Paragraphs 162 and 165 of the Report of the Working Party on the Accession of China.

3. China’s administration and allocation of export quotas on rare earths and molybdenum and, more specifically, restrictions on prior export performance and minimum registered capital requirements and on the trading rights of enterprises seeking to export those products, the relevant measures at issue are inconsistent with Paragraph 5.1 of Part I of China's Accession Protocol, as well as with China's obligations under Paragraph 1.2 thereof, which incorporates commitments in Paragraphs 83 and 84 of China's Accession Working Party Report.

China argued that the export duties on certain forms of coke, fluorspar, magnesium, manganese, and zinc were justified under Article XX(b) and (g) GATT, because these raw materials are exhaustible natural resources, and the duties were applied in order to reduce pollution and protect human health.(word for word from the pdf- Case Note China, Minerals Export, Raw and Rare Earth Materials: A Perfect Storm for World Trade Organization Dispute Settlement Geert Van Calster) China claimed that general exceptions of Article XX of the GATT 1994 are available to China to defend a potential violation of Paragraph 11.3 of China's Accession Protocol. 

China argued that Article XX allowed it to restrict exports to conserve its natural resources which are finite and non-renewable, because it had sovereignty over its natural resources. To support its claim, China referred to public international law, which recognised its right to exercise its sovereignty by conserving its natural resources. China invoked Part IV of the GATT, which deals with economic development, saying the measures taken were for the purpose of diversifying its economy. 

The panel report was issued on March 26, 2014. It found China’s export restrictions to be inconsistent with China’s obligations under the WTO Agreements. The Panel rejected the claim of China that, the export duties on certain forms of coke, fluorspar, magnesium, manganese, and zinc were justified under Article XX(b) and (g) GATT, citing that that China cannot invoke exceptions with respect to its accession commitments(paragraph 11.3 of China’s Accession Protocol), which state that it has the right to apply export duties on only 84 products listed in an Annex to the Protocol. Because the products under complaint were not on that list, China could not have recourse to Article XX for these raw materials.

The panel found that China violated its obligations under the GATT Article XI and the Accession Protocol by restricting exports of rare earths to manufacturers in other countries, thereby creating a competitive advantage for China’s domestic industry. The panel also found that China could not invoke the conservation or environmental protection justifications under GATT Article XX to justify violating its Accession Protocol and, in any case, that China had not satisfied the requirements of Article XX. The Appellate Body considered sources of international law and concluded that sovereignty principles should be respected. However, it was ultimately found that such considerations did not allow China to violate its WTO commitments. By entering the WTO, China promised to use its sovereignty to control commerce and natural resources in accordance with its WTO responsibilities.

Furthermore, the Panel found that China’s allocation of export quotas through the use of an ‘operation capacity’ criterion is inconsistent with Article X.3(a) GATT because of the lack of any definition and guidelines or standards on how to apply this criterion. This results in unreasonable and non-uniform administration. The Panel also found that China’s actions have violated Article X.1 GATT because it failed to promptly publish the total amount and procedure for the allocation of export quotas for zinc. In response to China's argument that the export quota applied on one type of bauxite known as 'refractory-grade bauxite' is justified under Article XI.2(a) GATT, the Panel determined that the export quota had not been 'temporarily applied' in order to 'prevent or relieve a critical shortage' of refractory-grade bauxite within the meaning of Article XI.2(a). Furthermore, the Panel determined that China had not proved that its export quotas for refractory-grade bauxite, coke, and silicon carbide were justified under Article XX(b) or (g) GATT.

On the issue of whether the justification contained in GATT Article XX extends to violations of provisions not contained in the GATT itself (i.e., China’s Accession Protocol), the panel split 2-1. The majority held that paragraph 11.3 of Part I of China’s Accession Protocol is not subject to the general exceptions in GATT Article XX. The dissenting panellist agreed with the outcome, but argued forcefully for a holistic approach in interpreting the applicability of Article XX to the accession protocols, which are part of a single undertaking of the WTO Agreements. Noting the close relationship between paragraph 11.3 and GATT Articles II and XI, the dissenting panellist found that, in situations involving WTO-plus provisions, exceptions contained in Article XX of GATT should be available to recently acceded countries that have agreed to such WTO-plus commitments. In the dissent’s view, China’s ability to invoke Article XX could be denied only by explicit language in the Accession Protocol.

