CHINA – MEASURES RELATED TO THE EXPORTATION OF RARE EARTHS, TUNGSTEN, AND MOLYBDENUM REPORTS OF THE PANEL
Document: Addendum
Date: 26 March 2014
Document codes: WT/DS431/R/Add.1; WT/DS432/R/Add.1; WT/DS433/R/Add.1; WT/DS431/R; WT/DS432/R; WT/DS433/R.
Complainant: U.S.
Respondent: China
Third parties: Brazil, Canada, Colombia, EU, India, Japan, South Korea, Norway, Oman, Saudi Arabia, Taiwan, Vietnam, Argentina, Australia, Indonesia, Turkey, Peru, Russia
Dispute stage: Appellate Body
Agreements cited: Art. XI:1, X:3(a)  GATT 1994Part I, para. 1.2, Part I, para. 11.3, Part I, para. 5.1,   Protocol of Accession

CHINA – MEASURES RELATED TO THE EXPORTATION OF
RARE EARTHS, TUNGSTEN, AND MOLYBDENUM
REPORTS OF THE PANEL
Addendum
 This addendum contains Annexes A to C to the Reports of the Panel to be found in
documents , and

 • •

LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2

ANNEX B
ARGUMENTS OF THE PARTIES
Contents Page
Annex B-1 Integrated executive summary of the arguments of the United States B-2
Annex B-2 Integrated executive summary of the arguments of the European Union B-24
Annex B-3 Integrated executive summary of the arguments of Japan B-47
Annex B-4 Integrated executive summary of the arguments of China B-68

ANNEX C
ARGUMENTS OF THIRD PARTIES
Contents Page
Annex C-1 Integrated executive summary of the arguments of Argentina C-2
Annex C-2 Integrated executive summary of the arguments of Australia C-4
Annex C-3 Integrated executive summary of the arguments of Brazil C-7
Annex C-4 Integrated executive summary of the arguments of Canada C-8
Annex C-5 Integrated executive summary of the arguments of Colombia C-11
Annex C-6 Integrated executive summary of the arguments of the Republic of Korea C-13
Annex C-7 Integrated executive summary of the arguments of Norway C-15
Annex C-8 Integrated executive summary of the arguments of Peru C-16
Annex C-9 Integrated executive summary of th e arguments of the Russian Federation C-18
Annex C-10 Integrated executive summary of the arguments of the Kingdom of Saudi Arabia C-20
Annex C-11 Integrated executive summary of the arguments of Turkey C-23
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ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2
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ANNEX A-1
WORKING PROCEDURES OF THE PANEL
Adopted on 18 October 2012
1. In its proceedings, the Panel shall follow the relevant provisions of the Understanding on
Rules and Procedures Governing the Settlement of Disputes (DSU). In addition, the following
Working Procedures shall apply.
General

2. The deliberations of the Panel and the document s submitted to it shall be kept confidential.
Nothing in the DSU or in these Working Procedures shall preclude a party to the dispute (hereafter
"party") from disclosing statements of its own positions to the public. Members shall treat as
confidential information submitted to the Panel by another Member which the submitting Member
has designated as confidential. Where a party submits a confidential version of its written
submissions to the Panel, it shall also, upon request of a Member, provide a non-confidential
summary of the information contained in its submissions that could be disclosed to the public. In
case a party to the dispute designates information as "Business Confidential Information" ("BCI"),
the Panel shall adopt additional working procedures concerning business confidential information.
3. The Panel shall meet in closed session. Th e parties, and Members having notified their
interest in the disputes to the Dispute Settlemen t Body in accordance with Article 10 of the DSU
(hereafter "third parties"), shall be present at the meetings only when invited by the Panel to
appear before it.
4. Each party and third party has the right to determine the composition of its own delegation
when meeting with the Panel. Each party and third party shall have the responsibility for all
members of its own delegation and shall ensure th a t e a c h m e m b e r o f s u c h d e l e g a t i o n a c t s i n
accordance with the DSU and these Working Procedures, particularly with regard to the
confidentiality of the proceedings.
Submissions

5. Before the first substantive meeting of the Panel with the parties, each party shall submit a
written submission in which it presents the facts of the case and its arguments, in accordance with
the timetable adopted by the Panel. Each party shall also submit to the Panel, prior to second
substantive meeting of the Panel, a written rebuttal, in accordance with the timetable adopted by
the Panel.
6. A party shall submit any request for a prelimin ary ruling at the earliest possible opportunity
and in any event no later than in its first written submission to the Panel. If the complainants
request such a ruling, the respondent shall submit its response to the request in its first written
submission. If the respondent requests such a ruling, the complainants shall submit their
response to the request prior to the first substantive meeting of the Panel, at a time to be
determined by the Panel in light of the request. Exceptions to this procedure shall be granted
upon a showing of good cause.
7. Each party shall submit all factual evidence to the Panel no later than during the first
substantive meeting, except with respect to evid ence necessary for purposes of rebuttal, answers
to questions or comments on answers provided by the other party(ies). Exceptions to this
procedure shall be granted upon a showing of good cause. Where such exception has been
granted, the Panel shall accord the other party(ies) a period of time for comment, as appropriate,
on any new factual evidence submitted after the first substantive meeting.
8. Where the original language of exhibits is not a WTO working language, the submitting party
or third party shall submit a translation into the WTO working language of the submission at the
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same time. The Panel may grant reasonable extensions of time for the translation of such exhibits
upon a showing of good cause. Any objection as to the accuracy of a translation should be raised
in writing as promptly as possible. Any objection shall be accompanied by a detailed explanation
of the grounds of objection and an alternative translation.
9. In order to facilitate the work of the Panel, each party and third party is invited to make its
submissions in accordance with the WTO Editorial Guide for Panel Submissions attached as
Annex 1, to the extent that it is practical to do so.
10. To facilitate the maintenance of the record of the disputes and maximize the clarity of
submissions, each party and third party shall sequentially number its exhibits throughout the
course of the disputes. For example, exhibits submitted by China could be numbered CHN-1,
CHN-2, etc. If the last exhibit in connection with the first submission was numbered CHN-5, the
first exhibit of the next submission thus would be numbered CHN-6.
Questions

11. The Panel may at any time during this panel process pose questions to the parties and ask
them for explanations in writing or orally. The Panel may pose questions to third parties pursuant
to paragraph 17(d) below.
Substantive meetings

12. Each party shall provide to the Panel the list of members of its delegation in advance of each
meeting with the Panel and no later than 5.00 p.m. the previous working day.
13. The first substantive meeting of the Panel wi th the parties shall be conducted as follows:
(a) The Panel shall invite the complainants to make opening statements to present
their case first. Subsequently, the Panel shall invite the respondent to present its
point of view. Before each party takes the floor, it shall provide the Panel and
other participants at the meeting with a provisional written version of its
statement. In the event that interpretation is needed, each party shall provide
additional copies for the interpreters. Each party shall make available to the Panel
and the other parties the final version of its statement, preferably at the end of the
meeting, and in any event no later than 5.00 p.m. on the first working day
following the meeting.
(b) After the conclusion of the statements, the Panel shall give each party the
opportunity to ask questions or make comments, through the Panel. Each party
will have an opportunity to and should answer orally these questions and react to
the comments. Each party shall send in writing, within a timeframe to be
determined by the Panel, any questions to the other party(ties) to which it wishes
to receive a response in writing. Each party shall be invited to respond in writing
to the other party's questions within a deadline to be determined by the Panel.
(c) The Panel may subsequently pose questions to the parties. The Panel shall send in
writing, within a timeframe to be determined by it, any questions to the parties to
which it wishes to receive a response in writing. Each party shall be invited to
respond in writing to such questions within a deadline to be determined by the
Panel.
(d) Once the questioning has concluded, the Panel shall afford each party an
opportunity to present a brief closing stat ement, with the complainants presenting
their statements first.
14. The second substantive meeting of the Panel wi th the parties shall be conducted as follows:
(a) The Panel shall ask the respondent if it wishes to avail itself of the right to present
its case first. If so, the Panel shall invite the respondent to present its opening
statement, followed by the complainants. If the respondent chooses not to avail
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itself of that right, the Panel shall invite the complainants to present their opening
statements first. Before each party takes the floor, it shall provide the Panel and
other participants at the meeting with a provisional written version of its
statement. In the event that interpretation is needed, each party shall provide
additional copies for the interpreters. Each party shall make available to the Panel
and the other parties the final version of its statement, preferably at the end of the
meeting, and in any event no later than 5.00 p.m. of the first working day
following the meeting.
(b) After the conclusion of the statements, the Panel shall give each party the
opportunity to ask questions or make comments, through the Panel. Each party
will have an opportunity to and should answer orally these questions and react to
the comments. Each party shall send in writing, within a timeframe to be
determined by the Panel, any questions to the other party(ties) to which it wishes
to receive a response in writing. Each party shall be invited to respond in writing
to the other party's questions within a deadline to be determined by the Panel.
(c) The Panel may subsequently pose questions to the parties. The Panel shall send in
writing, within a timeframe to be determined by it, any questions to the parties to
which it wishes to receive a response in writing. Each party shall be invited to
respond in writing to such questions within a deadline to be determined by the
Panel.
(d) Once the questioning has concluded, the Panel shall afford each party an
opportunity to present a brief closing statement, with the party(ies) that presented
its opening statement first, presenting its closing statement first.
Third parties

15. The Panel shall invite each third party to transmit to the Panel a written submission prior to
the first substantive meeting of the Panel with the parties, in accordance with the timetable
adopted by the Panel.
16. Each third party shall also be invited to pres ent its views orally during a session of the first
substantive meeting, set aside for that purpose. Each third party shall provide to the Panel the list
of members of its delegation in advance of this session and no later than 5.00 p.m. the previous
working day.
17. The third-party session shall be conducted as follows:
(a) All third parties may be present during the entirety of this session.
(b) The Panel shall first hear the arguments of the third parties in alphabetical order.
Third parties present at the third-party session and intending to present their
views orally at that session, shall provide the Panel, the parties and other third
parties with provisional written versions of their statements before they take the
floor. In the event that interpretation is needed, each third party shall provide
additional copies for the interpreters. Third parties shall make available to the
Panel, the parties and other third parties the final versions of their statements,
preferably at the end of th e session, and in any event no later than 5.00 p.m. of
the first working day following the session.
(c) After the third parties have made their statements, the parties may be given the
opportunity, through the Panel, to ask the third parties questions for clarification
on any matter raised in the third parties' submissions or statements. Each third
party will have an opportunity to and should answer orally these questions. Each
party shall send in writing, within a timeframe to be determined by the Panel, any
questions to a third party to which it wishes to receive a response in writing. Each
third party shall be invited to respond in writing to these questions within a
deadline to be determined by the Panel.
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(d) The Panel may subsequently pose questions either orally or in writing to the third
parties. The Panel shall send in writing, within a timeframe to be determined by it,
any questions to the third parties to which it wishes to receive a response in
writing. Each third party shall be invited to respond in writing to such questions
within a deadline to be determined by the Panel.
Descriptive part

18. Each party shall submit an integrated executive summary of its arguments as presented in
its written submissions, statements and response s and comments to questions in two parts. The
parties shall submit the first part of the in tegrated executive summary following the first
substantive meeting at the latest on the date pr ovided for in the timetable. The parties shall
submit the second part of the integrated executiv e summary at the latest on the date provided for
in the timetable. The total number of pages of the integrated executive summary, both parts
combined, shall not exceed 32 pages. Parties can request permission to file longer summaries
upon a showing of good cause.
19. Each third party shall submit an integrated executive summary of its arguments as
presented in its written submission and statement at the latest 7 calendar days after the date of
the third party session, or in the event that the Panel addresses questions to the third parties, 7
calendar days after the deadline for submission of responses to these questions. The integrated
summary to be provided by each third party shall not exceed 3 pages.
20. The executive summaries referred to above shall not in any way serve as a substitute for the
submissions of the parties and third parties in the Panel's examination of the case. The description
of the arguments of the parties and third parties in the descriptive part of the Panel report shall
consist of these executive summaries, which shall be annexed as addenda to the report.
Interim review

21. Following issuance of the interim reports, each party may submit a written request to review
precise aspects of the interim reports and request a further meeting with the Panel, in accordance
with the timetable adopted by the Panel. The ri ght to request such a meeting shall be exercised
no later than at the time the written request for review is submitted.
22. In the event that no further meeting with the Panel is requested, each party may submit
written comments on the other party's written request for review, in accordance with the timetable
adopted by the Panel. Such comments shall be limited to commenting on the other party's written
request for review.
23. The interim reports as well as the final reports before translation shall be kept strictly
confidential and shall not be disclosed.
Service of documents

24. The following procedures regarding service of documents shall apply:
(a) Each party and third party shall submit all documents to the Panel by filing them
with the DS Registry (office No. 2047).
(b) Each party and third party shall file 10 paper copies of all documents it submits to
the Panel. However, when exhibits are provided on CD-ROMS/DVDs, 5 CD-
ROMS/DVDs and 2 paper copies of those exhi bits shall be filed. The DS Registrar
shall stamp the documents with the date and time of the filing. Unless otherwise
agreed, the paper version shall constitute the official version for the purposes of
the record of the dispute.
(c) Each party and third party shall also prov ide an electronic copy of all documents it
submits to the Panel at the same time as the paper versions, preferably in
Microsoft Word format, either on a CD-ROM, a DVD or as an e-mail attachment. If
the electronic copy is provided by e-mail, it should be addressed to
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*****.*****@wto.org, and cc'd to *****.*****@wto.org, *****.*****@wto.org
and *****.*****@wto.org. If a CD-ROM or DVD is provided, it shall be filed with
the DS Registry.
(d) Each party shall serve any document submitted to the Panel directly on the other
party at the time that it transmits such document to the Panel. Each party shall, in
addition, serve directly on all third parties its written submissions in advance of the
first substantive meeting with the Panel at the time that it transmits such
document to the Panel. Each third party shall serve any document submitted to
the Panel directly on the parties and all other third parties at the time that it
transmits such document to the Panel. A party or third party may always submit
its documents electronically to another party or third party subject to the recipient
party or third party's prior written approval and provided that the Secretariat is
notified. Each party and third party shall confirm, in writing, that copies have been
served as required at the time it provides each document to the Panel.
(e) Each party and third party shall file its documents with the DS Registry and serve
copies on the other parties (and third parties where appropriate) by 5.00 p.m.
(Geneva time) on the due dates established by the Panel.
(f) The Panel shall provide the parties with an electronic version of the descriptive
part, the interim reports and the final reports, as well as of other documents as
appropriate. When the Panel transmits to the parties or third parties both paper
and electronic versions of a document, the paper version shall constitute the
official version for the purposes of the record of the disputes.

