China has lost an appeal to the World Trade Organization following complaints about its restrictions on raw materials exports. The ruling, however, does not affect Beijing's stranglehold on the supply of rare earths, the crucial metals found in many high-tech products.

A WTO appeals panel said that Beijing violated global trading rules by curbing exports of nine raw materials, including bauxite, coke, magnesium, manganese and zinc.

The panel ruled that the export restrictions inflated prices and gave domestic Chinese firms an unfair competitive advantage.

Many countries have also accused China of choking off global supplies of rare earths, causing prices to rocket, but the metals were not part of the ruling. Even so, Western producers applauded the outcome.

Victory for Western manufacturers

"The Federation of German Industry (BDI) urged China to comply with the ruling. "China has to quickly repeal the export restrictions that were found lacking," the chairman of the BDI's raw materials committee, Ulrich Grillo, said in a statement in Berlin on Tuesday.

"Every country trading in raw materials relies on a dependable framework, and that's why existing rules and agreements need to be respected," Grillo added.

The decision of the appellate body is a huge victory for the United States," said Michael Silver, CEO of American Elements, a US-based rare earth processor. "It confirms the existence of the two-tiered price structure that has caused so much concern," he said.

EU Trade Commissioner Karel De Gucht said the ruling would force China to drop its export restrictions for the materials named in the case as well as for rare earths.

Although Beijing may now be forced to tweak some of its export policies, analysts says the strategy to control prices would likely remain unchanged.

"It is still too early to say what the impact will be, but I cannot see it having a big impact on prices. The main issue will still be supply and demand," said Vivian Pang, an analyst at the Asian Metal consultancy in Beijing.

Will China comply?

China controls 95 percent of global rare earth supplies - 17 elements used in a wide variety of high-tech products, like smartphones, solar panels and hybrid cars.

The European Commission said in a statement that while the case requires China to comply, the EU "continues to be deeply troubled by China's use of export restrictions."

CEO Silver was more upbeat, saying the question was whether China would actually stop or reduce export taxes. "I expect they will, so they remain WTO members in good standing," he said.

China's Ministry of Commerce said that it "deeply regrets" the ruling, but would comply.

Author: Gregg Benzow, Hardy Graupner  (AFP, dpa, Reuters)
Editor: Michael Lawton