The WTO is different from other international organizations in a way that new members negotiate entry with the existing members individually and not with the organization. A number of rules and provisions in the WTO do not apply to all members equally because not all members liberalize equally. When new members join, they evidently commit to opening up their economy and consequently enter into a schedule of commitments. It only incrementally liberalizes trade in goods and services. The WTO is not a free trade area in which all tariffs are abolished between the members in one big swoop. It is an awkward WTO reality that the transitional nature of Accession Protocols extends to this body of WTO law in the strict sense, albeit in a one-sided way.

After understanding the various facets of the case, it won’t be blasphemous to state that this course of action was justified. The Panel and Appellate Body, stuck to what was the only possible interpretation in light of the Protocol as it stands. With so many provisions referring specifically to exceptions, it was impossible to ignore the contrario route. To promote Article XX GATT, as somehow hovering over and above all other WTO law, would have belied the logical structure of the WTO agreements.

The question of whether and under what conditions the general exclusions under Article XX of the GATT apply to non-GATT agreements is of special importance. This question has long been a source of contention among trade analysts. Diverging perspectives have developed to the panel level, as seen by the opposing panellist's opinion in China-Rare Earths. In this regard, the Appellate Body's ruling provides much-needed clarity. It is now evident that a case-by-case study is necessary to ascertain the precise link between a given provision in China's Accession Protocol and GATT 1994. Although the Appellate Body's decision focused on China's Accession Protocol, its findings will have ramifications for the connection between other WTO agreements and Article XX of the GATT. The ruling teaches the few acceding nations an important lesson: make sure that all the provisions that they want covered by the justifications for actions taken in the interest of the environment, resource conservation, human health, or public morality include a reference to Article XX. Lastly, because it reopened a prior Appellate Body's ruling, this case is significant given the precedential character of Appellate Body findings. This report confirms that an issue of law may be re-examined if fresh arguments show "cogent reasons" for deviating from the adopted panel and Appellate Body judgments on the same question of law, while maintaining the precedential validity of earlier Appellate Body reports.

1. Teekah, E. (no date) U.S. China–trade war | background, tariffs, Trump, & Facts | Britannica Money, Encyclopedia Britannica. Available at: https://www.britannica.com/money/US-China-trade-war (Accessed: 10 December 2025). 

2. China scraps quotas on Rare earths after WTO complaint (2015) The Guardian. Available at: https://www.theguardian.com/world/2015/jan/05/china-scraps-quotas-rare-earth-wto-complaint (Accessed: 10 December 2025). 

3. Hughes, K. and Miles , T. (2014) China loses trade dispute over Rare Earth exports., Reuters. Available at: https://www.reuters.com/article/business/china-loses-trade-dispute-over-rare-earth-exports-idUSBREA2P0ZM/ (Accessed: 10 December 2025). 

4. World Trade Organization (2014) WTO. Available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds431_e.htm (Accessed: 10 December 2025). 

5. Gavin, B. (2013) ‘China’s growing conflict with the WTO’, Intereconomics, 48(4), pp. 254–261. doi:10.1007/s10272-013-0467-6. 

6. Van Calster, G. (2013) ‘China, Minerals Export, raw and rare earth materials: A perfect storm for world trade organization dispute settlement’, Review of European, Comparative & International Environmental Law, 22(1), pp. 117–122. doi:10.1111/reel.12023. 

7. Layton, D.W. et al. (2014) WTO Appellate Body upholds panel in China – rare earths, International Trade & Investment - United States. Available at: https://www.mondaq.com/unitedstates/international-trade-amp-investment/334616/wto-appellate-body-upholds-panel-in-china-rare-earths (Accessed: 10 December 2025).