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ANNEX B
ARGUMENTS OF THE PARTIES
Contents Page
Annex B-1 Integrated executive summary of the arguments of the United States B-2
Annex B-2 Integrated executive summary of the arguments of the European Union B-24
Annex B-3 Integrated executive summary of the arguments of Japan B-47
Annex B-4 Integrated executive summary of the arguments of China B-68
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ANNEX B-1
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF THE UNITED STATES
First Part of the Integrated Executive Summary of the United States
I. INTRODUCTION
1. During the negotiations between Members and China on its WTO accession, there was no
dispute that China maintained various restrictions on exportation, including on some of the
products at issue in this dispute. Likewise, there was no misunderstanding that Members sought
to have China lift these restrictions as part of its accession commitments, and that China
committed to do so. Yet China, in pursuit of industrial policy goals, has decided to maintain or
even strengthen these restrictions.
2. During the accession negotiations, China stated that since 1992 it had reduced its use of
export restrictions, though it acknowledged that as of 1999 it still subjected 58 categories of
products covering 73 items to non-automatic export licensing and export restrictions. Members of
the Working Party were concerned with China's export restrictions, and some "expressed particular
concern about export restrictions on raw materials or intermediate products that could be subject
to further processing, such as tungsten ore concentrates, rare earths and other metals." In
response, China committed that "it would abide by WTO rules in respect of non-automatic export
licensing and export restrictions" and that, upon its accession to the WTO, "remaining non-
automatic restrictions on exports ... would be eliminated unless they could be justified."
3. Members of the Working Party also expre ssed concerns regarding taxes and additional
charges that China applied exclusively to exports. With respect to export duties, China committed
in its Protocol of Accession to the WTO that it would "eliminate all taxes and charges applied to
exports unless ... specifically provided for in Annex 6 of this Protocol," whic h lists the products on
which China retained the right to impose export duties, "or applied in conformity with the
provisions of Article VIII" of the GATT 1994.
4. In 2009, the United States, EU and Mexico initiated a challenge to the export restrictions
that China imposes on nine categories of industrial raw materials in China – Raw Materials I .
Earlier this year, the DSB adopted its recommendations and rulings in that dispute, concluding that
the restrictions at issue there – the very same types of restrictions (applied to different materials)
addressed in the present dispute – were inconsistent with China's WTO obligations. Moreover, the
DSB unequivocally concluded that China does not have recourse to the exceptions set forth in
GATT Article XX to justify deviation from its commitment, in paragraph 11.3 of the Accession
Protocol, not to impose export duties on products other than those listed in Annex 6.
5. The DSB also rejected China's attempts to invoke various exceptions set forth in, for
example, GATT Article XX to justify China's use of export quotas to meet alleged environmental
and conservation goals. These are the same justifications that China has cited for its export
restrictions covering the products at issue here. In rejecting China's use of export quotas, the
DSB found that "[f]or the purpose of conservation of a resource, it is not relevant whether the
resource is consumed domestically or abroad; what matters is its pace of extraction." The DSB
also found that "export restrictions are not an efficient policy to address environmental
externalities when these derive from domestic production rather than exports or imports."
6. The products subject to the export restrictions at issue in this dispute are various forms of
rare earths, tungsten and molybdenum ( "Raw Materials"). China is the leading producer of each
of the Raw Materials, which are vital inputs for fundamental industries of Members' economies,
including the manufacture of electronics, automobiles, steel, petroleum products, and a variety of
chemicals that are used to produce both everyday items and highly sophisticated, technologically
advanced products, such as hybrid vehicle batteries, wind turbines and energy efficient lighting.
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7. China's export restrictions have distorted the playing field on which Members compete.
These export restrictions not only distort domestic and world markets in these critical Raw
Materials, but they also impact entire manufacturing chains and have broad implications for
competition and trade in a wide variety of products. For example, because China is the world's
leading producer of the Raw Materials, the distorti ons created by the export restrictions can drive
up the prices that U.S. and other non-Chinese producers must pay for these inputs on the world
market. Concurrently, the export restrictions can increase supplies in China's domestic market,
driving down the prices that Chinese producers would otherwise pay for these same inputs.
8. Over time, China has tightened its export restrictions on rare earths, tungsten and
molybdenum; export quota amounts have decreased steadily while export duty rates have
increased steadily since 2001. Indeed, in the case of rare earths, during the pendency of China –
Raw Materials I, China not only expanded the scope of pr oducts covered by the export quota by
adding rare earth alloys to the oxides, concentrates, metals and compounds already subject to the
export quota, but China also drastically reduced the volume of the export quota from
approximately 50,000 metric tons ("MTs") in 2009 to around 30,000 MTs in 2010.
9. This dispute focuses on two types of restrict ions that China imposes on the exportation of
the Raw Materials: export duties and export quotas (including certain quota administration
measures). It is important to note that the United States does not disagree with policies aimed at
addressing environmental externalities stemming from the domestic production of raw materials.
10. China's export duties are inconsistent with China's obligations under its Accession Protocol.
China's export quotas, in themselves and in the manner they are administered, are inconsistent
with China's obligations under the GATT and China's Accession Protocol, which incorporates
commitments made by China in the Report of the Working Party. To summarize:
11. Export Duties: China's obligations under paragraph 11.3 of Part I of the Accession Protocol
require that China not impose export duties on prod ucts that are not listed in Annex 6. However,
China imposes export duties on over 80 forms of rare earths, tungsten and molybdenum that are
not listed in Annex 6.
12. Export Quotas – Maintenance of Export Quotas: GATT Article XI:1 and the Protocol,
through its incorporation of paragraphs 162 and 165 of the Working Party Report, obligate China
not to maintain prohibitions or restrictions on exportation. Despite this, China imposes quotas on
the exportation of various forms of rare earths, tungsten and molybdenum, including ores,
concentrates, and further processed products such as metals and alloys.
13. Export Quotas – Administration and Allocation of the Export Quotas: China's
commitments under paragraph 5.1 of Part I of the Accession Protocol, as well as paragraph 1.2 of
the Accession Protocol to the extent it incorp orates paragraphs 83 and 84 of the Working Party
Report (commonly referred to as China's "trading rights" commitments), require China to give all
foreign enterprises and individuals, as well as all enterprises in China, the right to export products
except for goods listed in Annex 2A of the Accession Protocol. China explicitly committed to
eliminate certain eligibility criteria for obtaining the right to export. In its administration of the
quotas for rare earths and molybdenum, China breaches these commitments by impermissibly
requiring exporters to satisfy certain criteria – i.e. , (i) prior export experience and export
performance and (ii) minimum capital requirements – to be eligible to participate in the process
required to receive an allocation of the quotas (and in turn be able to export).
II. EXPORT DUTIES
14. China imposes "temporary" export duties on various forms of rare earths, tungsten and
molybdenum. These export duties are inconsistent with China's obligations under the Accession
Protocol, specifically those found in paragraph 11.3, because they are not listed in Annex 6 of
China's Accession Protocol or applied in conformity with GATT Article VIII.
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A. China's Obligations under the Accession Protocol
15. China committed in its Accession Protocol to "eliminate all taxes and charges applied to
exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the
provisions of Article VIII of the GATT 1994." Anne x 6 of the Accession Protocol, titled "Products
Subject to Export Duty," sets forth a list of 84 di screte products by individual harmonized system
(HS) numbers accompanied by a short description of each product.
16. The products listed in Annex 6 are the on ly ones for which China retains the right to
continue imposing export duties. Annex 6 also indicates an export duty rate expressed as an ad
valorem percentage for each. These listed export duty rates are the upper limit of rates which
China retained the right to impose on the export of these products. The note to Annex 6 states:
China confirmed that the tariff levels included in this Annex are maximum levels
which will not be exceeded. China confirmed furthermore that it would not increase
the presently applied rates, except under exceptional circumstances. If such
circumstances occurred, China would consult with affected members prior to
increasing applied tariffs with a view to finding a mutually acceptable solution.
17. With one exception, the various forms of the Raw Materials do not appear in Annex 6.
Accordingly, China must not impose export duti es on the Raw Materials. Nevertheless, China
restrains the exportation of various forms of rare earths, tungsten and molybdenum through the
imposition of export duties.
B. "Temporary" Export Duties
18. On December 9, 2011, the Tariff Commission issued the 2012 Tariff Implementation
Program, which took effect on January 1, 2012. Section E of the 2012 Tariff Implementation
Program outlines adjustments to export duties, prov iding that in 2012 the "regular" export duty
rates in effect for 2011 will remain unchanged, an d certain goods will be subject to "temporary"
duty rates as set out in detail in the Export Tax Rate Table.
19. On December 23, 2011, Customs issued the 2012 Tariff Implementation Program (Customs)
(Exhibit JE-47), which implemented the 2012 Tariff Implementation Program issued by the Tariff
Commission. For rare earths, tungsten and molybdenum, the export duties in the 2012 Tariff
Implementation Program (Customs) are the same as those set forth in the 2012 Tariff
Implementation Program.
20. With respect to the products at issue in this dispute, the Export Commodities Duty Rate List
sets out "temporary" duty rates, which can be found in Exhibit JE-6. Accordingly, China's
measures impose export duties on over 80 different forms of the Raw Materials (counted by tariff
number) subject to this dispute.
21. Annex 6 of China's Protocol does not include any of the products listed in Exhibit JE-6.
C. China's Export Duties on Raw Materials Are Inconsistent with China's
Obligations under Part I, Paragraph 11.3, of the Accession Protocol
22. Paragraph 11.3 of the Accession Protocol ob ligates China not to impose taxes and charges
on exports unless they are provided for in Annex 6 or applied in conformity with GATT Article VIII.
Because the "temporary" export duties on the Raw Materials do not fulfill either criteria, their
imposition breaches China's obligations under the Protocol.
1. Paragraph 11.3 of the Accession Protocol
23. The second sentence of paragraph 1.2 of th e Accession Protocol states, "[t]his Protocol,
which shall include the commitments referred to in paragraph 342 of the Working Party Report,
shall be an integral part of the WTO Agreement." As an integral part of the WTO Agreement, the
provisions of the Protocol are part of a covered agreement for purposes of DSU Article 1.1.
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24. Part I, Section 11, of the Accession Protocol contains China's commitments on taxes and
charges levied on imports and exports. In particular, Part I, paragraph 11.3, states:
China shall eliminate all taxes and charges applied to exports unless specifically
provided for in Annex 6 of this Protocol or applied in conformity with the provisions
of Article VIII of the GATT 1994.
25. Annex 6 of the Protocol lists 84 products sequentially by HS number and accompanied by a
description of the product and an export duty rate listed as an ad valorem percentage.
2. China's "Temporary" Export Duties Are Inconsistent with China's
Obligations under Paragraph 11.3 of the Accession Protocol
26. China imposes "temporary" export duties at ad valorem rates ranging from 5 to 25 percent
on various forms of rare earths, tungsten and molybdenum. These duties are charges applied to
exports that China itself terms as "export tariffs" in China's measures.
27. The export duties resulting from the applic ation of these duty rates are not applied "in
conformity with the provisions of GATT Article V III" because export duties do not fall within the
scope of that Article. Article VIII:1(a) applies to "[a]ll fees and charges of whatever character
(other than ... export duties ...) imposed by contracting parties on or in connection with ...
exportation ... ." None of the other provisions of Article VIII applies to export duties either.
28. None of the products on which these export duties are imposed are listed in Annex 6.
Therefore, neither of the two exceptions in paragraph 11.3 of the Protocol applies to these duties.
29. In addition, as the panel and the Appellate Body each found in Raw Materials I, the
exceptions found in GATT Article XX are not available in the context of China's commitments in
paragraph 11.3 of the Accession Protocol. According to the Appellate Body:
In the light of China's explicit commitment contained in Paragraph 11.3 to
eliminate export duties and the lack of any textual reference to Article XX of the
GATT 1994 in that provision, we see no basis to find that Article XX of the GATT
1994 is applicable to export duties found to be inconsistent with Paragraph 11.3 ...
. [A] proper interpretation of Paragraph 11.3 of China's Accession Protocol does
not make available to China the exceptions under Article XX of the GATT 1994.
Consequently, we find that the Panel did not err, in paragraph 7.159 of the Panel
Reports, in finding that "there is no basis in China's Accession Protocol to allow the
application of Article XX of the GATT 1994 to China's obligations in Paragraph 11.3
of the Accession Protocol."
30. Accordingly, China's maintenance of the temp orary export duties applied to the exportation
of rare earths, tungsten and molybdenum is inconsistent with China's commitment under
paragraph 11.3 of the Protocol to eliminate all taxes and charges applied to exports. Indeed, the
panel in Raw Materials I found that the very same series of measures, consisting of, inter alia, the
Customs Law, Regulations on Import and Export Duties and the Tariff Implementation Program in
force at that time, resulted in the imposition of export duties inconsistent with paragraph 11.3 of
the Protocol.
III. EXPORT QUOTES
31. China imposes export quotas on various forms of rare earths, tungsten and molybdenum.
These export quotas are inconsistent with China's obligations under GATT Article XI:1, which
explicitly prohibits restrictions made effective through a quota on the exportation of any product.
Likewise, these export quotas are also inconsistent with China's obligations in paragraphs 162 and
165 of the Working Party Report, as incorporated by paragraph 1.2 of the Protocol.
A. Overview of Export Quotas
32. China restricts the exportation of various forms of rare earths, tungsten and molybdenum by
subjecting the exportation of these materials to export quotas.
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33. China's Foreign Trade Law subjects goods whose exportation is subject to export quotas to
an export quota administration. Under the Foreign Trade Law, MOFCOM is the government agency
responsible for the centralized administration of all quotas. Specifically, MOFCOM is responsible
for setting the total amount of export quotas for the following year no later than October 31 of
each year, distributing export quotas, evaluating applications for export quotas, and determining
whether to grant quotas.
34. MOFCOM must approve the exportation of the g oods listed in the catalog as subject to quota
before they can be exported. Entities that are approved to export under the quotas are issued a
certificate of quota after meeting certain standards, which are discussed below.
B. Goods Subject to Export Quotas
35. MOFCOM, in collaboration with other relevant departments of the State Council, is required
to publish the catalog of goods subject to restricted exportation, including export quotas, within 21
days of the catalog taking effect. The catalog effective for the year 2012, the 2012 Export
Licensing Management Commodities List , includes the Raw Materials listed in Exhibit JE-7 as
subject to export quotas.

C. China's Export Quotas on Rare Earths, Tungsten and Molybdenum Are
Inconsistent with China's Obligations under Article XI:1 of the GATT 1994
36. Article XI:1 of the GATT 1994 is titled "General Elimination of Quantitative Restrictions" and
states, in relevant part:

No prohibitions or restrictions other than duties, taxes or other charges, whether
made effective through quotas, import or export licences or other measures, shall
be instituted or maintained by any contracting party ... on the exportation or sale
for export of any product destined for the territory of any other contracting party.

37. The obligation in GATT Article XI:1 applies to a spectrum of different types of measures. In
particular, one of the types of measures that Article XI:1 explicitly prohibits Members from
instituting or maintaining is a restriction made effective through a quota.

