WASHINGTON — A World Trade Organization panel ruled Tuesday that China ran afoul of global trade rules by imposing export restraints on certain raw materials that are incorporated in several downstream products important to the apparel, textile and beauty industries.

This story first appeared in the July 6, 2011 issue of WWD. Subscribe Today.

The WTO dispute settlement panel found that China’s imposition of export quotas, export licensing requirements and minimum export price requirements on a wide range of raw materials was inconsistent with its WTO obligations. China has the right to appeal the panel’s decision to the WTO’s appellate body.

The materials covered in the complaint include bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorous and zinc. Although most are used in the production of steel, aluminum and chemical products, some are incorporated in textile laminates, fiber products, cosmetics, flame retardants, fiber products and contact lenses.

“Today’s panel report represents a significant victory for manufacturers and workers in the United States and the rest of the world,” said U.S. Trade Representative Ron Kirk. “The panel’s findings are also an important confirmation of fundamental principles underlying the global trading system.”

Kirk called China’s export restraints “deeply troubling” and accused China of using them for “protectionist economic gain.”

“China’s policies provide substantial competitive advantages for downstream Chinese industries at the expense of non-Chinese users of these materials,” Kirk said. “They have also caused massive distortions and harmful disruptions in supply chains throughout the global marketplace. WTO rules are designed to deal with precisely these kinds of problems.”

Filed by the U.S. in June 2009, the WTO complaint was the first brought by the Obama administration against China. The U.S. charged that China was essentially unfairly protecting its domestic manufacturers by placing limits on certain raw materials exports, which drove up global prices, a position the WTO dispute panel upheld in Monday’s ruling.

Kirk said the U.S. requested the formal consultation with China over export policies that include putting caps on the volume of raw materials that can be exported out of China, imposing duties on exports of raw goods and a variety of other administrative measures. The European Union and Mexico filed separate WTO complaints against China later that year, with more than a dozen other nations joining as third parties in the dispute.

“To the extent that the Chinese restrictions have caused U.S. textile inputs to increase, we expect the removal of these restrictions would have a small but positive effect in our abilities to compete,” said Cass Johnson, president of the National Council of Textile Organizations.

Johnson said the WTO ruling could potentially give some leverage to the U.S. textile industry, which is urging the U.S. to file a WTO case against India, alleging it is using illegal export restraints on raw cotton to give its own producers a price advantage in its yarns and fabrics.

“India is doing the same thing and I think the ruling today sends an important message at a time when India is flooding the world with inexpensive yarn,” Johnson said. NCTO estimates the Indian government is withholding 2 million bales of raw cotton exports to give its domestic producers cheaper prices on cotton, which, in turn has helped drive up world cotton prices.

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