Posted: December 1st, 2014

Memo in support of hypothetical decision in China—Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum [China—Rare Earths Case]

Memo in support of hypothetical decision in China—Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum [China—Rare Earths Case]

Summary of China-Rare Earths Case Facts:
This dispute arose from the People’s Republic of China’s [China] use, administration, and allocation of export quotas and export duties on various forms of

rare earths, tungsten, and molybdenum, all of which are raw materials used in the production of various electronic goods. The United States, Japan, and European Union

[hereinafter the Complainants] challenged China’s imposition of such export quotas and duties, asserting such trade limitations violate China’s Accession Protocol and

the GATT by unfairly favoring Chinese industries in providing them access to the regulated materials. China contended that its trade restrictions supported the

conservation of China’s exhaustible natural resources and were necessary to reduce pollution caused via the mining for these materials. As China’s Accession Protocol

makes no mention to trade restrictions authorized under these exceptions, China argued that Art. XX of the GATT was applicable in the current case, thereby justifying

China’s trade limitations and negating the complainants’ arguments in accordance with Art. XX(b) and (g) of the GATT.
Appellate Body’s decision in China-Rare Earths Case:
The “General Exceptions” in Art. XX of the GATT are available to justify state restrictions on all WTO obligations related to trade in goods unless an

obligation explicitly provides otherwise, and the relevant obligation in China’s Accession Protocol does not explicitly provide otherwise.
China’s support of the Appellate Body’s decision:
China affirms and commends the Appellate Body’s decision in the China—Rare Earths Case. With an eye towards precedent cases, China concludes that the Appellate

Body’s decision in the China-Rare Earths case is in accordance with the Appellate Body’s past decisions. Below is a detailed accounting of precedent cases, their

relevance to the China—Rare Earths Case, and why these precedent cases support the Appellate Body’s decision in the China—Rare Earth Case.
Applying Precedent Cases to Appellate Body decisions:
Before addressing the China-Rare Earths Case and the precedent cases relevant to affirming the Appellate Body’s decision therein, the applicability of

precedent cases to Appellate Body decisions needs discussing. In United States–Definitive Anti-Dumping and Countervailing Duties on Certain Products from China [U.S.—

Anti-Dumping],  the Appellate Body ruled that an Appellate Body must take notice of and adopt the decisions and interpretations of any prior Appellate Body when a

relevant legal issue is raised or there is an argument or evidence that would provide “cogent reasons” to reach a different interpretation. “Cogent reasons” encompass

multilateral interpretation of provisions covered by an agreement, a demonstration that a prior Appellate Body interpretation proved to be unworkable, a demonstration

that an Appellate Body interpretation leads to conflict with another provision not raised before the Appellate Body, or a demonstration that the Appellate Body

interpretation was based on factually incorrect premises. Due to the ruling in U.S.— Antidumping, precedent cases are relevant and applicable to future decisions of

the Appellate Body, thus the following application of precedent cases is a basis for supporting the ruling of the Appellate Body in the China-Rare Earths Case.
Art. XX of the GATT 1994 and China’s Accession Protocol:
In China—Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products [China—Publications],  the

United States complained that China violated its Accession Protocol and the GATT by allowing only Chinese state-owned enterprises to distribute foreign produced media

in China, but placing no such limitations on domestically produced media, thereby causing foreign media to be treated “less favorably” than the like-domestic media.

China argued that, since paragraph 5.1 of its Accession Protocol grants China the ability to “regulate trade in a manner consistent with the WTO Agreement,” China

possesses a general right—ascribed to all WTO Members—to enforce measures that pursue legitimate policy objectives in accordance with the WTO agreement. Accordingly,

China argued that China’s trade restrictions on media were justified under Art. XX(a) of the GATT, as China’s purpose in regulating foreign media was to limit its

presence in China, but under the tenet of “protect[ing] public morals.” The Appellate Body in China—Publications reasoned that paragraph 5.1 does extend Art. XX of the

GATT to a trade-restrictive measure if the measure is consistent with the WTO agreement.
Applied to the China—Rare Earths Case, the China—Publications ruling affirms China’s ability to utilize Art. XX of the GATT in accordance with China’s