38. China subjects the exportation of various forms of rare earths, tungsten and molybdenum to
quotas. These quotas prohibit exportation of these materials above certain quantities and,
accordingly, restrict the exportation of these materials.
39. China maintains numerous general measures that establish an export quota regime. First,
Article 19 of the Foreign Trade Law provides in relevant part that the "state applies quota and
licensing system to the management of goods subj ect to ... export restrictions ... ." Second,
Article 36 of the Import and Export Regulations provides that "[g]oods restricted from exportation
that are subject to quantitative restrictions by the state are subject to the administration of
quotas." Third, the Export Quota Measures provide that MOFCOM "conducts an export quota
administration of some commodities restricted from export by the State."
40. As the government agency responsible for administering the export quotas, MOFCOM, in
collaboration with Customs, identifies the goods subject to export quotas on a list published
annually. For the export quotas taking e ffect on January 1, 2012, MOFCOM and Customs
published the 2012 Export Licensing List Notice , which identifies rare earths, tungsten and
molybdenum as products subject to export quotas.
41. The export quotas China applies to certain forms of rare earths, tungsten and molybdenum
are measures that make effective a restriction on the exportation of these products. They do so
by limiting the quantity of each product that ma y be exported. These export quotas are therefore
in breach of China's obligations under Article XI:1 of the GATT 1994.
42. The China – Raw Materials I panel found that China imposed export quotas on a number of
raw materials through a series of measures, including the Foreign Trade Law and Import and
Export Regulations and that this series of measures resulted in WTO-inconsistent export quotas.
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IV. QUOTA ADMINISTRATION
43. China imposes prior export experience and export performance and minimum capital
requirements as criteria for applicants to be eligible to receive an allocation of the quotas on rare
earths and molybdenum. These requirements are inconsistent with China's obligations contained
in Part I, paragraph 5.1 of the Protocol and para graphs 83 and 84 of the Working Party Report, as
incorporated via paragraph 1.2 of China's Protoc ol, whereby China agreed not to condition the
right to trade on prior export experience and export performance or minimum capital
requirements.
A. Rare Earths
44. China requires enterprises to apply to receive an allocation of the rare earths export quota
for a given year in November of the previous year. As part of that application process, China
requires enterprises to satisfy certain criteria in order to be eligible to receive an allocation under
the quota. Applicant enterprises that do not sa tisfy the requisite criteria are not permitted to
export rare earths. In addition, MOFCOM administers different application processes and criteria
for manufacturing enterprises and trading enterprises.
1. Manufacturing Enterprises
45. MOFCOM issued procedures governing the rare earth quota application process in 2012 for
manufacturing enterprises. That measure – the 2012 Rare Earth Export Quota Application
Procedures – provides the requirements that manufacturing enterprises must satisfy in order to be
eligible to receive an allocation under the quota. With respect to manufacturing enterprises, the
applicants are required to, inter alia:
(iii) meet prior export experience and export performance from 2008-2010 (for enterprises
whose export quotas were acquired after 2008, the export performance is based on all
years from the year in which the quota was acquired up to 2010).
2. Trading Enterprises
46. With respect to Chinese trading companies, Ch ina requires that such enterprises also satisfy
the requirements set out above in respect of manufacturing enterprises. However, China imposes
a number of additional criteria on trading enterprises. Specifically, trading enterprise applicants
are required to have a minimum registered capital of RMB 50 million.
47. In addition, the MOFCOM measure promulgating the first batch of the rare earths export
quota further demonstrates that MOFCOM uses prior export experience and export performance as
an eligibility requirement and a criterion for calculating the amount of quota rights for applying
enterprises.
48. Specifically, Annex 1 to the 2012 First Batch Rare Earth Export Quota provides that the rare
earth quotas for both manufacturing and trading enterprises are to be allocated based on the
following formula:
Assigned quota = Total quota * (A1 + A2), where
A1 = (Enterprise's export quantity in past three years / total national
export quantity in past three years) * 0.5
A2 = (Enterprise's export value in past three years / total national export
value in past three years) * 0.5
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B. Molybdenum
49. For the export quotas on moly bdenum, MOFCOM is directed by the Export Quota Measures
to determine the total amount of the quota for each year and, in doing so, is directed to take into
account certain factors. These factors are: (i) the needs of guaranteeing the safety of the national
economy; (ii) the needs of protecting limited domestic resources; (iii) development planning,
objectives and policies of the State on the relevant industries; and (iv) demands on the
international and domestic markets, and the production and sales status.
50. In addition, MOFCOM is directed to administer an application process for the export quota on
molybdenum. As part of that process, only enterprises that have the "license or qualification for
import and export activity in accordance with laws and no record of violations of laws or
regulations in economic activities in the last three years" may apply for a quota.
51. Enterprises under local administration are required to submit their applications for export
quotas to the relevant local authorities, which review such applications and report to MOFCOM on
the applications received. Enterprises under central administration submit their applications for
export quota directly to MOFCOM. MOFCOM acce pts both the applications filed by enterprises
under central administration and the applications that have been preliminarily reviewed and
submitted by the local administrative authorities.
52. MOFCOM then distributes the quotas to enterprises under central administration and
distributes quotas to local administrative authorities, which further distribute those quotas to the
enterprises within their respective areas.
53. To guide the quota allocation process, MOFCOM and the local administrative authorities are
directed to take into consideration: (i) the expo rt performance of the particular good; (ii) the
utilization rate of the export quota; (iii) the "o peration capacity" of the applicant; and (iv) the
"production scale and resources status, etc., of the applicant enterprises or regions" during the
previous three years.
54. MOFCOM published the 2012 molybdenum quota amount on October 31, 2011 and made the
first batch allocation on December 26, 2011. MOFCOM made the second batch allocation on
July 19, 2012.
55. China requires enterprises to apply to receiv e an allocation of molybdenum under the export
quota for a given year in November of the previous year. As part of that process, China requires
enterprises to satisfy certain criteria in order to be eligible to receive an allocation of the quota.
Applicant enterprises who do not satisfy the re quisite criteria are not permitted to export
molybdenum. In addition, MOFCOM administers different application processes and criteria for
manufacturing enterprises and trading enterprises.
1. Manufacturing Enterprises
56. MOFCOM issued the 2012 Molybdenum Quota Application Procedures that govern the
molybdenum quota application process in 2012 for manufacturing enterprises. That measure
provides the specific requirements that manufacturing enterprises must satisfy in order to be
eligible to receive a quota allocation. With respect to manufacturing enterprises, the applicants
are required to, inter alia:
(ii) have actual export performance from 2008 to 2010 if the enterprise had
previously acquired export quota or, if a new applicant, successfully met the
production requirements from 2008-2010, which were:
(a) a combined production of 6,000 MTs of ferromolybdenum and
molybdenum oxide; and
(b) production capacity of molybdenum powder and molybdenum metal of
600 MTs; and
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(c) production of molybdate of mo re than 1,600 MTs; although these
requirements can be lowered if the applicant produces certain high-tech
products.
2. Trading Enterprises
57. With respect to trading companies, China requires such enterprises to satisfy the
requirements set out above for production enterprises as well as additional criteria. In particular,
trading enterprises are required to have a minimum registered capital of RMB 30 million.
58. The MOFCOM measures promulgating the molybdenum quota further demonstrate that
MOFCOM uses prior export experience and export performance both as an eligibility requirement
and a criterion for calculating the amount of quota rights for applying enterprises.
59. Specifically, Annex 2 to the 2012 First Batch Tungsten and Molybdenum Export Quota
provides that the molybdenum quota for both ma nufacturing and trading enterprises are to be
allocated based on the following formula:
Assigned quota for a manufacturing enterprise = total quota * (((A1 + A2) * 0.5)
+ (A3 * 0.5)), where
A1 = Enterprise's export quantity from 2009 to October 2011 / total
national export quantity in same period * 0.3
A2 = Enterprise's export value from 2009 to October 2011 / total national
export value in same period * 0.7
A3 = Enterprise's production quantity from 2009 to October 2011 / total
national production in past three years
Assigned quota for a trading enterprise = total quota * (A1 + A2), where
A1 = Enterprise's export quantity from 2009 to October 2010 / total
national export quantity in same period * 0.3
A2 = Enterprise's export value from 2009 to October 2010 / total national
export value in same period * 0.7
C. China's Administration and Allocation of Its Export Quotas on Rare Earths and
Molybdenum Are Inconsistent with Chin a's Obligations under the Accession
Protocol and the Working Party Report
60. As part of its WTO accession, China committed to provide all enterprises in China and all
foreign enterprises and foreign individuals the right to trade in all goods except those listed in
Annex 2A or Annex 2B of China's Accession Protocol . As only tungsten is listed in either Annex
(i.e., Annex 2A), these commitments extend to rare earths and molybdenum.
61. China's trading rights commitments are expre ssed in Part I, paragraph 5.1 of the Protocol,
as well as in Part I, paragraph 1.2 of the Protocol, to the extent that it incorporates the
commitments referred to in paragraphs 83 and 84 of the Working Party Report.
62. In addition to restricting the exportation of rare earths and molybdenum through export
quotas, China restricts the right of enterprises to export rare earths and molybdenum by requiring
enterprises to satisfy certain criteria – i.e., the prior export experience and export performance
and minimum registered capital requirements discussed above – to be eligible to receive a quota
allocation. The measures establishing China's current trading rights regime for the forms of rare
earths and molybdenum subject to export quotas are inconsistent with China's obligations
contained in Part I, paragraphs 5.1 and paragraphs 83 and 84 of the Working Party Report, as
incorporated by 1.2 of the Accession Protocol.
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1. China's Trading Rights Commitments
63. Part I, Section 5 of China's Accession Protocol contains commitments by China with respect
to the right to trade. Part I, paragraph 5.1 of the Protocol provides:
Without prejudice to China's right to regulate trade in a manner consistent with the
WTO Agreement, China shall progressively liberalize the availability and scope of
the right to trade, so that, within three years after accession, all enterprises in
China shall have the right to trade in all goods throughout the customs territory of
China, except for those goods listed in Annex 2A which continue to be subject to
state trading in accordance with this Protocol. Such right to trade shall be the
right to import and export goods ... For those goods listed in Annex 2B, China shall
phase out limitation on the grant of trading rights pursuant to the schedule in that
Annex. China shall complete all necessary legislative procedures to implement
these provisions during the transition period.
64. Paragraph 1.2 of Part I of the Protocol also states in pertinent part that "[t]his Protocol,
which shall include the commitments referred to in paragraph 342 of the Working Party Report,
shall be an integral part of the WTO Agreement."
65. Paragraph 83 of the Working Party Report, wh ich is referred to in paragraph 342, explains,
in relevant part:
(a) The representative of China confirmed that, upon accession, China would
eliminate for both Chinese and foreign-invested enterprises any export
performance, trade balancing, foreign exchange balancing and prior experience
requirements, such as in importing and exporting, as criteria for obtaining or
maintaining the right to import and export.
(b) With respect to wholly Chinese-invested enterprises, the representative of
China stated that although foreign-invested enterprises obtained limited trading
rights based on their approved scope of business, wholly Chinese-invested
enterprises were now required to apply for such rights and the relevant authorities
applied a threshold in approving such applications. In order to accelerate this
approval process and increase the availability of trading rights, the representative
of China confirmed that China would reduce the minimum registered capital
requirement (which applied only to wholly Chinese-invested enterprises) to obtain
trading rights to RMB 5,000,000 for year one, RMB 3,000,000 for year two, RMB
1,000,000 for year three and would eliminate the examination and approval
system at the end of the phase-in period for trading rights.
(d) The representative of China also confirmed that within three years after
accession, all enterprises in China would be granted the right to trade. Foreign-
invested enterprises would not be required to establish in a particular form or as a
separate entity to engage in importing and exporting nor would new business
licence encompassing distribution be required to engage in importing and
exporting.
66. Paragraph 84, which is referred to in paragraph 342 of the Working Party Report, states:
(a) The representative of China reconfirmed that China would eliminate its system
of examination and approval of trading ri ghts within three years after accession.
At that time, China would permit all enterprises in China and foreign enterprises
and individuals, including sole proprietorships of other WTO Members, to export
and import all goods (except for the share of products listed in Annex 2A to the
Draft Protocol reserved for importation and exportation by state trading
enterprises) throughout the customs territory of China. Such right, however, did
not permit importers to distribute goods within China. Providing distribution
services would be done in accordance with China's Schedule of Specific
Commitments under the GATS.
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(b) With respect to the grant of trading rights to foreign enterprises and
individuals, including sole proprietorships of other WTO members, the
representative of China confirmed that such rights would be granted in a non-
discriminatory and non-discretionary way. He further confirmed that any
requirements for obtaining trading rights would be for customs and fiscal purposes
only and would not constitute a barrier to trade. The representative of China
emphasized that foreign enterprises and individuals with trading rights had to
comply with all WTO-consistent requirements related to importing and exporting,
such as those concerning import licens ing, TBT and SPS, but confirmed that
requirements relating to minimum capital and prior experience would not apply.
67. In sum, China committed to providing all ente rprises in China the right to trade in rare
earths and molybdenum via paragraph 5.1 of the Pr otocol and paragraphs 83(d) and 84(a) of the
Working Party Report. Paragraph 5.1 states three relevant elements to this obligation. China
shall: (1) grant the "right to trade" to "all enterprises in China;" (2) grant the right to trade with
respect to "all goods" except for those listed in Annexes 2A and 2B; and (3) "complete all
necessary legislative procedures to implement" it s trading rights commitments "within three years
after accession."
68. With respect to the first element, the "right to trade" is defined in the second sentence of
paragraph 5.1 as the "right to import and export goods." Paragraph 5.1 further specifies that the
right to trade applies throughout the customs territory of China. Thus, the right to trade includes
the right to export goods from the entire customs territory of China.
69. Therefore, except as provided in the first clause of paragraph 5.1, China may not reserve
the right to trade to a sub-set of enterprises in China. Likewise, limitations on who may exercise
the right to trade, based on prior export experi ence and export performance or minimum capital
requirement, would be inconsistent with China's trading rights commitments.
70. The second element of the obligation provides that the right to trade applies to "all goods"
except those listed in Annexes 2A and 2B. Annex 2A consists of two parts – Annex 2A1 entitled
"Products Subject to State Trading (Import)" and Annex 2A2 entitled "Products Subject to State
Trading (Export)." As the U.S. claim of inconsistency regarding China's obligations contained in
paragraph 5.1 concerns the right to export, only Annex 2A2 is relevant here. Rare earths and
molybdenum are not covered by Annex 2A2.
71. Annex 2B identifies a list of six product headings (natural rubber, timber, plywood, wool,
acrylic and steel) that are divided into 245 produc ts according to their eight-digit HS number.
Trading rights for all of these products were to be "liberalized within three years" following China's
WTO accession – i.e. , by December 11, 2004. Annex 2B is not relevant to these proceedings
because none of the Raw Materials are covered by Annex 2B and this limitation is no longer
applicable to China's trading rights commitments, since it expired in 2004.
72. Thus, all enterprises in China should now have the right to export from China all goods,
except those listed in Annex 2A2 of the Accession Protocol. Annex 2A2 does not include rare
earths or molybdenum.
73. The third element established that within th ree years after accession China was required to
complete all necessary legislative procedures to implement its obligations with respect to the right
to trade. This three-year period expired on December 11, 2004
74. Paragraph 83(d) of the Working Party Report confirms the obligation contained in paragraph
5.1 of the Accession Protocol – i.e. , that China committed to provide trading rights to all
enterprises in China by December 11, 2004.
75. Paragraph 84(a) of the Working Party Report likewise confirms China's obligations with
respect to trading rights, as set forth in paragraph 5.1 of the Protocol. Paragraph 84(a) provides
that China's trading rights obligations apply to all enterprises in China, as of December 11, 2004,
with regard to all products outside Annex 2A. Paragraph 84(a) also confirms China's commitment
to eliminate its "examination and approval" system of trading rights within three years after
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accession at which time "China would permit all enterprises in China and foreign enterprises and
individuals ... to export and import all goods."
76. Paragraphs 83(a) and 83(b) prohibit China from imposing certain specific restrictions on the
right to trade. Specifically, paragraph 83(a) makes clear China's commitment not to impose on
Chinese and foreign-invested enterprises any prior export experience and export performance
requirements in exporting as criteria for obtaining or maintaining the right to export.
2. China's Measures Allocating th e Rare Earth and Molybdenum Export
Quotas Are Inconsistent with China's Trading Rights Commitments
77. As part of its administration of the rare earth and molybdenum export quotas, China
restricts enterprises' right to export by requiring en terprises to satisfy certain criteria to be eligible
to export under the quota.
78. The Import and Export Regulations p r o v i d e s t h a t M O F C O M i s r e s p o n s i b l e f o r t h e
administration of export quotas, that enterprises seeking to export under the quota must apply to
do so, and that the relevant administrative authorities must decide whether to grant those
applications. The 2012 Rare Earth Export Quota Application Procedures and 2012 Molybdenum
Export Quota Application Procedures , issued by MOFCOM, govern the application process for the
allocation of the rare earths and molybdenum export quotas. These measures prescribe several
criteria that applicants must satisfy in order to be eligible to export under the quotas. One of
those criteria is that the enterprise have exported the requisite amount of rare earths or
molybdenum in the previous three-year period, or have supplied for export the requisite amount of
rare earths or molybdenum in the previous three- year period. In addition, trading companies are
also required to have a registered capital of at least RMB 50 million to export rare earths and RMB
30 million to export molybdenum.
79. In addition, the allocation equations found in the 2012 First Batch Rare Earth Export Quota
and the 2012 First Batch Tungsten and Molybdenum Export Quota rely on the prior export
experience and export performance of the applicant in allocating the quota.
80. China's restrictions on the right to trade rare earths maintained through the 2012 Rare Earth
Export Quota Application Procedures and the 2012 First Batch Rare Earth Export Quota and China's
restrictions on the right to trade molybdenum maintained through the 2012 Molybdenum Export
Quota Application Procedures and the 2012 First Batch Tungsten and Molybdenum Export Quota
are inconsistent with China's trading rights commitments. Only by having the requisite prior
export experience and export performance and minimum registered capi tal can an enterprise
export rare earths and molybdenum under the quot a. The relevant commitments in the Working
Party Report incorporated via paragraph 1.2 of Ch ina's Accession Protocol explicitly call for the
elimination of prior export experience and expo rt performance and minimum capital requirements
in respect of the grant of trading rights.
81. In fact, the China – Raw Materials I panel found that China's prior export experience and
export performance and minimum registered capita l requirements were inconsistent with China's
trading rights commitments.
82. Accordingly, China's measures limiting the right to export rare earths and molybdenum are
inconsistent with China's trading rights commitments in Part I, paragraph 5.1 of the Accession
Protocol as well as Part I, paragraph 1.2 of the Accession Protocol to the extent it incorporates
paragraphs 83 and 84 of the Working Party Report.
V. Conclusion
83. For the reasons set forth, the United States respectfully requests the Panel to find that
China's measures, as discussed above, are inconsistent with China's obligations under the
GATT 1994 and the Accession Protocol. The United States further requests, pursuant to DSU
Article 19.1, that the Panel recommend that China bring its measures into conformity with the
GATT 1994 and the Accession Protocol.
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Second Part of the Integrated Executive Summary of the United States
I. Introduction
1. Despite commitments made by China when it acceded to the WTO, China maintains a
number of restraints on the exportation of import ant raw materials – various forms of rare earths,
tungsten and molybdenum (together the "Raw Mate rials"). China's policies of imposing export
restraints on these Raw Materials are driven by an d help to fuel the dramatic expansion of China's
downstream industries, to the detriment of the industries and workers of other Members. The
export restraints at issue in this dispute are inconsistent with WTO rules.
2. China fails to rebut the complainants' claims that these export restraints are inconsistent
with China's commitments in its Accession Protocol, which incorporates commitments made by
China in its Working Party Report and its obligations under the GATT 1994. In fact, China
concedes the inconsistency of the export restraints with the relevant obligations. While China
invokes certain exceptions of the GATT 1994 to justify its measures, China's reliance on these
exceptions is unavailing.
3. In particular, China invokes Article XX(b) of the GATT 1994 in an attempt to portray its use
of export duties as necessary for the protection of health. But, a review of the law and the facts
confirms that the Article XX exceptions are not app licable to these export duties and, even if they
were, China's defense does not withstand scrutiny. Similarly, China's invocation of the exception
related to conservation in Article XX(g) of the GATT 1994 to justify export quotas also fails
because, chief among all the flaws, the export quotas do not relate to the goal of conservation.
4. Lastly, China administers its export quotas in a WTO-inconsistent manner through the use of
prior export performance and minimum capital requir ements. China has also failed to rebut these
claims.
II. China's Export Duties Are Inconsis tent with China's obligations under
Paragraph 11.3 of the Accession Protocol
5. China imposes export duties on over 80 forms of rare earths, tungsten and molybdenum.
Those export duties range from 5 to 25 percent.
6. Paragraph 11.3 of China's Accession Protocol provides, in relevant part, that China "shall
eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 ... ."
Annex 6 of the Accession Protocol sets forth a li st of 84 products by Harmonized System ("HS")
code for which China reserved the right not to eliminate export duties. The Annex 6 list also
indicates, for each product, the maximum export duty rate that China may impose.
7. The rare earths, tungsten and molybdenum products at issue in this dispute on which China
imposes export duties are not included in the Annex 6 list of reserved products. The export duties
China imposes on rare earths, tungsten and molybdenum are therefore inconsistent with China's
obligations under Paragraph 11.3 of the Accession Protocol.
8. China does not contest that these export duties are inconsistent with Paragraph 11.3 of the
Accession Protocol. Instead China focuses its efforts on arguing that the exceptions under
Article XX of the GATT 1994 are applicable to its Paragraph 11.3 commitment in this dispute, even
though both the panel and the Appellate Body found in China – Raw Materials , a previous, very
similar dispute, that Article XX is not applicable. Albeit belatedly, China also attempts to justify its
export duties under the exception provided for in Article XX(b) of the GATT 1994.
9. However, as discussed in previous U.S. submi ssions in this dispute, and as the panel and the
Appellate Body concluded in the China – Raw Materials dispute, the GATT 1994 Article XX
exceptions are not available as justifications fo r breaches of the commitment in Paragraph 11.3 of
the Accession Protocol. But even aside from the fact that GATT 1994 Article XX exceptions are not
applicable to Paragraph 11.3, Ch ina would fail to meet the requirements of Article XX(b) with
respect to the export duties on rare earths, tungsten and molybdenum.
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10. First, the export duties at issue are not designed to protect human, animal or plant life or
health. Second, China does not even argue that th e export duties are currently making a material
contribution to China's stated objective to protect human, animal, or plant life or health. And
contrary to China's arguments, the duties are not apt to do so in the future. Third, there are a
number of reasonably available alternatives that would more directly address China's stated
objectives, and not raise the same issues of WTO inconsistency as China's export duties. Finally,
China fails to show that the export duties at issue satisfy the conditions of the Article XX chapeau.
11. China's Article XX(b) defense relies on the assertion that China's export duties are part of a
comprehensive policy to protect the environmen t. None of the cited elements of China's
comprehensive environmental policy shows a link between export duties and a pollution reduction
objective. In attempting to defend certain export duties and quotas in the China – Raw Materials
dispute, China also claimed that it had a comprehensive environmental framework with respect to
the products at issue in that dispute, and offered a number of measures that purported to relate to
pollution resulting from the production of the products. However, the panel found that it "still
need[ed] persuasive evidence of a connection between environmental protection standards and
export restrictions."
12. China fails to establish any such connection with respect to the export duties on rare earths,
tungsten and molybdenum. None of the various documents cited by China as elements of a
comprehensive environmental policy with respect to rare earths, tungsten and molybdenum sheds
light on how export duties on those products serv e the ends of such a policy, let alone how they
are necessary to protect human, animal, or plant life or health.
13. China also fails to demonstrate that its export duties on rare earths, tungsten and
molybdenum are apt to make a material contributi on to the supposed goal of reducing pollution
caused by the mining and production of those products. In order to show that a measure is apt to
make a material contribution, in circumstances where it is "difficult to isolate the contribution to
public health or environmental objectives of one specific measure from those attributable to the
other measures that are part of the same comprehensive policy" and "the results obtained from
certain actions ... may manifest themselves only after a certain period of time . . .", the
responding Member must provide evidence of th e relationship between the policy tool and the
objective.
14. However, in arguing that export duties on rare earths, tungsten and molybdenum are apt to
make a material contribution toward an environmental or health objective, China offers no
evidence. Instead, it only makes conclusory statements. China simply asserts that export duties
increase prices "in a synergetic relationship with" other measures. But China does not explain this
supposed "synergetic relationship." In addition , while China appears to recognize that export
duties only increase prices for exports, China does not attempt to show why or how increasing
prices only for exports is apt to make any contribution, much less a material one, to China's
supposed goal of reducing pollution that is caus ed not by exportation, but by the mining and
production of rare earths, tungsten and molybdenum.
15. Similarly, in asserting that export duties are apt to make a material contribution to an
environmental objective, China provides no analys is of the impact that export duties have on
domestic prices and consumption. China states that its export duties are imposed "in order to
reduce consumption by these foreign consumers and thus to reduce production of the rare earth,
tungsten and molybdenum resources." However, China ignores the fact that export duties
decrease prices of the raw materials for domestic consumers, thereby increasing domestic
consumption and encouraging the production and sale of the materials in the form of downstream
products.
16. China cannot present any environmental justification for discriminating against industrial
consumers outside of China in favor of industrial consumers within China. However, this
discrimination does serve an economic goal: to ensure that domestic consumers have access to
the raw materials at issue at lower prices than their foreign counterparts, and in turn to encourage
the expansion of China's downstream industries that produce more sophisticated, higher value-
added products. If China were interested in reducing the health effects associated with mining and
production of rare earths, tungsten or molybdenum, China could impose volume restrictions on
mining and production or establish effective pollution controls on how mining or production takes
place. Instead, China's production continues to expand.
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17. China contends that it maintains "a comprehensive policy to protect the environment in
connection with the production of rare earths, tungsten and molybdenum," including various
environmental regulations related to production, such as pollution controls on production, a
resource tax, and a mining deposit. This demons trates that China considers such measures – that
is, measures that impose direct restrictions on mining or production, the causes of pollution –
feasible.
18. Unlike any of those measures, which apply equally to both domestically-consumed and
exported products, export duties on rare earths, tungsten and molybdenum are targeted
specifically at foreign consumers of those products. While China claims that its export duties
operate "in a synergetic relationship" and "function together" with environmental regulations, the
mere inclusion of export duties in a list with such regulations is not sufficient to establish the
complementarity or interaction between the export duties and the environmental regulations that
China identifies.
19. Lastly, China has made almost no attempt to meet its burden to demonstrate that its export
duties on rare earths, tungsten and molybdenu m satisfy the requirements of the chapeau of
Article XX. This is not surprising, given that those export duties plainly fail to meet those
requirements.
20. For the foregoing reasons, the breaches of Paragraph 11.3 of the Accession Protocol by
China's export duties on rare earths, tungsten and molybdenum are not justified under
Article XX(b).
III. China's Export Quotas Are Inconsistent with China's Obligations Under
Article XI:1 of the GATT 1994, Paragrap h 1.2 of the accession protocol, and
Paragraphs 162 and 165 of the Working Party Report and Not Justified Under
Article XX(g)
21. As the United States set forth in its first written submission, China subjects the exportation
of various forms of rare earths, tungsten and molybdenum to quotas. These export quotas are
inconsistent with Article XI:1 of the GATT 1994.
22. China attempts to justify the export quotas it imposes on rare earths, tungsten and
molybdenum under the exception provided for conservation measures in Article XX(g) of the GATT
1994. However, for the reasons discussed below, China has failed to establish that its export
quotas meet the requirements of that exception.
23. Sub-paragraph (g) of Article XX provides an exception from the requirements of the
GATT 1994 for measures:
relating to the conservation of exhaustible natural resources if such measures are
made effective in conjunction with restrictions on domestic production or
consumption.
24. In order to justify under Article XX(g) of the GATT 1994 the breaches of Article XI:1 by the
export quotas on rare earths, tungsten and molybdenum, China must demonstrate that these
export quotas: (1) relate to the conservation of exhaustible natural resources; and (2) are made
effective in conjunction with restrictions on domestic production or consumption.
25. Regarding the first criteria, China is incorrect to argue that the term "conservation" means
that a Member may take measures to create an export safeguard to protect domestic Chinese
consumers from surges in foreign demand. According to China:
if the only tool that [China] had at [its] disposal in 2012 were production and
extraction quotas for rare earths – not export quotas – then China ran the risk that
unexpected surges in foreign demand could have negatively impacted China's
users ... . In effect, the export quotas function as a "safeguard" mechanism to
guard against unanticipated surging exports.
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26. China's argument fails, however, because an export safeguard is not encompassed within
the definition of conservation. An export safeguard does not keep rare earths from harm, loss, or
waste through protective oversight, but rather only protects Chinese downstream consumers from
the impact of market forces. Simply put, this has nothing to do with conservation.
27. The Appellate Body has interpreted the second clause of Article XX(g) to be a "requirement
of even-handedness in the imposition of restrictions, in the name of conservation, upon the
production or consumption of exhaustible na tural resources." The Appellate Body in U.S. –
Gasoline noted that, while there is "no textual basis for requiring identical treatment of domestic
and imported products ... if no restrictions on domestically-produced like products are imposed at
all, and all limitations are placed upon imported products alone, the measure cannot be accepted
as primarily or even substantially designed for implementing conservationist goals."
A. China's Export Quotas on Rare Earths Are Not Justified by Article XX(g) of
the GATT 1994
28. In examining whether China's export quotas on rare earths relate to the conservation of an
exhaustible natural resource, the operative question is whether there is a close and genuine
relationship of ends and means between the go al of rare earth conservation and the means
presented by the application of the export quotas to exports of various rare earth products. As
shown below, the answer to this question is no.
29. The measures imposing and administering the export quotas on rare earths do not speak to
the relationship between the export quotas and th e goal of conservation. This is an important
omission, as it shows that the design and archit ecture of the export quotas are not oriented
towards the goal of conservation. Indeed, the panel in China – Raw Materials found that it is
relevant in determining whether an export restriction relates to conservation how the measure
characterizes the relationship between the restri ction and the goal of conservation. In other
words, beyond just a mention of conservation, how does the measure explain its material
contribution to that goal. For rare earths, China has not cited a single explanation in the measures
that articulates this relationship.
30. China raises two hypothetical ways in which the export quotas may serve a conservation
purpose – by serving as an enforcement tool for China's production targets and by signaling users
of rare earths to secure alternative supplies of rare earths from non-Chinese sources. These two
contentions are hypothetical in that neither are reflected in Chinese government measures setting
forth the rare earth export quotas or, for that matter, any known Chinese government documents.
Beyond their lack of support in China's own measures, both of these arguments are without merit.
31. Regarding export quotas as an enforcement tool, China has failed to show how the export
quotas – i.e., the numerical limits on rare earth exports – further China's stated objective of
curtailing the export of illegally produced materi als. China contends that "various elements of
China's 2012 export quota system" that police against the export of rare earth products produced
above domestic targets – i.e., sourcing and documentation requirements – are "tied to and
dependent on the existence of the export quotas." However, China has failed to explain why it
cannot have the sourcing and documentation requirements, which have not been challenged by
the complainants, without the export quota.
32. The use of an export quota as an enforcement mechanism for China's production restrictions
also fails due to its over-breadth. In particular , the export quotas apply not just to illegally
extracted rare earths but also equally to legally extracted rare earths, which were produced in a
manner consistent with China's alleged domestic production targets. The over-breadth of the
export quotas, specifically the impact on legally extracted rare earths, underscores the lack of any
real or credible relationship between these quotas and the objective of conservation.
33. As to China's signaling argument, China contends that the export quotas relate to the
conservation of rare earths by signaling to non-Chinese consumers the need to develop and locate
other sources of supply or develop substitutes. This argument fails for a number of reasons.
34. First, the export quotas are part of a regi me that purposefully creates two markets – an
internal and an external one – for these materials. The bifurcated markets result in a "two-tiered"
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pricing structure – i.e., lower prices in China, significantly higher prices abroad – and a
corresponding incentive for foreign users of rare earths to relocate their manufacturing operations,
technologies and jobs to China, so as to avoid be ing subject to the export quotas. This relocation
increased demand for Chinese rare earths. The resu lts of this policy were confirmed, for example,
by Chen Guiyuan, the deputy director of th e Hohhot customs bureau in the Inner Mongolian
Autonomous Region, who observes that "[t]o get past government regulations, some foreign
companies are investing in their own rare earth metal processing centers in China, aiming to
obtain more of the metals at a cheaper price."
35. Second, China does not explain how export quotas, as opposed to domestic production
restrictions that actually limit production, create an incentive for foreign rare earth producers to
increase production. China can readily send such a signal through domestic production restrictions
and need not relate to discriminatory, trade-distorting export quotas.
36. As shown above, China has not met its burden of establishing the relationship between the
export quota, as it applies to rare earths, and the goal of conservation of rare earths, i.e., keeping
rare earths from harm, loss or waste through protective oversight.
37. Instead, taking into account the absence of restraints on the exportation of downstream
products made from rare earths, the existence of policies that actively promote and encourage
certain downstream products, and the substantial growth in these industries reflected in
production statistics, the picture that emerges de monstrates a complete lack of any relationship
between the export quotas on rare earths and the goal of rare earth conservation. In fact, the
record shows a close and genuine relationship between the export quotas and China's trade
protectionist goals.
38. China has also failed to demonstrate that its export quotas for rare earths are "made
effective in conjunction with restrictions on domestic production or consumption." China asserts
that it has a "comprehensive conservation policy" consisting of a number of measures that impose
"restrictions on domestic production or consumption of rare earths in China." These measures do
not constitute restrictions on domestic production or consumption under Article XX(g) of the GATT
1994. Moreover, the export quotas on rare eart hs are not "made effective in conjunction with"
such domestic restrictions on rare earths and therefore are not imposed "even-handedly" as the
Appellate Body has interpreted is required by Article XX(g).
39. Specifically, China contends that it has established volume restrictions on rare earths in the
form of both extraction and production targets. However, China's argument lacks credibility
because, as Colombia also noted in its third party submission, actual rare earth extraction and
production have traditionally exceeded the targets, sometimes by more than 50 percent.
40. Beyond the gross amounts of overproduction , China's production targets do not meet the
requirements of Article XX(g) of the GATT 1994 be cause China's system fails to ensure that it
controls the production of individual rare earth elements. This fact, combined with China's
acknowledgment to the Panel that "[w]e cannot treat rare earths as a single commodity," shows
that China does not have production restraints for purposes of Article XX(g).
41. Even if one or some of the measures China has put forward could be considered as limiting
the amount of rare earths produced, China would still not have demonstrated that the export
quotas on rare earths were "made effective in conjunction with" such restrictions because the
impact on domestic and foreign users of rare earths would still not be "even-handed."
42. To the extent any measure China has proffered as evidence of restrictions on domestic
production or consumption is relevant at all to the production or consumption of rare earths, it
would be relevant only to the mining or "production" of rare earths. If such a measure were
considered to "restrict" rare earth production, a restriction on production would affect both
domestic and foreign users. As China observes in its own description of the domestic restrictions,
such restrictions impose costs on both domestic and foreign consumers. However, foreign users of
rare earths are also subjected to the export quotas on rare earths, while domestic users are not.
In order for its export quotas measures to be "even-handed,' China would need to counter-balance
the impact of the export quotas on foreign users with some measure that similarly affects
domestic users of rare earths, but it has not done so.
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43. Indeed, the panel in China – Raw Materials addressed the same scenario – i.e., where
foreign consumers would be affected by both Chin a's domestic production restrictions as well as
the export quotas' restrictions on their consumption while domestic consumers would be affected
only be domestic production restrictions – and found that even-handedness was non-existent.
B. China's Export Quota on Tungsten Is Not Justified by Article XX(g) of the
GATT 1994
44. As with rare earths, China contends that the export quota on tungsten relates to
conservation because the measures establishing and implementing the quota refer to the goal of
conservation, either directly or by citing to other measures that reference conservation. As
previously discussed, China's reliance on such passing references to the goal of conservation,
which fail to explain how the export quota makes a material contribution to that goal, is
insufficient to meet China's burden under GATT Article XX(g).
45. In its first written submission, China proffers a hypothetical way in which the export quota
on tungsten may serve a conservation purpose – by signaling foreign users of tungsten to secure
alternative supplies of tungsten from non-Chinese sources and, at the same time, creating a
dis-incentive to domestic Chinese producers to ex pand production to supply foreign consumers.
China's argument is hypothetical in that it is not reflected in Chinese government measures setting
forth the tungsten export quota.
46. Moreover, the export quotas are part of the same general industrial policy regime that, as
with rare earths, creates two markets – an intern al and an external one – for tungsten. The two
markets result in the two-tiered pricing structure – i.e., lower prices in China, higher prices in
other Members – and a corresponding incentive for foreign users of tungsten to relocate to China,
so as to avoid being subject to the export quota.
47. In addition, China does not explain how the export quota, as opposed to domestic
production restrictions that actually limit production, create an incentive for foreign tungsten
producers to increase production. China can readily send such a signal through domestic
production restrictions and need not relate to discriminatory, trade-distorting export quotas.
48. China has also failed to demonstrate that the export quota on tungsten is "made effective in
conjunction with restrictions on domestic production or consumption." China asserts that it has a
"comprehensive set of domestic restrictions" consisting of a number of measures that "restrict the
production or consumption of tungsten in China." However, these measures do not constitute
"restrictions on domestic production or consumption" under Article XX(g) of the GATT 1994. The
export quota on tungsten is also not "made effective in conjunction with" such restrictions on
tungsten and therefore is not imposed "even-hand edly" as the Appellate Body has interpreted is
required by Article XX(g).
49. China contends that it has established volume restrictions on tungsten in the form of both
extraction and production targets. And as was the case with rare earths, China's argument lacks
credibility because actual tungsten extraction and production has consistently exceeded the
extraction target, sometimes by almost 50 percent of the target.
50. Even if one or some of the measures China has put forward could be considered as limiting
the amount of tungsten produced, China would still not have demonstrated that the export quota
on tungsten was "made effective in conjunction with" such restrictions because the relative impact
on domestic and foreign users of tungsten would still not be "even-handed."
51. To the extent any measure China has proffered as evidence of restrictions on domestic
production or consumption is relevant at all to the production or consumption of tungsten, it would
be relevant only to the mining or "production" of tungsten. If such a measure were considered to
"restrict" tungsten production, the restrictions on production would affect both domestic and
foreign users of tungsten. As China observes in its own general description of its domestic
restriction regime, such restrictions would impose costs on both domestic and foreign consumers.
However, foreign users of tungsten are also subjected to the export quota on tungsten, while
domestic users are not. In order for its measure to be "even-handed," China would need to
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counter-balance the impact of the export quota on foreign users with some measure that similarly
affects domestic users of tungsten, but it has not done so.
52. Here, any plausible "restriction" on domestic production would equally affect both domestic
and foreign users. When juxtaposed with an export quota that restricts supply only to foreign
users, it becomes clear that there is no counter -balance to the export quotas and therefore no
even-handedness.
C. China's Export Quota on Molybdenum Is Not Justified by Article XX(g) of
the GATT 1994
53. China's only argument in the course of th is dispute that the export quota on molybdenum
relates to conservation is that the measures establishing and implementing the quota refer to the
goal of conservation, either directly or by citing to other measures that reference conservation.
China's reliance on such incantations is insufficient to meet its burden under Article XX(g) of the
GATT 1994.
54. China has imposed an export quota on various molybdenum raw materials and products
since 2007. In the time that China has impo sed an export quota on molybdenum, China's
measures implementing the export quota have only made passing reference to the goal of
conservation beginning in 2012.
55. Taking into account the absence of restraints on the exportation of downstream products
made from molybdenum, such as finished stainless steel, the existence of policies that actively
promote and encourage certain downstream produc ts, and the substantial growth reflected in
production statistics of such finished products, the picture that emerges demonstrates a complete
lack of any relationship between the export qu ota on molybdenum and the goal of molybdenum
conservation. Instead, the record shows a clos e and genuine relationship between the export
quota and China's trade protectionist goals.
56. China has also failed to demonstrate that the export quota on molybdenum is "made
effective in conjunction with restrictions on domestic production or consumption." China asserts
that it has a "comprehensive set of domestic restrictions" consisting of a number of measures that
restrict the production of molybdenum in China. However, these measures do not constitute
"restrictions on domestic production" under Articl e XX(g) of the GATT 1994. Moreover, the export
quota on molybdenum is not "made effective in conjunction with" such restrictions on molybdenum
and therefore is not imposed "even-handedly" as the Appellate Body has interpreted is required by
Article XX(g).
57. China asserts that it has established a volume restriction on molybdenum in the form of an
extraction target. However, similar to rare earths and tungsten, actual molybdenum extraction
has exceeded the extraction target for the two years in which China provided data.
58. Even if one or some of the measures China has put forward could be considered as limiting
the amount of molybdenum produced, China would still not have demonstrated that the export
quota on molybdenum was "made effective in conjunction with" such restrictions because the
relative impact on domestic and foreign users of molybdenum would still not be "even-handed."
59. To the extent any measure China has proffered as evidence of restrictions on domestic
production is relevant at all to the production of molybdenum it would be relevant only to the
m i n i n g o r " p r o d u c t i o n " o f m o l y b d e n u m . I f s u c h a m e a s u r e w e r e c o n s i d e r e d t o " r e s t r i c t "
molybdenum production, a restriction on production would affect both domestic and foreign users
of molybdenum. As China observes in its own description of the domestic restrictions, such
restrictions impose costs on both domestic and foreign consumers. However, foreign users of
molybdenum are also subjected to the export quotas on molybdenum, while domestic users are
not. In order for its measure to be "even-handed," China would need to counter-balance the
impact of the export quota on foreign users with some measure that similarly affects domestic
users of molybdenum, but it has not done so.
60. Here, any plausible "restriction" on domestic production would affect both domestic and
foreign users. When juxtaposed with an export quota that restricts supply only to foreign users, it
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becomes clear that there is no counter-balan ce to the export quotas and therefore no
even-handedness.
D. Even if China's Export Quotas We re Justified by GATT Article XX(g), the
Export Quotas Fail to Satisfy the Requirements of the Chapeau
61. An otherwise GATT-inconsistent measure for which a Member seeks an exception under
Article XX must satisfy both the requirements of subparagraph of Article XX that the Member
invokes and the separate requirements of the chapeau of Article XX. In other words, in addition to
meeting the paragraph-specific criteria of Article XX(g), the measure must also "not be applied in a
manner which would constitute arbitrary or unjustifiable discrimination between countries where
the same conditions prevail or a disguised restriction on international trade."
62. With respect to the export quotas that China maintains on rare earths, tungsten and
molybdenum that are inconsistent with Article XI:1 of the GATT 1994, China contends that the
breaches of Article XI:1 by the quotas are justified pursuant to GATT Article XX(g). However, even
in the highly unlikely event that China were able to demonstrate successfully that its export quotas
"relate to conservation" and were "made effective in conjunction with restrictions on domestic
production or consumption," China would still fail to satisfy the requirements of the Article XX
chapeau.
63. In China's first written submission and oral statement, China made no serious attempt to
satisfy its burden of establishing that the export quotas satisfy the chapeau. Instead, in its first
written submission, China cursorily argues that the export quotas are not applied in a manner that
constitutes arbitrary or unjustifiable discrimination because they "make no distinction in respect of
the destination of the products that are exported." However, as later acknowledged by China, this
reflects a misstatement of the applicable standard as articulated by the Appellate Body.
64. Specifically, the requirement that a measure not be "applied in a manner which would
constitute arbitrary or unjustifiable discrimination between countries where the same conditions
prevail" is a requirement that the measure no t discriminate between other Members or between
other Members and the Member maintaining the measure. The Appellate Body's statements in
U.S. – Gasoline confirm this interpretation. Moreover, in China's Answers to the Panel's Written
Questions Subsequent to the First Substantive Meeting with the Parties, China notes that "the
requirement not to apply an export quota system in a manner that would constitute 'arbitrary
discrimination' also covers arbitrary discrimination between domestic and foreign consumers."
65. Accordingly, China has articulated the incorrect legal standard under the chapeau. This
renders China's cursory statement that the export quotas at issue do not discriminate between
export destinations insufficient to satisfy its burden.
66. In its Answers to the Panel's Written Questions Subsequent to the First Substantive Meeting
with the Parties, China finally makes an argument that the export quotas on one group of products
(rare earths) do not constitute "arbitrary discrimin ation" under the chapeau. According to China,
the fact that the export quotas on rare earths were not filled in 2012 and the fact that Chinese
domestic prices for rare earths have recently increased show that the export quotas on rare earths
do not constitute discrimination under the chapeau. As shown below, China's argument is based
on a flawed understanding of the Article XX chapeau's requirements.
67. The fact that the export quotas on rare earths were not filled in 2012 does not support
China's assertion that the export quotas do not result in arbitrary or unjustifiable discrimination
between domestic and foreign users. First, some foreign companies were reducing inventories in
2012, and thus not filling the quota, following pani c-induced buying and uncertainty in the market
that began in the middle of 2010, following China' s decision to cut the rare earth export quota
nearly in half. Another factor that appears to ha ve affected rare earth sales to foreign companies
in 2012 in various ways is disincentives provided by the export duties on rare earths, which for
s o m e r a r e ea r t h p r o d uc ts we r e a n d c o n t in u e t o b e a s h ig h as 2 5 p e rc e n t a d va lo r e m . F in a ll y,
according to a report in the China Daily, smuggling was considered one of the "main cause[s]" for
the quota not being filled.
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68. Thus, the fact that the export quotas on rare earths were not filled is not a result of their
non-discriminatory application, but rather the fact that, in 2012, foreign consumers were reacting
to and dealing with the long-term distortive impact of the rare earth export quotas ( i.e., panic-
induced buying in 2010 following the cut in the ex port quota), WTO-inconsistent export duties
(which apply exclusively to foreign consumers) and the fact that rare earths are often smuggled
from China – a problem that is caused by the export quotas themselves. Consequently, the lack of
quota-fill in 2012 is not evidence of non-discrimin ation; rather, it is a significant example of the
discriminatory application of the rare earth export quotas.
69. Furthermore, China's contention that domestic prices for rare earths have been increasing
completely ignores the fact, key for the Panel's chapeau analysis, that the application of the rare
earth export quotas have resulted in discrimination between foreign and domestic users illustrated
by drastically higher prices paid by foreign consumers for the very same products. Moreover, this
discrimination, which serves no purpose in regards to the goal of conservation, is arbitrary and
unjustifiable. As such, the significantly higher prices paid by foreign consumers of rare earths is
further evidence of the discriminatory application of the rare earth export quotas to Members.
70. China also asserts that the export quotas do not constitute a disguised restriction on
international trade because they are "not applied in a manner that would constitute a concealed or
unannounced restriction." It should be noted up-front that, as the Appellate Body stated in U.S. –
Gasoline, "[i]t is ... clear that concealed or una nnounced restriction or discrimination in
international trade does not exhaust the meaning of 'disguised restriction.'" Thus, the mere
assertion that a measure does not constitute a "concealed or unannounced restriction" falls short
of the showing required under this element of the chapeau.
71. For rare earths and molybdenum, China argues that the export quotas are not disguised
restrictions on international trade because the export quotas were not filled and because the
allocation of the export quotas creates incentives for Chinese companies to supply foreign
consumers through prior export performance requirements. China further contends that the
export quotas on rare earths are not disguised restrictions on international trade because foreign
consumers can use the export quota for different rare earths, depending on demand. For
tungsten, China asserts that the export quota does not constitute a disguised restriction because,
oddly, China imports significant quantities of tungsten.
72. For rare earths, the United States has already addressed China's claims relating to quota fill.
For molybdenum, the United States notes that, like rare earths, molybdenum exports are subject
to duties between 5 and 20 percent. And re garding the use of prior export performance
requirements, such requirements are inconsistent with China's obligations under the Accession
Protocol. China should not be allowed to use such WTO-inconsistent allocation measures to
establish that its export quotas are, in fact, WTO-consistent.
73. As to China's argument that foreign consumers can use the export quotas for different rare
earth products, depending on demand, China argues that:
within each of the two categories of 2012 [rare earth export] quotas, the manner
in which the quota is filled is not pre-de termined. For example, if a number of
foreign consumers in 2012 needed one specific medium/heavy rare earth element
(e.g. Samarium) more than another medium/heavy rare earth element (e.g.
Terbium), the quota could be used mainly, or even solely, for the rare earth
element (Samarium) that is in the greatest demand.
China's argument acknowledges that consumers of rare earths ( e.g., terbium) may not be able to
get desired quantities of the specific rare earth product that they need in a given year if, for
example, other foreign consumers use the export quota to obtain a wholly different rare earth
(e.g., samarium). It is completely unclear how this fact supports China's claim that the export
quotas on rare earths are not disguised restrictions on international trade, especially in the view of
consumers of particular rare earths whose ability to source needed raw materials is dependent on
sourcing decisions for wholly different products. Rather, this element of China's regime, which
makes it impossible to predict how much of the export quota is available for exports of any given
rare earth product, serves as further evidence that the export quotas on rare earths are, in fact, a
disguised restriction on international trade.
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74. Regarding tungsten, China's argument that the tungsten export quota is not a disguised
restriction on international trade because China impo rted tungsten in 2012 is illogical on its face.
China's ability to import tungsten, consistent with its "two resources, two markets" philosophy, is
wholly irrelevant to the Panel's disguised restriction analysis. Rather, China's successful
importation of important raw materials such as tungsten shows that China has a policy of taking
advantage of the commitments by other Members not to engage in WTO-inconsistent conduct by
using export restrictions on raw materials for purposes of industrial policy.
75. While China has failed to meet its burden under the chapeau, evidence provided by the
complainants shows that China's export quotas are applied in a manner that is arbitrary,
unjustified and a disguised restriction on trade. In particular, the denomination of the export
quotas on rare earths is inconsistent with the chapeau. China denominates the export quotas on
rare earths in gross weight, while it designates the production targets in rare earth oxide
equivalents (REO) tons, which captures the amount of rare earths in a given product. According to
China, "rare earth elements are most frequently separated and sold in their oxide form.
Therefore, it is customary to present rare earth data in terms of rare earth oxide (REO)
equivalents."
76. Beyond just deviating from customary market practice, and China's practice before 2005,
China's use of gross weight distorts the application of the rare earth export quotas. Because the
export quota is in gross weight, a 100 MT ferroalloy that contains 10 MT of rare earths ( i.e.,
ferroalloy containing at least 10 percent rare earths under HS 7102.9991) would count just as
much against the quota as a 100 MT of lanthanum oxide of 99.99 percent purity that contains
99.99 MT of rare earths – both would count 100 MT against the quota.
77. For these foregoing reasons, China has failed to establish that the export quotas for which it
asserts a defense under Article XX satisfy the requirements of the chapeau.
IV. China's Prior Export Performance an d Minimum Capital Requirements on Rare
Earths and Molybdenum Are Inconsiste nt with China's Trading Rights
Commitments and Not Justified Under Article XX(g) of the GATT 1994
78. As the United States explained in its first written submission, in addition to subjecting
exports of rare earths and molybdenum to export duties and quotas, China further restricts the
ability of companies to export those products by requiring companies to satisfy certain criteria in
order to be able to export under the quota. In particular, China requires companies to satisfy
certain prior export performance and minimum capital requirements.
79. Paragraphs 83 and 84 of the Working Party Re port impose a clear requirement on China not
to impose prior export performance and minimum capital requirements. Similarly, Paragraph 5.1
requires China not to limit the right to trade rare earths and molybdenum to a subset of
enterprises based on such requirements. China's restriction on the right to trade rare earths and
molybdenum to those enterprises that meet prio r export performance and prior minimum capital
requirements is inconsistent with the obligations set forth in Paragraph 5.1 and in Paragraphs 83
and 84.
80. In response, China first asserts that it has amended the Foreign Trade Law to eliminate
requirements that a foreign trade operator meet certain conditions in order to import or export.
These cited amendments to the Foreign Trade Law are irrelevant to the issue before the Panel, in
light of the fact that China does not dispute that it imposes prior export performance and minimum
capital requirements on rare earths and molybdenum.
81. China also insists that it is entitled to impose prior export performance and minimum capital
requirements on rare earths and molybdenum beca use it imposes a quota on those products that,
in China's view, is justified under Article XX(g) of the GATT 1994. China maintains that those prior
export performance and minimum capital requirements are justified under Article XX(g) but that it
is not required to make any showing that those requirements meet the conditions of Article XX(g).
82. China's invocation of Article XX(g) with respect to the prior export performance and
minimum capital requirements that it imposes on rare earths and molybdenum should be rejected.
First, Article XX of the GATT 1994 is not available to justify the imposition of such requirements,
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which are plainly inconsistent with Paragraphs 83 and 84 of the Working Party Report. Second,
even if Article XX(g) were available as a defense, China would have to show that the prior export
performance and minimum capital requirements meet the conditions of Article XX(g). China has
not done so.
V. Conclusion
83. For these reasons, the United States respectfully requests the Panel to find that China's
measures, as set out above, are inconsistent with China's obligations under the GATT 1994 and
the Accession Protocol. The United States further requests, pursuant to Article 19.1 of the DSU,
that the Panel recommend that China bring its measures into conformity with the GATT 1994 and
the Accession Protocol.
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ANNEX B-2
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF THE EUROPEAN UNION
First Part of the Integrated Executive Summary of the European Union
1 E XPORT DUTIES
1.1 China's Export Duties are inconsistent with its obligations under its Accession
Protocol
1. First of all, the provisions of the Accessi on Protocol are an integral part of the WTO
Agreement, and thus, are enforceable in WTO dispute settlement proceedings pursuant to
Article 1.1. of the DSU.
2. The applicability of the DSU in the current dispute is made clear by the second sentence of
Para. 1.2. of China's WTO Accession Protocol.
3. This was also held by the panel in China-Auto Parts, and confirmed by the Appellate Body
in the same dispute. Moreover, in China-Raw Materials the panel held that:
The second sentence of Paragraph 1.2. of China's Accession Protocol
states that provisions of the Protocol are "an integral part of the
WTO Agreement." Thus, the provisions of the Accession Protocol are
enforceable in WTO dispute settlement proceedings pursuant to
Article 1.1 of the DSU. This is cons istent with the approach taken by
panels and the Appellate Body.
4. The European Union confirmed its position as to the applicability of DSU in its reply to
panel's Question 7. The European Union stated that, as reflected in the very wording of
paragraph 1.2 of the Accession Protocol, the Prot ocol shall be "an integral part of the WTO
Agreement."
5. China's Accession Protocol provides in paragraph 11.3 that:
China shall eliminate all taxes and charges applied to exports unless
specifically provided for in Annex 6 of this Protocol or applied in
conformity with the provisions of Article VIII of the GATT 1994.
6. Annex 6 of China's Accession Protocol, entitl ed "Products Subject to Export Duty" lists 84
different products, each identified by an 8-digit HS number, and by a product description.
Article VIII of the GATT 1994 applies to "all fees and charges of whatever character (other
than import and export duties and other taxes within the purview of Article III) imposed
by contracting parties on or in connection with…exportation […]"
7. The export duties imposed by China on the exportation of the rare earths, tungsten and
molybdenum cannot be justified by either of these exceptions. Firstly, the relevant raw
materials are not included in the list of products contained Annex 6 of China's Accession
Protocol. Secondly, these export duties are duties and not "fees and charges" within the
meaning of Article VIII of the GATT 1994. As a re sult, they do not fall within the scope of
Article of VIII of the GATT.
8. In China-Raw Materials , the Panel recalled that Article VIII allows WTO Members to
impose, at the border, a variety of fees or charges provided that they are limited in
amount to the approximate costs of services re ndered and that they are imposed on or in
connection with importation or exportation. The Panel found no general exception in the
language of Paragraph 11.3 that would authorize China to maintain export duties other
than in circumstances described in Anne x 6 or in Article VIII of the GATT 1994 .1 This part
of the panel's report was not appealed by China.
9. Accordingly, China's imposition and maintena nce of temporary export duties applied to the
exportation of rare earths, tungsten and molybdenum is inconsistent with China's

