Asian powerhouses · Ongoing disputes at the WTO · Western World

Hold on to your horses! : The preemptive appeal (China- Rare Earths, Part I)

Anyone who has been keeping up with recent WTO news will know that two economic giants have been crossing swords over certain underground gems. I’m of course referring to the WTO dispute concerning China’s export restriction on rare earth materials of Tungsten and Molybdenum.[1] The United States, EU and Japan brought a case against the South-Asian superpower, alleging that such restrictions were inconsistent with the additional obligations that China had agreed upon when it acceded to the WTO. They further claimed that China’s quasi-monopolistic hold on these precious earth materials was causing severe damage to their resource-stared manufacturing industries.[2]
On 26th March, the Panel came out with a report which disallowed China from invoking Article XX defenses (present in the GATT, ‘94) to justify violations of its “WTO-Plus” commitments. I’ll soon take up a post on what all this means soon.

But there is something more noteworthy in the news.

In an unprecedented move, the United States has invoked Rule 23 of the Appellate Body’s working procedure[3] resulting in something called a “pre-emptive appeal”. The normal appeal procedure under Article 16:4 of the DSU allows China 60 days to file an appeal before the Panel report is adopted[4] by the Dispute Settlement Body.
BNA WTO Reporter, Daniel Pruzin summarizes what Rule 23 entails:

“The effect of the appeal is that it will obligate China to file an “other appellant” appeal within five days challenging any aspects of the panel’s findings which it feels are in error. Had the U.S. not filed its preemptive appeal, China and the other parties in the dispute would have had until May 25 to file a challenge to the panel’s findings.”

The US maintains that this was done in order to bring “urgent relief to American businesses and workers.”[5] If only matters were that simple.

Julia Qin, in an excellent post on the International Economic Law and Policy blog, raises all the right questions. With clear logic and sharp facts, she critically questions the basis of such a move, especially since China would have around 20 less days to prepare for its appeal. This becomes a problem when you consider that WTO procedure requires the appealing party to carefully and categorically identify the specific legal issues that it would like to contest. This is especially the scenario in complex cases like China-Rare Earth, which involves “complex systemic issues.”

As far as dispute resolution goes, such an attempt to unfairly corner the losing party reeks of mala fide intentions for two reasons. Firstly, reports suggest that the market for these elements was quite flat, due to depressed prices. So there wasn’t much harm accruing to the domestic markets of American, in the first place. Secondly, China’s export quotas on rare earths have never been fully used up in any given year. So there wasn’t much of a threat either. So, what was the real reason behind all this hurry? Just backdoor politics invading WTO politics?
Awaiting a fitting response from the Chinese authorities.

Here’s what the official document looks like:

[1] Panel Report, China – Measures related to the Exportation of Rare Earths, Tungsten, and Molybdenum, (WT/DS431).

[2]Molybdenum and Tungsten are required in the production of several cutting-edge technologies.
[3]For the rules, see:
[4]“Adopted”: to give legal effect to the ruling of the Panel.
[5]Statement of Trevor Kincaid [Spokesman for the Office of the U.S. Trade Representative (USTR)]



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