Accession Protocol, thereby allowing China to justify trade restrictions so long as they meet the criteria of Art. XX of the GATT. The Complainants will be quick to

point out that the Appellate Body in China—Publications still rejected China’s assertion of Art. XX(a) of the GATT to justify its media-trade restrictions on the

ground that China’s “public moral” protection measures did not meet the requirements of Art. XX(a) of the GATT or the chapeau of Art. XX due to alternative, non-trade

restrictive measures being available. The complainant’s arguments are discussed in detail below.
In Argentina–Safeguard Measures on Imports of Footwear [Argentina-Footwear],  the Appellate Body expanded on the concept of treaty integration. In Argentina—

Footwear, Argentina imposed safeguard measures by enforcing minimum specific imports on certain footwear, in accordance with the Agreement on Safeguards. The European

Communities [EC] claimed that such measures were inconsistent with the Agreement on Safeguards and the GATT, specifically Art. XIX:1(a). The Appellate Body ruled that

multilateral trade agreements represent an inseparable package of rights for states, thus, in Argentina—Footwear, the Agreement on Safeguards defines, clarifies, and

in some cases modifies the whole package of rights and obligations of members to the GATT. As such, the complexity of overlapping treaties with the GATT requires

treaty integration be examined on a case-by-case basis.
Applied to the China—Rare Earths Case, the Argentina—Footwear ruling supports the Appellate Body’s extension of Art. XX to China’s Accession Protocol. Like in

Argentina—Footwear, China’s Accession Protocol is inclusive under the GATT, both because China’s Accession Protocol explicitly regulates itself under the WTO Agreement

(Accession Protocol paragraph 5.1) and because both agreements intersect without conflicting. Accordingly, the GATT intrinsically extends to China’s Accession Protocol

as a defining, clarifying, or modifying factor in interpreting China’s Accession Protocol; since the GATT is part of the standard of interpretation, it is reasonable

that the provisions of the GATT (like Art. XX) should apply to China’s Accession Protocol when relevant.
Complainants’ Counter to Applying Art. XX of the GATT 1994 to China’s Accession Protocol:
The Complainants will argue against the applicability of Art. XX of the GATT to China’s Accession Protocol by offering their own Appellate Body decision. In

United States–Measures Affecting The Production And Sale Of Clove Cigarettes [U.S.—Clove Cigarettes],  the Appellate Body ruled that Art. XX of the GATT does not

extend to the Agreement on Technical Barriers to Trade [TBT Agreement], since the TBT Agreement contains no express language identifying a relationship between the

specific terms and provisions of the TBT Agreement and the GATT. In U.S.—Clove Cigarettes, the Appellate Body ultimately ruled that, lacking explicit reference to

another trade agreement’s provisions, a trade agreement’s specific relationship to another trade agreement must be determined via other interpretive elements within

both trade agreements. The Complainants will argue that, since China’s Accession Protocol does not specifically reference the GATT (and therefore not Art. XX of the

GATT), China cannot exercise the exceptions under Art. XX of the GATT without an analysis of interpretive elements within both trade agreements showing the

applicability of specific provisions in one agreement to specific provisions in the other.
While the Complainants argument is valid, it is precluded by the Appellate Body’s reasoning in China—Publications; the Appellate Body applied a review of

China’s Accession Protocol and the GATT similar to that required in U.S.—Clove Cigarettes. In China—Publications, the Appellate Body analyzed interpretive elements of

China’s Accession Protocol (i.e. the Appellate Body’s analysis of paragraph 5.1’s inclusion of the term “in a manner consistent with the WTO Agreement” and subsequent

reasoning that the WTO Agreement encompasses the GATT) in relation to the GATT, ultimately finding that an explicit connection between the two trade agreements does

exist, thus allowing the provisions of the GATT to extend to China’s Accession Protocol. As the Appellate Body reasoning in U.S.—Clove Cigarettes is paralleled in