1 Emphasis added.
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commitment under paragraph 11.3 of its WTO Accession Protocol to eliminate all taxes and
charges applied to exports.
1.2 China's Export Duties cannot be just ified by Article XX(b) of the GATT 1994
1.2.1 Article XX is not applicable to justif y violations of paragraph 11.3 of China's
Accession Protocol
10. China appears to concede that it violat ed paragraph 11.3 of its Accession Protocol,
However, China invokes the defence provided by Article XX of the GATT 1994, in order to
justify this violation.
11. First of all, the EU claims that Paragraph 11. 3 of China's Accession Protocol is an integral
part of the WTO Agreement and not of the GATT Agreement. China's Accession Protocol
reflects rights and obligations that were "tailor-made" for China. That is precisely why they
are commonly referred to as "WTO-plus" obligations. China's Accession Protocol and
Working Party Report were carefully negotiated and crafted, the result of some 15 years of
negotiations. If the drafters of China's Acce ssion Protocol would have wanted the general
exceptions of Article XX of the GATT 1994 to apply to Paragraph 11.3, they would have
stated it specifically.
12. Moreover, the EU fully agrees with the co nclusions reached by both the panel and the
Appellate Body in China-Raw Materials . In China-Raw Materials the Appellate Body had
issued a clear and definitive ruling on the qu estion of applicability of Article XX GATT 1994
defences to justify violations of Paragraph 11.3 of China's Accession Protocol. More
specifically, the Appellate Body adjudicated that neither the objectives listed in the
Preamble of the WTO Agreement, nor the bala nce struck between them provides specific
guidance on the question of whether Article XX of the GATT 1994 is applicable to
Paragraph 11.3 of China's Accession Protocol. It further stated that in the light of China's
explicit commitment contained in Paragraph 11. 3 to eliminate export duties, and the lack
of any textual reference to Article XX of the GATT 1994 in that provision, it can see no
basis to find that Article XX of the GATT 1994 is applicable to export duties found to be
inconsistent with Paragraph 11.3. It is important to note that, as the Appellate Body stated
in US-Stainless Steel (Mexico) , absent cogent reasons, an adjudicatory body will resolve
the same legal question in the same way in a subsequent case.
2 This would ensure the
security and predictability enshrined in Article 3.2 of the DSU
13. The EU further clarified its position as to the applicability of Article XX to China's export
duty commitments in its reply to Question 15. There, the EU submitted that the phrase
"nothing in this Agreement" refers only to the GATT 1994, and not to any other
Agreement. The fact that some of the other multilateral trade agreements contain their
own, similar exceptions (e.g. the GATS and TRIMS Agreements), while others do not, or
else contain different exceptions (such as the SPS and TBT Agreements), indicates that
each obligation has to be analysed in the framework of the specific exceptions available to
it. Consequently, this supports the interpretation that the phrase "nothing in this
Agreement" in Article XX GATT refers only to the GATT 1994 and that Article XX does not
as such apply to other obligations outside the GATT 1994. This interpretation was also
adopted by the panel in the China-Raw Materials dispute.
14. The panel found that "a priori, the reference to this "Agreement" suggests that the
exceptions […] relate only to the GATT 1994, and not to other Agreements. On occasion,
WTO Members have incorporated by cross-reference the provisions of Article XX of the
GATT 1994 into other covered agreements. This was done, for example, with the TRIMS
Agreement, which explicitly incorporates the right to invoke the justifications of Article XX
of the GATT 1994. In the Panel's view, the legal basis for applying Article XX exceptions to
TRIMS obligations is the text of the incorporation of the TRIMS Agreement, and not the
text of the Article XX of the GATT 1994."
3
15. The Appellate Body in China-Raw Materials confirmed the panel's interpretation and went
on to state that:
In the present case, we attach significance to the fact that
Paragraph 11.3.of China's Accession Protocol expressly refers to

