WTO?s appellate body has very recently upheld the Dispute Settlement Panel report on export restrictions imposed on nine basic raw materials by China which includes rare earth, bauxite, coke and zinc and had asked China to modify its raw material export policy to ensure that they do not bring about a WTO-inconsistent result.

The major complainants were USA, EU and Mexico and a number of other countries like Japan, Turkey, South Korea, Saudi Arabia, India and a few others joined under third party. Earlier the Panel upheld that export tax and quotas, export licensing, minimum export price implemented by China in respect of these nine critical raw materials are inconsistent with its commitment of WTO Accession Protocol and Article XI.I of GATT 1994.

China?s justification that these measures were legitimate conservation of exhaustible natural resources (bauxite and fluorspar), environment protective measures (coke, manganese, magnesium, silicon carbide and zinc)

or short supply measures (bauxite) did not find favour with the panel members.

The whole episode has far reaching implications for raw materials that India possesses. Take, for instance, iron ore exports from India. Had India been the exclusive supplier of iron ore to China, it could make out a strong case against any export restriction involving tax, duties, freight and licensing requirements thereby making export costly and alternatively enhancing domestic availability leading to lower prices for the domestic users. This discriminates against exports, raises international prices and generates undue benefits for indigenous transactions which may turn out to be WTO inconsistent. However, China depends more on Australia and Brazil than India for meeting its iron ore requirements and, therefore, the prospect of China being singularly affected by India?s export restrictive measures is minimum.

To what extent a country, which happens to be a member of WTO, can conserve its natural resource as the reserves in the country are limited and irreplaceable. This applies to iron ore as well.

But if the global market share of ore of Indian origin is significant, any undue haste in imposing adhoc restriction on exports is best to be avoided as the action may adversely impact another member whose output of a product may be critically dependent on the uninterrupted supply of the specific raw material available at the ruling market price.

Indonesia plans to impose 20% tax on coal exports with effect from 2014. This has already sent shivers to Indian importers, most of whom belong to the power sector. The intervention by WTO in this regard is doubtful in terms of insignificant market share, alternate source of supply and other similar factors.

In China?s case, the crux of the matter lies in the issue of trading conflicts between USA, the country having a massive trade deficit with China holding a large

component of US treasury bonds.

China?s currency fixation, an issue long troubling the Sino-US trade is yet to be settled. Also the most affected sector in USA by export restriction on raw materials by China happens to be steel and in US, the sector receives full support from a powerful caucus in the Houses. Lastly, the growing irrelevance of WTO as a world body in promoting free and fair trade may render this appellate body notification ineffective.

– The author is DG, Institute of Steel Growth and Development. The views expressed are personal