China—Publications, it may be concluded that the Appellate Body’s ruling in China—Publications (allowing China to exercise Art. XX of the GATT) is not undermined by

the ruling in U.S.—Clove Cigarettes.
Art. XX(b) & (g)of the GATT and China’s Restrictive-Trade Measures:
The above has addressed why Art. XX of the GATT can apply to China’s Accession Protocol. Now, why Art. XX(b) and (g) should apply in the China—Rare Earths Case

needs to be articulated. The relevant components of Art. XX of the GATT read as follows:
Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between

countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or

enforcement by any contracting party of measures:
(a) necessary to protect public morals;
(b) necessary to protect human, animal or plant life or health;
. . .
(g) relating to the conservation of exhaustible natural resources if     such measures are made effective in conjunction with      restrictions on domestic

production or consumption

To exercise the exceptions listed under Art. XX of the GATT, a state’s trade-restrictive measures must align with both the chapeau of Art. XX and the specific

exception claimed. In United States—Standards for Reformulated and Conventional Gasoline [U.S.—Gasoline],  the Appellate Body explicitly addresses Art. XX(g) and its

requirements in terms of a U.S. trade restrictions on foreign oil purported to be exercised under Art. XX(g) of the GATT. To satisfy Art. XX(g) of the GATT, a measure

must “relat[e] to the conservation of exhaustible resources,” be “made effective in conjunction with restrictions on domestic production or consumption,” and not

“arbitrary or unjustifiable discrimination.”  In U.S.—Gasoline, the Appellate Body expresses that the provisions of the GATT exist united and do not contradict

themselves, thus there application via another treaty must also not violate any of the provisions of the GATT. Ultimately, the Appellate Body in U.S.—Gasoline found

that clean air was an exhaustible natural resource, but the measures employed by the U.S. did not fall under Art. XX(g), because the U.S. measures were not primarily

aimed at the conservation of exhaustible natural resources as evidenced by the U.S. trade restrictions only applying to imported oil and not domestic oil. In relation

to the China—Rare Earth Case, the U.S.—Gasoline case provides the foundation from which China’s trade-restrictive measures must be analyzed in determining whether the

trade-restrictive measures are justified under Art. XX(g) of the GATT.
As the Appellate Body in U.S.—Gasoline acknowledged air as an exhaustible resource, it is likely that the rare minerals in the China-Rare Earths Case will also

qualify as exhaustible resources, as they are unrenewable. The Panel in China—Rare Earths concurred with this interpretation of “exhaustible resources.” According to

the Section 2, Article 7 of the Chinese regulation “Several Opinions of the States Council on Promoting the Sustainable and Healthy Development of the Rare Earth

Industry” [Several Opinions] China’s trade restrictions are implemented simultaneously with restrictions on “total mining and production of rare Earths.” With this as

the stated practice, China’s trade restrictions align with the Art. XX(g) of the GATT requirement that a trade restriction be “made effective in conjunction with

restrictions on domestic production or consumption.” With above legitimate purpose and lacking evidence that China’s trade restrictions are aimed are a disguised

restriction, China’s trade restrictions also do not violate the chapeau of Art. XX of the GATT, therefore the Appellate Body in China—Rare Earths was correct in

applying the Art. XX(g) exception to China’s trade restrictions.
In China—Publications (see above), the Appellate Body addresses the applicability of China’s claim that its trade-restrictive measures fall under Art. XX(a) of

the GATT. To satisfy Art. XX(a) of the GATT, a measure must be “necessary,” towards “protect[ing] public morals,” and not “arbitrary or unjustifiable discrimination.”