2 See Appellate Body report, US-Stainless Steel (Mexico), paras 157-162
3 Panel report, China-Raw Materials, para. 7.153. Emphasis added.
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Article VIII of the GATT 1994, but does not contain any reference to
other provisions of the GATT 1994, including Article XX.4
16. The EU further submitted in its reply to Question 48 that the second sentence of
Article XII:I GATT 1994 should be interpreted as a statement of fact, which certainly does
not provide any guidance on the manner in which panels dealing with future Accession
Protocols should examine all the diverse provisions in these Protocols and find an
"intrinsic" link with any of the WTO covered agreements. The "WTO-plus" commitments
contained in the various post-1994 Accession Protocols are self-standing and independent
commitments, which, by their very nature, impose specific obligations that add to the
obligations included in the WTO covered Agreements. Thus, the EU repeats its view that
paragraph 11.3 of China's Accession Protoc ol does not form part of the GATT 1994
Agreement.
17. Lastly, the issue of the applicability of the general exceptions of the GATT 1994 to
commitments contained in post-1994 Protocols of Accession was addressed in
Question 49, regarding Russia's position on the applicability of the GATT 1994. In its
response the EU pointed out that Russia's reference to its own accession negotiations is of
little, if any, relevance for the interpretation of China's Accession Protocol, and the EU is
not able to accede to Russia's description of the negotiating history. The question of
Russia's right to invoke general exceptions of the GATT 1994 to justify violations of
commitments contained in its Protocol of Accession was repeatedly discussed in the course
of Russia's accession to the WTO. Moreover, the EU explicitly made known to Russia its
view that and why these exceptions should not apply to all accession commitments. In any
case, Russia's Protocol postdates China's by more than a decade and it is obvious that
each accession protocol has to be judged on its own merits. This was clearly expressed by
both the Panel and the Appellate Body in China-Raw Materials, which have both repeatedly
pointed out that Article XX of the GATT could have been made applicable to
paragraph 11.3 of China's Accession Protocol, if the negotiating parties had chosen to
adopt a different approach in the Accession Protocol.
1.2.2 Even if arguendo Article XX were considered to be applicable, China fails to make
a prima facie case under Article XX(b)
18. To defend its export duties China invokes the general exception for measures necessary to
protect "human, animal or plant life or health" contained in Article XX(b) and claims that
the export duties at issue are part of a "comprehensive policy to protect the environment."
This policy, according to China, includes a number of measures besides export duties.
19. The EU does not contest that the mining and processing of the materials at issue can
cause environmental damage and does not challenge Chinese measures on stricter
environmental protection. However, export duties do not provide a solution to
environmental problems related to mining.
20. In order to be justified under Article XX (b), a measure must be necessary to protect
human, animal, or plant life or health. Placing "necessary" in a continuum of "degrees of
necessity", the Appellate Body, in Korea-Beef
5, interpreted the term as being significantly
closer to the pole "indispensable", than to th e opposite pole "making a contribution to". In
a later dispute, Brazil-Tyres6, the Appellate Body explained that a measure does not have
to be "indispensable" in order to be "necessary". However, its contribution to the
achievement of the objective must be material, not merely marginal or insignificant.
21. In defending its export duties under Article XX(b) of the GATT, China engages in selective
quoting from the report in Brazil-Tyres. However, it does not demonstrate "quantitative
projections in the future, or qualitative reasoning based on a set of hypotheses that are
tested and supported by sufficient evidence , as required by the Appellate Body. 7 Thus, it
fails to meet its burden of proof in order to support its defence.
22. China alleges that its export duties "materially contribute" to the objective of health
protection, because "by increasing the price of the domestic and foreign-bound products,

4 Appellate Body Report, China-Raw Materials, para. 306
5 Appellate Body Report, Korea-Beef, para. 161
6 Appellate Body Report, Brazil-Tyres, para. 210
7 Appellate Body Report, Brazil-Tyres, para. 151. Emphasis added.
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demand for those products will decrease, and therefore production […] will be reduced,
resulting in less pollution connected with both mining and production."8
23. This assertion is intrinsically erroneous and misleading. While the costs incurred by
measures applicable to the production and consumption of the products at issue , export
duties additionally increase the price only for the non-Chinese consumers. The EU
observes that any decrease in foreign demand results in the diversion of those products to
the domestic Chinese market. This leads to a downward pressure in the price of these
materials in the Chinese domestic market, and accordingly to potential incentives for their
more intensive use in China's downstream industries, and thus to more production of
these materials. Moreover, China does not provide any evidence or data on how the
specific duty level that it imposes might have resulted in a decrease in demand, production
and consumption of these products, and on how this had an alleged beneficial effect on
health protection in China.
9
24. After recalling the legal standards, China me rely asserts that the export duties do not
make a distinction according to the destination of the products being exported, and that
they are an "intrinsic part" of China's policy of environmental protection. In the view of the
EU this is not sufficient to justify China's measures under the chapeau and also not
sufficient to shift the burden of proof to th e complainants. In sum, the EU submits that
China failed to meet its burden to prove that the export duties it imposes on rare earths,
tungsten and molybdenum are "necessary to protect human, animal or plant life or health"
as defined in Article XX (b) or compliant with the chapeau of Article XX, even if the Panel
were to conclude – quod non – that it was applicable.
2 E
XPORT QUOTAS
2.1 China's Export Quotas are inconsiste nt with Article XI:1 of the GATT 1994 and
cannot be justified by Article XX(g) of the GATT 1994
25. A measure falls under the prohibition of Article XI:I of the GATT 1994 when, first, it is a
governmental measure 10 or there is sufficient governmental involvement 11 with it, and,
second, it is a quantitative restriction12, i.e. it "prohibits or restricts the exportation or sale
for exports of products." China's export quotas on rare earths, tungsten and molybdenum
satisfy both these conditions, as they are undoubtedly governmental measures, introduced
through various Chinese laws, regulations an d notices, and they impose quantitative
restrictions, as they prohibit or restrict the exportation of goods, within the meaning of
Article XI:I of the GATT 1994. They do so, by expressly limiting the export of rare earths,
tungsten and molybdenum to a certain maximum volume. Consequently China's export
quotas on these products are inconsistent with Article XI:I of the GATT 1994.
2.1.1 China's export quotas are not " relating to the conservation of exhaustible natural
resources"
26. According to WTO jurisprudence, in order for a measure under Article XX (g) of the GATT
1994 to relate to the conservation of exhaustible natural resources, it "must be
"primarily
13 aimed at " this conservation. 14 More specifically, the relationship between the
measure and the conservation objective must be a " close and genuine relationship of ends
and means."15 Following this interpretation, the panel concluded in China-Raw Materials
that there was no " clear link" between the way the duties and quotas were set and " any
conservation objective", since measures that increase the costs [of the raw materials at
issue] to foreign consumers but decrease their costs to domestic consumers are difficult to
reconcile with the goal of conserving […]. 16

8 China's Defence on Export Duties Submission of the 15 February 2013, para. 36
9 Given the fact that China has imposed export duties for a number of years, the data on the production
and consumption of these products over these last years should exist, but China has chosen not to present it.
10 Panel report, Argentina-Hides and Leather, para. 11.18
11 Id. citing the panel report in Japan-Film, para. 10.56
12 Panel report, India-Quantitative Restrictions, para. 5.128. (upheld by the Appellate Body). Also, GATT
13 And not merely incidentally and inadvertently. See panel report, China-Raw Materials, para. 7.370,
referring to the Appellate Body report in US-Gasoline.
14 Appellate Body report, US-Gasoline, page 18. Emphasis added.
15 Appellate Body report, US-Shrimp, paras 136 and 137
16 Panel report, China-Raw Material, para. 7.434
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27. China invoked the principle of sovereignty over its natural resources as part of its defence
strategy. However, as the panel in China-Raw Materials pointed out, Members must
exercise their sovereignty over natural resources consistently with their WTO obligations,
and Article XX (g) has been interpreted and applied in a manner that respects WTO
Members' sovereign rights over their own natural resources.17
2 8 . I t i s i m p o r t a n t t o r e a d t h i s a p p r o a c h t o the definition of conservation by the panel in
China-Raw Materials as a whole, and not by mixing references to various international
environmental declarations with the selective quoting of a phrase contained in the panel's
report, as China did in paragraph 60 of its first written submission. The EU clarified this
position in its reply to Question 56 of the panel in the current dispute. The EU made it
clear in its reply to Question 56 that it disagrees with China's definition of conservation
as including not only " preservation", but also measures that govern where a natural
resource, once extracted, is being consumed.
29. The EU followed the same line of argumentation in its response to Question 57 of the
panel in the current dispute. More specifically, the EU clarified that measures that limit the
extraction or production of the products at issue are not regulated by Article XI:I of the
GATT 1994. China is free to dictate and control th e pace of mining or extraction of all its
natural resources. However, once these resources are extracted, they become a "good" or
a "commodity", subject to the WTO rules and obligations, which China accepted by joining
the WTO in full exercise of its sovereignty. Thus, in order to justify its export quotas on
these products, China bears the burden of proving that these export restrictions comply
with both Article XX (g) and the chapeau of the same article.
18 This view o f the role of
export restrictions in conservation was also supported by the panel in China-Raw
Materials:
It seems to us that a policy of restricting extraction would be more in
line with a policy with a policy to achieve conservation than one
confined to restricting exports. For the purpose of conservation of a
resource it is not relevant whether the resource is consumed
domestically or abroad; what matters is the pace of extraction.19
30. Despite scattered, formal textual links between the export quotas at issue and the goal of
conservation, China fails to provide any evidence 20 of a "close and genuine relationship of
ends and means" between its export restrictions and the conservation objective.
Conservation could be pursued through clear and WTO-consistent (and not unilateral and
highly trade-distorting) extraction and production controls. Consequently, the EU disagrees
with China's statement that the combined effe ct of export quotas and production quotas
could result in limitations on domestic consumption. As the EU made clear in its response
to panel's Question 31, it is only the production quotas and more particularly the level at
which they are set, which can have a "limiting effect" on domestic consumption. The effect
of the export quotas is only to divert production—that would have otherwise been
consumed abroad—to the Chinese domestic market, thus imposing a burden solely on
foreign consumers.
2.1.2 China's export quotas are not made effe ctive in conjunction with restrictions on
domestic production or consumption
31. China also fails to pass the test of even-hande dness, first clarified by the Appellate Body in
US-Gasoline. The Appellate Body noted that if all limitations are placed upon imported
products alone, the measure cannot be accepted as one that implements conservationist
goals. Any such measure is naked discrimination for protecting locally-produced goods.
Moreover, in China-Raw Materials , the panel explained that Article XX(g) cannot justify

17 Id., para. 7.381. Emphasis added.
18 China was aware of the terms of Article XX, as interpreted by the Appellate Body in its Gasoline and
Shrimp reports, in particular with respect to the requirement that restrictions for which Article XX (g) is
invoked could be justified only if they are made in conjunction with restrictions on domestic production or
consumption.
19 Panel report, China-Raw Materials, paras 7.427 and 7.428. Footnotes omitted. Emphasis added.
20 Or provides entirely unverifiable evidence. For example, China alleged in its first written submission
that its territory is estimated to hold only 23% of the world's rare earth reserves, and that this percentage is
based on data on world reserves of the United States Geological Survey, "adjusted" on the basis of Chinese
reserve data, available from the Ministry of Land and Resources. However, China did not present any more
information about the method of this adjustment or the data it relied upon.
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GATT-inconsistent measures "whose goal or effect is to insulate domestic producers from
foreign competition in the name of conservation". 21 It also adds that a certain quantitative
balance of the restrictive effects imposed on the domestic side and on the export side has
to be respected.22
32. The EU agrees with the panel's test of "even-handedness" in China-Raw Materials , as
stated in its reply to the Question 34 of the Panel in the current dispute. Moreover, the
EU agrees with Canada and Australia that limitations on production affect both foreign and
domestic users, while export restrictions have an additional restrictive effect only on
foreign users. In the opinion of the EU, China has not provided any evidence regarding any
measure affecting the Chinese domestic consumers, which could potentially act as this
required "balance" to the additional restrictive effects on foreign consumers. On the
contrary, the incomplete and incoherent data it provided seem to portray an increase in
both the actual production and actual and potential consumption of the materials at issue
in China.
33. In assessing even-handedness, the EU considers, in principle, price differences between
foreign and domestic prices to be relevant. However, as expressed in the reply to
Question 35 of the panel, although higher export prices are a clear sign of discrimination
against foreign consumers resulting from stricter limitations on foreign supply, export
restrictions may also exacerbate price instability in markets outside China. Thus, even if
domestic and foreign prices for some specific rare earths products, in specific time periods,
converge,
23 export restrictions have long-term distorting effects, leading to unusual
foreign pricing patterns, which are in themselves a good indicator of uneven-handedness.
34. The EU further commented on these long-term distorting effects in its response in Panel's
Question 33, where the EU pointed out that the tightening of China's export restrictions
triggered a huge price hike in 2011, followed by a decline in prices and demand in 2012,
as companies outside China eventually started to adjust by running down stocks,
modifying production plans and/or resorting to using inferior substitutes or pull out from
certain segments of business altogether.
35. Similarly, in the reply to Question 38 of the Panel, the EU commented on the relevance of
the utilization of export quotas in assessing even-handedness. The EU pointed out that an
infringement of Article XI:I of the GATT 1994 is presumed to nullify or impair the benefits
of another Member.24 Moreover, Article XI:I protects against all trade distorting effects of
quotas, and not only of effects on trade-flow volumes. 25 Thus, China and not the
complainants bears the burden of showing that its export quotas, including all their trade
distortive effects prohibited by Article XI:I, can be justified under Article XX (g) of the
GATT 1994.
36. Moreover, as the EU remarked in its response to Question 33, the quota utilization rates
fail to reflect the demand satisfied through unofficial channels. In 2011 more rare earths
have been smuggled out of China, which means that demand has been well present but
satisfied through unlawful means. This also undermines the validity of China's statement
that "in the absence of the export quota system for rare earths, with unsatisfied foreign
demand for these high value products Chinese enterprises have an incentive to produce
illegally and sell to foreign consumers".
26 As the EU pointed out in its reply to Panel's
Question 26 , the price premium of the products in dispute when traded in foreign
markets provides greater incentives for illegal mining and exporting of these products.
However, this price premium is the very result of China's export quota system.