The Appellate Body in China—Publications ultimately ruled that China’s measures were not “necessary” as required under Art. XX(a) of the GATT, since alternative means

of “protecting public morals” were available independent of trade restrictions. Therefore, China could not utilize Art. XX(a) of the GATT to justify its trade-

restrictive measures. The China—Publications case is relevant in that it shows and explains a provision of Art. XX of the GATT similar to Art. XX(b) of the GATT, which

is addressed in the China—Rare Earths Case.
As evidenced in China’s regulation Several Opinions, the trade restrictions at issue in China—Rare Earths are part of a larger goal to regulate the exports of

“high pollution, high energy consumption and resource dependent” products. Unlike in China—Publications, where the Appellate Body determined that there are

alternatives to trade restrictions able to protect China’s public morals, in China—Rare Earths, alternatives to China’s trade restriction policies are less likely to

produce the desired effect of protecting human, animal, and plant health and life. On June 25, 2012, China published “Situation and Policies of China’s Rare Earth,” a

document detailing the effects of mining for rare Earths, explicitly the pollution and natural disasters caused by unrestricted mining for rare Earths. As these harms

stem directly from the mining and production of rare Earths, the only practice to remedy these harms is to reduce mining and production. While reducing mining, China

still needs to retain enough rare Earths for its domestic use, thus trade restrictions on exports are necessary to keep rare Earths in country. As such, China’s trade

restrictions align with the requirements of Art. XX(b) of the GATT, since the restrictions are necessary and seek to protect human, animal or plant life or health. By

fulfilling these requirements and being based on legitimate purposes, China’s trade restrictions in China—Rare Earths also satisfy the chapeau of Art. XX of the GATT.

Ultimately, the Appellate Body in China—Rare Earths was correct in allowing the application of the Art. XX(b) exception to China’s trade restrictions.
Complainants’ Counter to Applying Art. XX(b) & (g) to China’s Trade-Restrictive Measures:
While U.S.—Gasoline and China—Publications both detail the applicability of Art. XX of the GATT to trade-restrictive measures similar to those in the China—

Rare Earth Case, neither provides a solid basis from which China in the China—Rare Earths Case can successfully argue that its measures fall under either Art. XX(b) or

Art. XX(g) of the GATT. On the applicability of Art. XX(b) of the GATT, the Complainants will argue that China’s trade-restrictive measures are not necessary to

protect human, animal, or plant life or health. Like in China—Publications, the Complainant’s will claim there are alternatives to China’s measures which would protect

human, animal, and plant life or health without imposing trade restrictions; reducing the amount of mining, instead of just restricting the exportation of mined

resources, is just such an alternative. Likewise, the Complainants will argue that China’s trade restrictions are unjustifiable discrimination by pointing to the fact

that China’s trade-restrictions have no effect on China’s domestic access to the resources in question, thereby indicating blatant discrimination against foreign trade

and not an attempt to protect life and health.
On the applicability of Art. XX(g) of the GATT, the Complainants will argue that China’s trade-restrictive measures were not made “effective in conjunction

with restrictions on domestic production or consumption” since China’s trade-restrictions entailed no domestic restrictions (the fact that domestic mining and

production is also reduced is irrelevant, as they are not a component of the trade restrictions imposed.) Like in U.S.—Gasoline, failure to affect domestic

restrictions as well as foreign restrictions prohibits a trade-restrictive measure from qualifying under Art. XX(g) of the GATT. The Complainants will also reiterate

the argument that China’s trade-restriction measures are unjustifiable discrimination in violation of the chapeau of Art. XX of the GATT.
Conclusion:
Upon the application of precedent cases as authorized in U.S.—Anti-Dumping, it may be concluded that the Appellate Body’s ruling in the China—Rare Earths Case

is supported by precedent. From the decisions of China—Publications, Argentina—Footwear, and U.S.—Clove Cigarettes, it may be concluded that Art. XX of the GATT does

extend over China’s Accession Protocol, thus allowing China to exercise the exceptions provided for therein. As for the applicability of Art. XX(b) and (g) of the GATT

to the trade-restrictions at issue in the China—Rare Earths Case, none of the precedent cases directly support that exceptions be allowed for China’s trade

restrictions. However, U.S.—Gasoline and China—Publications do provide the bases for China’s application of both Art. XX(b) and (g) by providing the frameworks in

which the Appellate Body must analyze China’s trade-restrictive measures. These precedent cases, coupled with evidence of China’s reasons and purposes behind

implementing the trade-restrictive measures, allow the Appellate Body to conclude that China’s trade-restrictive measures fall under the exceptions contained in Art.

XX(b) and (g) of the GATT.

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