21 Panel report, China-Raw Materials, para. 7.408
22 Id., para. 7.465
23 Which may be due to business uncertainty about supply conditions and unexpected drops in demand
for these products in some downstream industries abroad.
24 See Article 3.8 DSU
25 Nullification and impairment is presumed even when there is no trade flow between the complaining
and defending Member, i.e. where what is protected is an expectation. See eg. Appellate Body report, EC-
Bananas, para. 249. Moreover, in view of the multifaceted trade-distorting effects of export quotas, nullification
and impairment would also be presumed even where, despite the quotas, exports from China to any of the
complaining Members/any other WTO Members/WTO Membership as a whole were gradually increasing over
time. See panel report, Turkey-Restrictions on Textile and Clothing, para. 9.204
26 China's first written submission, para. 135
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37. Last, as noted in response to Question 58 , the EU considers the preparatory work of
Article XX(g) relevant for its interpretation. The EU believes that the drafters of the GATT
evidently did not intend that quantitative restrictions, or export quotas, would be used to
promote or protect domestic industries, through advantages in price or supply to the
detriment of foreign competitors
2.1.3 Chapeau of Article XX of the GATT 1994
38. The prerequisites included in the chapeau of Article XX serve as guarantees that the
general exceptions allowed by this Article are not abused.
27 In order for these exceptions
to be exercised in good faith,28 a measure must not constitute, in its design, architecture,
structure, and application, arbitrary or unj ustifiable discrimination, or a disguised
restriction on international trade.
39. China alleges that no discrimination exists, because its export quota measures de jure do
not discriminate among WTO Members that import the goods in dispute. However, China
affords a differential treatment to its domestic users compared to all other WTO Members,
and fails to make a prima facie case that its measures comply with the chapeau of the
Article XX.
40. The trade restrictive effects of China's export quotas confirm that China's policies are the
very type of disguised protectionism that the chapeau seeks to prevent. Various other
policy tools could have been employed, which would have been equally (or more)
effective. As the EU argued in its response to Question 53, paragraph II.1.10 of Exhibit
CHN-107-b and paragraph I.5 (second paragraph) of Exhibit CHN-100-B also attest the
protectionist character of the export quotas, since they point to the incoherent nature of
China's alleged conservation policy, which is fundamentally driven by industrial policy.
41. China argues that its export quotas do not constitute a disguised restriction because first,
the quotas for 2011 and 2012 were sufficient to meet foreign demand; 29 second, its quota
administration system creates incentives for meeting the demand of foreign users, 30 and
third, the system is flexible to meet the needs of foreign consumers.31
42. As regards the second argument, the EU considers it to be both legally and factually
questionable. Legally questionable, because China relies on features of its quota
administration regime that are challenged as incompatible with explicit obligations that
China undertook under the Accession Protocol and Working Party Report to justify the very
existence of its export quotas. Factually questionable, because the eligibility criteria that
China imposes on potential exporters would appear to have at best an incidental effect of
ensuring full utilization of allocated quotas.
32
43. With reference to China's last argument, the EU notes that in order to justify its export
quotas under the chapeau, China should demonstrate that it has not put in place a rigid
and arbitrary quota administration system which is inapt of duly taking into account
foreign demand.33 China failed to do so.
44. As the EU made clear in its response to Panel's Question 19 , the EU agrees with the
analysis of the panel in China-Raw Materials, and more specifically with paragraphs 7.375
and 7.384-7.386. It is indeed important to interpret Article XX (g) in accordance with
customary rules of treaty interpretation, which would not lead to interpreting in such a
way as to contradict the provisions of Article XX (i), i.e. to allow a Member to do indirectly
what paragraph (i) prohibits directly.
45. As stated in EU's response to Question 39 of the Panel, the EU disagrees with China's
claim that "export quotas are not a disguised restriction on trade because the export
quotas, in isolation, do not cause any significant price difference between adjusted export
and domestic rare earths prices." 34 The EU objects to China's highly selective assessment
based on an analysis of a few products subject to export quotas, and also contests China's

27 Appellate Body report, US-Shrimp, para. 157
28 Appellate Body report, Brazil-Tyres, para. 215
29 China's first written submissions, paras 233-235, 378
30 Id., paras 236-246, 379
31 Id., paras 247-249
32 See e.g. European Union's first written submissions, para. 63
33 See Appellate Body report, US-Shrimp, paras 180-183
34 See China's Oral Statement, first substantive meeting, para. 50
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unclear calculations in Figures 4 and 5. The EU also draws the Panel's attention to China's
statement in paragraph 51 of its Oral Statem ent, where China itself acknowledged that
price differences between domestic and adjusted export prices can be explained by various
factors. The EU notes that such factors can be disrupted foreign demand, speculative
behaviours, and the usual discriminatory price-gap effect of the export quota.
2.2 China's Export Quotas are inconsistent with its obligations under the Accession
Protocol
46. China's export quotas on rare earths, tungsten and molybdenum are inconsistent with its
commitments set forth in paragraphs 162 and 165 of its Working Party Report. China has
not eliminated its export restrictions upon its accession to the WTO and, moreover, they
continue to be in place till today. China's export quotas constitute a violation of Article XI:I
of the GATT 1994, and they are also inconsistent with paragraph 1.2 of China's Accession
Protocol, which incorporates China's commitments contained in paragraphs 162 and 165 of
its Working Party Report.
3 E
XPORT QUOTA ADMINISTRATION AND ALLOCATION
47. China imposes restrictions on the trading ri ghts of enterprises seeking to export various
forms of rare earths and molybdenum contrary to its commitments under the Accession
Protocol and Working Party Report . More specifically, China violates the commitments
undertaken in paragraphs 83 and 84 of the Working Party Report, which are incorporated,
by virtue of paragraph 342, into paragraph 1.2 of China's Accession Protocol. China also
violates paragraph 5.1 of its Accession Protocol, which imposes the obligation that three
years after accession "all enterprises in China […] have the right to trade in all goods
throughout the customs territory of China", and clarifies that the "right to trade" includes
the "right to export […] goods."
48. With regard to rare earths, the EU challenges the export performance requirements
imposed by the 2012 Rare Earth Export Quota Application Procedures ,
35 as well as
MOFCOM's reliance on a company's export performance in calculating the actual quota
allocation for rare earth products. 36 The EU also challeng es the minimum capital
requirements that the Procedures impose on rare earths trading enterprises. With regard
to molybdenum, the EU challenges the export performance and prior experience
requirements that the Export Quota Measures
37 and the 2012 Molybdenum Export Quota
Application Procedures 38 impose. Furthermore, MOFCOM relies on a company's export
performance in calculating the actual quota allocation pursuant to the quota allocation
formulas for molybdenum.
39
49. The EU does not agree with China's statement in paragraph 407 of its first written
submission that its quota allocation is not discretionary because it is based on a fixed
formula. As replied to the Panel's Question 17, what the EU challenges under paragraph
84(b) as incompatible with the requirement to grant trading rights in a non-discretionary
manner, is not the allocation formula, but the discretion that the 2012 Molybdenum Export
Quota Application Procedures allows and indeed requires China to exercise in deciding the
eligibility of potential exporters.
50. As the EU replied to Question 12 of the Panel, the EU considers the obligations under
paragraphs 83 and 84 of China's Working Party Report and the claims under paragraph 5.1
of China's Accession Protocol to be closely re lated. Paragraphs 83 and 84 elaborate on the
obligation to grant the right to trade under pa ragraph 5.1 of the Accession Protocol, inter
alia by creating specific commitments with respect to minimum capital and prior
experience requirements. Given the specific nature of paragraphs 83 and 84, the EU
submits that the analysis should logically begin with these more specific commitments,
since their violation also results in a violation of the general obligation of paragraph 5.1.
Moreover, the EU replied in Question 8 that two particular types of restrictions to trading
rights, minimum capital requirements an d prior experience requirements, are expressly
excluded from the scope of WTO-consistent regulation.

35 See 2012 Rare Earths Export Quota Application Procedures (Exhibit JE-61)
36 See 2012 First Batch Rare Earth Export Quota, Annex 1 (Exhibit JE-55)
37 See Export Quota Measures, (Exhibit JE-52)
38 See 2012 Molybdenum Export Quota Application Procedures, Part II.i.2, (Exhibit JE-63)
39 See 2012 First Batch Tungsten and Molybdenum Export Quota, Annex 2, p.8, (Exhibit JE-59)
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Second Part of the Integrated Executive Summary of the European Union
1. CHINA'S EXPORT QUOTAS FOR RARE EARTHS ARE IN BREACH OF CHINA'S WTO-
OBLIGATIONS
1.1. CHINA'S POLICY CONCERNING RARE EARTHS
1. While the European Union does not put into question China's objective to conserve
exhaustible natural resources, the European Un ion submits that China's export quotas at
issue do not form part of that policy. Rather China only recently tried to "fit" the quotas into
its "comprehensive conservation policy for rare earths" for the purposes of the defence of
this dispute before this Panel, but has been relying on them for many years in pursuing its
industrial policy objectives. China's export quotas are not aimed at conservation at all, but
were always, and still are serving to protect and promote China's domestic downstream
industry which utilizes these materials.
2. Moreover, while China's dominant position in the supply of rare earths today is undisputable;
two things should be borne in mind. First, that China played an active role in creating this
"monopoly" situation. China's operators undercut world prices in the 1990s, leading mining
operations located in other countries to close, as it was no longer possible for them to
compete with China's low prices. Second, China uses the vast majority of the rare earths
produced in China itself.
1.2. LEGAL STANDARD FOR APPLICATION OF SUB-PARAGRAPH (G) AND THE CHAPEAU
OF ARTICLE XX OF THE GATT 1994
1.2.1. Sub-paragraph (g) of Article XX of the GATT 1994
3. In the US-Gasoline dispute, the meaning of the phrase " relating to" was interpreted by the
Appellate Body to mean that a measure "must be " primarily aimed at " the conservation of
exhaustible natural resources in order to fall within the scope of Article XX(g). The meaning
of the phrase " relating to" in Article XX(g) was further clarified in the US-Shrimp dispute,
where the Appellate Body confirmed that Article XX(g) referred to measures " primarily
aimed at" conservation, and also described the re lationship between the measure and the
conservation objective pursued as a "close and genuine relationship of ends and means".
4. This test of examining whether there was a close relationship between the " ends" (i.e. the
goal of the conservation of an exhaustible natural resource) and the " means" (the export
quotas at issue) was also followed by the panel in China-Raw Materials. The panel in China-
Raw Materials noted that there was no "clear link" between the way the duty and quota were
set and "any conservation objective". It concluded that China had therefore not met its
burden of proving that its export quotas and ex port duties on the materials at issue in that
dispute "related to" conservation.
5. China's interpretation of "conservation" as also encompassing the "use and management" of
natural resources is based on a selective reading of the panel report in China-Raw Materials,
and it does not find support in this report. To the contrary, the panel made it clear also in
referring to the exception provided for in GATT Article XX(i) that the exception under
Article XX(g) does not leave room to extend the meaning of conservation to cover any
economic goals. According to the panel, WTO members cannot rely on XX(g) to "excuse
domestic restrictions adopted in aid of economic development if they operate to increase
protection of the domestic industry." (see pa ra. 7.386). Moreover, the panel reasoned that
for the purposes of the conservation of a natural resource what matters is not in which
country or location the resource is consumed, but the rate or pace at which it was extracted
or mined. The panel was also very clear in stating that WTO Member States must exercise
their sovereignty over natural resources consistently with their WTO obligations. According
to the European Union, that means that any restrictive trade measures that China takes vis-
a-vis other WTO Member States must be in line with the legal obligations that China had
undertaken to abide by when it joined the WTO. This is no more than a reflection of the
principle of customary international law " pacta sunt servanda ". In the opinion of the
European Union, it is clear that the panel in China-Raw Materials, did not intend to extend
the scope of the meaning of "conservation" within Article XX(g) to also include the
"management and use of these resources", as understood by China. The European Union
accepts that conceptually any conservation policy entails an element of management: the
very act of restricting production or consumption is an act of management of resources. The
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European Union does not, however, agree with China that conservation within the meaning
of Article XX(g) could be read as entailing management or use to the advantage of the WTO
Member which instituted the conservation policy and the disadvantage of other WTO
Members. In other words, conservation is no t about allocation of where the product is
consumed. The European Union accordingly submits that a measure, the objective of which
is to allocate where the product will be consumed, is neither a conservation measure nor a
measure related to conservation. Economic objectives are separate and distinct from the
non-economic goal of conserving exhaustible natural resources. They cannot and must not
be subsumed into the concept of conservation within the meaning of Article XX(g) of the
GATT 1994 as to do so would run contrary to customary rules of treaty interpretation and
would fundamentally alter the negotiated balance of rights and obligations.
6. The European Union objects to China's interpretation, which reads protectionism into the
exception for the otherwise legitimate non-ec onomic objective of conservation. Such an
interpretation would make the chapeau lose its effect and purpose as a safeguard against
abuse of rights and protectionism. This would be manifestly abhorrent to the principles of
treaty interpretation. The text should be interp reted holistically; hence the interpretation of
the exception should not be such as to reduce the chapeau to nullity.
7. Moreover, as reflected in " The Report of the Drafting Committee of the Preparatory
Committee of the United Nations Conference on Trade and Employment", the fact that the
proposal to delete the text following the phrase "natural resources" was not accepted by the
Conference is clear proof that the negotiating parties wanted to keep this exception to a
minimum, by requiring that the two conditions are cumulatively met. Obviously, if the
second condition (i.e. "made effective in conjunction with restrictions on domestic
production or consumption") had been removed, this would have had the effect of
significantly extending the scope of the except ion. The omission of the words "or other"
(resources) is also highly relevant. It is clea r that the delegates attending the Conference in
1947, wanted to restrict the scope of this provision to "exhaustible natural resources" and to
exclude all "other resources" from its application.
8. The requirement that the measure be "made effective in conjunction with restrictions on
domestic production or consumption" has been clarified through WTO jurisprudence as
requiring that there be something more than the mere existence of a production restriction
in place . A production restriction, which – if having any restrictive effect - impacts both
foreign and domestic users is not enough. Instead, a certain limiting effect needs to be felt
on the domestic side in order to counter-balance the impact (or limiting effect) of the export
restrictions of foreign users and make it provisionally justifiable under Article XX(g). If a
WTO Member is not taking steps to restrict the supply of natural resources domestically, it is
not entitled to seek the cover of Article XX(g) for the trade restrictive measures it claims are
helping to conserve the resource for future generations.
9. In the view of the European Union, the test used by the panel in China – Raw Materials
requires that a regulatory scheme which was adopted for the purpose of conservation of
natural resources establishes a balance between the burdens placed on domestic and foreign
consumption of the material protected by th e conservation policy. The European Union
understands counterbalance in line with its ordinary meaning, that is, something that weighs
or balances one thing against another, somethin g that balances or cancels the effect of a
thing. This balance is a systemic or structural one and not a balance of effects. The
Appellate Body in US – Gasoline indicated that even-handedness does not involve an effects
test. Thus, the "impact" which the panel referred to in China – Raw Materials should not be
understood as the actual trade impact or "effects", but would instead be a regulatory or
structural impact.
10. Contrary to what China argues, Article XIII is not relevant in the context of this dispute.
Unlike Article XIII, the even-handedness test under Article XX(g) does not try to ensure non-
discriminatory treatment between third countries affected (MFN-type), but instead compares
the restrictiveness of the measures imposed domestically and the measures imposed on
other WTO Members (NT-type). WTO jurisp rudence concerning paragraph (g) and
specifically the even-handedness test confirms that Article XIII principles are not relevant in
assessing whether the measure with respect to which the conservation exception has been
invoked and domestic restrictions for conservation "are made effective in conjunction" with
each other. This conclusion is also supported by the panel report in China – Raw Materials ,
which was faced with legal and factual issues similar to those before this Panel.
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Furthermore, the European Union notes that based on the facts in the current dispute, it
would be nearly impossible to determine the hy pothetical levels of exports that Members
might have been expected to obtain in the absence of export quotas. This is particularly so
because China has been for a number of years now imposing and gradually tightening its
export restrictions, while at the same time constantly increasing domestic production.
11. The European Union also notes that China does not contend that it would be prepared to
respect the disciplines of Article XIII. Rather, China casually selects out of Article XIII what
fits its line of argument and disregards the rest. China suggests that its quota setting is
somehow compatible with Article XIII, because China is trying to approach as closely as
possible what the foreign and domestic consumers "might be expected to obtain" under
normal market circumstances. Yet, "normal market circumstances" as understood by China
are not what Article XIII requires. What Article XIII:2 requires is to allocate quotas based on
distribution which existed prior to their introd uction; i.e. before trade was restricted and
distorted. What China does in actual fact is allocate quotas in a non-transparent process
which only takes into account the current and projected needs of its domestic industry and
arbitrarily determines the "needs" of non-Chinese consumers.
1.2.2. The chapeau of Article XX of the GATT 1994
12. There are three requirements contained in the chapeau: (i) arbitrary discrimination
(between countries where the same conditions prevail); (ii) unjustifiable discrimination (with
the same qualifier); or (iii) disguised restriction on international trade. The measure at issue
must comply with all three requirements in its application, whereby the inconsistent
application may also be the result of the measure's flawed design, architecture and
structure.
13. In order for a measure to comply with the prohibition of "arbitrary or unjustifiable
discrimination" pursuant to the chapeau, the Member invoking the exception must establish
that the application of the measure does not result in discrimination. Where discrimination
exists, the Member invoking the exception must show that the discriminatory treatment is
not arbitrary or unjustifiable in character. Discrimination within the meaning of the chapeau
concerns not only discrimination between importing countries (i.e. "most favoured nation"
type), but also between the home country and the importing countries (i.e. "national
treatment" type).
14. The Appellate Body in Brazil-Retreated Tyres noted that the analysis of whether the
application of a measure results in arbitrary or unjustifiable discrimination should be based
on the cause of the discrimination and not exclusively on the effects of such discrimination.
The Appellate Body then explained that arbitrar y or unjustifiable discrimination exists when
the reasons given for this discrimination bear no rational connection to the objective falling
within the purview of a paragraph of Article XX, or would go against that objective.
Moreover, it emphasized that the determinatio n of whether a measure is discriminatory in
violation of the chapeau of Article XX should not depend exclusively on its quantitative
impact, without consideration of whether the rationale for the discrimination relates to the
legitimate objective of the measure. In addition, according to the Appellate Body,
discrimination can also be arbitrary or unjustifiable, in cases where it is avoidable and
foreseeable. This will be the case, where alternative measures exist which would have
avoided or at least diminished the discriminatory treatment.
 Last, to comply with the
chapeau requirements, a measure that conveys – justified - preferences to some WTO
Members, but not to others, must in addition be administered on the basis of objective and
verifiable criteria and in accordance with the principle of due process.
15. In addition to satisfying the arbitrary and unjustifiable discrimination criterion, a measure
with respect to which an exception has been invoked may also not constitute a disguised
restriction on international trade . The Appellate Body clarified that any restriction which
formally meets the requirements of Article XX(g) will constitute an abuse if such compliance
is in fact only a disguise to conceal the pursuit of trade-restrictive objectives . Disguised
discrimination in international trade does not exhaust the meaning of disguised restriction .
This was confirmed by the panel in EC – Asbestos which noted that the term "disguised"
usually implies an intention to conceal something. As a consequence, the focus of the
analysis is on the "protectionist object". This object will in most cases not be readily
apparent. The panel in EC – Asbestos observed in that regard that the protectionist objective
of a measure can frequently be discerned from the "design, architecture and revealing
structure" of that measure.
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1.3. CHINA'S EXPORT QUOTAS ON RARE EA RTHS DO NOT MEET THE CONDITIONS OF
SUB-PARAGRAPH (G) OF ARTICLE XX OF THE GATT 1994
1.3.1. China's export quotas are not measures "relating to the
conservation of exhaustible natu ral resources" within the meaning
of Article XX(g) of the GATT 1994
16. The European Union contests China's argume nt that the export quotas imposed by China
(i.e. the measures at issue in this dispute) in violation of Article XI of the GATT 1994,
genuinely are "relating to the conservation of exhaustible natural resources" within the
meaning of Article XX(g).
17. As China claims that its commitments under paragraphs 162 and 165 of China's Working
Party Report on the export quotas on rare earths are also justified under GATT Article XX(g),
the arguments made by the European Union rebutting China's claims apply mutatis
mutandis.
18. The European Union is of the view that "mix ed rare earth oxides", "rare earth metals" and
"rare earth alloys" are materials which have been derived from "natural resources", but have
subsequently undergone several processes that have changed them into processed products,
with different uses and applications in industry. The European Union notes that a measure
that concerns a product which can no longer be considered as a "natural resource" is not as
a result per se incapable of being justified under Article XX(g) of the GATT. However, the
further one goes from the natural resource, the greater degree of scrutiny is required into
whether the relationship between the ends and means (measure and conservation) is indeed
genuine. Similarly and perhaps even more importantly, the difference between the scope of
the export quota and the scope of the domestic production restrictions puts into question the
genuineness of the link of the export quotas with the conservation objective. China's
imposition of export quotas on all these kinds of "further-processed" rare earth products
lacks the link to conservation and constitutes further proof that the real motivation behind
China's export quotas is not conservation but industrial policy.
19. The European Union notes that the only textual references to conservation appear in late
2011, in the notices which implement the export quotas on rare earths for 2012. None of
China's measures imposing export quotas in previous years contained this – although only
passing – reference or phrasing, despite the fact that China had been imposing export
quotas on rare earths since 1999. Moreover, it is important to keep in mind that these
notices were published in late 2011, when China had already learnt that it had lost the
China-Raw Materials dispute before the WTO, an almost identical case to the dispute before
this Panel.
20. Given the importance China attaches to the fact that the export quotas are imposed for
conservation purposes, and that this seems to be their only alleged objective, it seems
questionable to the European Union that there have been no other references to
conservation before 2012, and even then, only in two of the relevant measures.
21. In an effort to create further links between the export quotas and the conservation
objective, China resorts to citing "cross-references" that the Notices imposing implementing
the rare earth quotas for 2012 have with other general laws in China. China does so even
whilst admitting that these 2012 Notices "do not explicitly refer to the conservation
objective" that it keeps referring to. However, independently of the fact that such "cross-
references" appear too remote, there is not even an obvious reference to "conservation" as
both basic measures also list other reasons for which the export quotas could have been
imposed.
22. Contrary to what China alleges, the Declaration on the Setting of 2012 Export Quotas on
Rare Earth Products , does not show that the real motivation behind the setting-up and
imposition of the export quotas on rare earths is conservation. Rather, the Chinese
authorities' main concern seems to be that of ensuring that there is enough production of
rare earths available to satisfy the domest ic demand of Chinese industry. What is
conspicuously absent in Mr Zhang's Declaration is any verifiable information or explanation
about how the level of the export quotas on rare earths relates to the objective of
conservation.
23. Furthermore, the European Union finds China's assertions about the role of export quotas in
relation to smuggling and illegal production to be erroneous and misleading. First of all,
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export quotas, in terms of quantitative restrictions, are not needed in order to enforce
productions levels, and to combat illegal mining or smuggling. China can rely on other
means available for the enforcement of its production quotas on rare earths. In addition,
China fails to demonstrate that there is a nece ssary link between illegally mined rare earths
and the exporting of rare earth. Illegally mined rare earths can just as well be sold and
consumed within China – as China itself concedes- and thus it is difficult to understand how
the export quotas imposed by China would be relevant as an instrument against illegal
mining. In the view of the European Union, export quotas cannot reasonably be considered
as the answer to smuggling (and hence an instrument of conservation) since it is those very
export quotas (and export duties) that create the incentive for smuggling, as acknowledged
by Chinese officials themselves. Moreover, stopping illegal trade is best done in a plurilateral
setting, as both exporters and importers will have an incentive to reduce or eliminate illegal
trade if they are subject to a double control, both at origin and destination.
24. The European Union also disagrees with China that export quotas signal to foreign users of
rare earths the need to develop and locate other sources of supply or develop substitutes
and that these export quotas create a disincen tive to domestic Chinese producers to expand
production. First of all, the "signalling" that China is claiming to pursue with its export
quotas cannot be done in a WTO-incompatible manner, like China is doing. The effects that
China claims to pursue could be sufficientl y achieved by the strict enforcement of a
production quota on these materials. Moreover, and contrary to what China is claiming,
sending such a message to foreign users only – by means of a tightened export quota - fails
to achieve the conservation aim. Such a signal rather leads to encourage foreign users of
rare earths to relocate their manufacturing operations to China in order to secure the
necessary supply of rare earths. The European Union therefore contends, that the "signal"
China is sending out by imposing export quotas does not contribute to its alleged
conservation aim but rather to the relocation of foreign companies to China and the further
development of rare earth manufacturing industry in China. Moreover, price volatility due to
Chinese export restrictions, and the uncertainty that comes with it, is destructive to business
confidence.
25. The European Union also challenges China's ar guments that its export quotas on rare earths
function as a safeguard mechanism against unanticipated surging exports, which could
negatively impact China's domestic users. The pursuit of such an obviously "economic"
objective, is not related to "conservation" and cannot be expected as legitimate in the
context of Article XX(g) of the GATT. Including economic objectives in the meaning of
"conservation" would be against the ordinary meaning and the negotiating history of
Article XX of the GATT, as well as contrary to the context – notably Article XX(i) and the
chapeau – and the purpose of the provision. Accepting China's proposed reading would
fundamentally alter the negotiating balance and effectively result in an amendment of the
GATT 1994.
1.3.2. China's export quotas on rare earths are not "made effective in
conjunction with domestic restrictions on production or
consumption"
26. In order to justify its measures, China must show that the export quotas it imposes on rare
earths "work together with" or "operate jointly with" restrictions on domestic production or
consumption. In addition, it must also show that the restrictions on domestic production or
consumption operate so as to conserve a natural resource.
27. It is wrong to assume that if there is a de crease in the number of mining licenses granted,
this will necessarily result is less mining. Moreover, it also does not follow that a "smaller
number of bigger" mining companies, will necessarily mine less than a "bigger number of
smaller" ones, even more so as China sets production scales and minimum recovery rates as
access criteria. Economies of scale, and better and more efficient technology which are
available to the "bigger enterprises," would indicate that these larger, more efficient mining
companies could actually have the capacity to produce more, and to produce it more
efficiently.
28. With regard to China's volume restrictions, and more specifically restrictions on domestic
production, as the data produced by China shows, the first indication of an "extraction plan"
appears for the year 2006, even though the expo rt quotas on rare earths had been in place
already for a number of years. This sequencing does not reconcile and even directly
contradicts China's asserted defence that its export quotas for rare earths are part of its
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conservation policy. The export quotas came first, the extraction limits on rare earths came
later, and were then regularly and consistently exceeded by Chinese producers.
29. Moreover, it is important to note that the "Extraction Plans" that were set by China were
consistently exceeded every year till 2010. According to China's data, it was only in 2011
that China's "Extraction Plan" was not exceeded. Since China introduced its "Extraction Plan"
for rare earths in 2006, there has been a steady increase indicating an upward in the
amount of rare earths allowed to be extracted. From a conservation point of view, this
means nothing else than an increase in the pace of extraction. The European Union thus
submits that China's restrictions on domestic production, do not in fact effectively constrain
the current levels of production.
30. In its second written submission China concedes that its "comprehensive conservation
policy" measures may not have actually restricted domestic consumption or production. It
contends, nonetheless, that putting in place a measure which "intends" to restrict domestic
production or consumption is sufficient to satisfy the requirements of Article XX(g). To apply
Article XX(g) in such a lax manner would go against established jurisprudence and deprive
the test of any real meaning. In the view of the European Union an interpretation whereby
"made effective" would be limited to the act of "adopting" or entering into force in
accordance with municipal law, could open the possibility for WTO Members to avoid the
disciplines of Article XX(g), merely by adopting legislation, but without ever enforcing it.
Such a reading would also not be supported by the context of the provision and its
negotiating history.
31. Evidence on "effectiveness" of a measure is relevant – even critical - in determining whether
the system is related to conservation and even -handed. In this respect, the facts on the
record justify an even greater degree of scrutiny of China's allegation that it has "made
effective" domestic production or consumption restrictions. Let us recall that production caps
for rare earths did not exist until 2007 and have certainly not had any effect until 2011.
F u r t h e r m o r e , t h e p r o d u c t io n c a p s h is to r ic a l ly h a ve b e e n s e t a t s u c h h ig h le ve ls t h a t t he y
served as production targets, not limitations, or have never been seriously enforced. Setting
a target for boosting production is not a "restriction on domestic production" – in fact, it
accelerates the rate of depletion.
32. Even with respect to 2011, the European Union submits that China failed to establish a
causal link between the existence of the restriction and the reduction in domestic production
or consumption. The latter seems instead to be attributable to the global slowdown and
related decrease in demand of downstream products, as well as to strategic reductions in
production by Chinese producers, who reduced su pply in the hope that the prices which had
decreased compared to prior periods would pick up again.
33. The European Union also contests China's allegation that there are restrictions in place with
respect to domestic consumption of rare earths. The European Union disagrees with China's
assertion that the premise that the material eligible for exports under the quota needs to be
subtracted from the production and would therefore lead to a reduced amount of material
available for Chinese domestic consumption. Ch ina seems to treat the "export quotas" as a
kind of allocation mechanism which takes the supply of rare-earths away from the domestic
Chinese market, while completely disregarding what the export quotas really are: i.e.
restrictions on the foreign consumption of rare-earths.
34. China argues that domestic consumption is limited by the export quota because "the share
of the production quota available to domestic consumers is limited to the volume obtained
by deducting the export quota from the prod uction quota". The European Union disagrees
with China's argument that domestic consumption is restricted by the combined effect of a
production quota and the export quota. This assertion is based on two assumptions which do
not hold in the case of China. Firstly, that the production quota is set as low as to be capable
of restricting domestic consumption. This is not the case, since China's extraction quota and
production quotas are set at a level far higher than actual consumption, hence they would
not restrict it even if the quantities "earmarked" for exports were not to be made available
to domestic consumers. Secondly, China not only allows for unutilised export quotas to be
sold domestically, but also has no mechanism in place to prevent the selling out to domestic
users of quantities allocated for export quotas. Except the possible desire to keep customers
and not to see the future export quota allo cations possibly reduced, nothing under the
Chinese system actually acts so as to prev ent expansion of Chinese domestic consumption
at the expense of foreign consumption. While di strusting the market when it comes to risks
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that may affect domestic consumption, China essentially relies on market forces as the
mechanism which will ensure that quantities "earmarked" for exports will indeed be destined
for export and will not instead be used up by domestic downstream production. So while
the export quotas demonstrably have the effect of restricting access to rare earths for
foreign consumers, the same cannot be said for Chinese consumers who have access to all
rare earths produced in a given year.
35. Moreover, as regards the resource tax measure imposed on the extraction of light rare
earths (60 RMB per Ton) and medium/heavy rare earths (30 RMB per Ton) China has not
nor can it substantiate the link between the resource tax and a decrease in production or
consumption. Furthermore, and contrary to what China implies, the additional cost incurred
by the rare earth mining enterprises from the resource tax would not be necessarily passed
on the consumers of these products, by an increa se in the price. In any event, even if the
Panel were to consider that price increases can occur as a result of the application of the
"resource tax", this does not establish the existence of a domestic restriction, since the
additional costs imposed by the "resource tax" would be borne by both domestic and foreign
users equally.
36. With reference to the environmental requirem ents that China imposes on the producers of
rare earths the European Union notes that the fact that the mining industry in China is
improving its environmental standards, is laudable, but not per se linked to conservation. It
n e e d s t o b e b o r n e i n m i n d t h a t C h i n a c l a i m s t h a t i t s e x p o r t q u o t a s o n r a r e e a r t h s a r e
"related to conservation" within the meaning (and subject to the disciplines) of Article XX(g)
and not measures necessary for the protection of the environment falling under
Article XX(b). Moreover, similar to its claims on the imposition of the resource tax, China
alleges that through increased environmental costs it is restricting production or
consumption of rare earths. However it does not offer any explanation how any increased
environmental costs for the rare earths pr oducing industry are actually decreasing
production or consumption, let alone evidence that they really are.
37. Additionally, according to established WTO jurisprudence, the mere existence of a
production or consumption restriction is not enough. In order for a measure to pass the
"even-handedness" test, there has to be a balance in place between the impact of the export
quotas imposed on foreign users, and the impact of restrictions on the domestic users and
consumers. In the opinion of the European Union, China's export quotas on rare-earths do
not pass the "even-handedness" test as required by GATT Article XX(g). In order to achieve
the balance required by the even-handedness standard as developed in the jurisprudence
concerning Article XX(g), there needs to be an equivalent (albeit not identical) impact on the
"consumption" of these products in China, in order to act as a "balance" to the burden that
the export quotas on rare earths impose on the foreign consumers of these materials.
38. The "even-handedness" test as developed in WTO jurisprudence is essentially also a
"fairness" or "impartiality" test. Even if it does not require "identical" treatment of the
domestic and foreign consumers of these materials, it definitely does require a "balanced"
one. Analysed from that perspective, China's export quotas on rare earths clearly are an
additional burden on foreign consumers – beyo nd the possible limiting effect of production
quotas impacting foreign and domestic consumers equally – which is not counter-balanced
by any restriction imposed on domestic production or consumption. In this present dispute,
the Panel has to assess the "even-handedness" requirement when looking at the "impact" or
added burden of the of the export quotas on foreign consumers of rare earths, when
compared or balanced with the impact (or lack of thereof) on Chinese consumers of the
same materials. China has not proven that its export quotas on rare earths are "made
effective in conjunction with domestic restrictions on production or consumption", as
required by Article XX(g).
1.4. CHINA'S EXPORT QUOTA MEASURES ON RARE EARTHS ALSO DO NOT SATISFY THE
REQUIREMENTS OF THE CHAPEAU OF ARTICLE XX OF THE GATT 1994
39. Even if, quod non, the Panel were to consider that the Chinese export quotas on rare earths
can be provisionally justified under paragraph (g) of Article XX, these measures fail to
satisfy the requirements of the chapeau. The European Union has demonstrated that China
applied and continues to apply its export quota measures for rare earths in a manner that
constitutes arbitrary or unjustifiable discrimination, as well as a disguised restriction on
international trade in rare earth products.
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1.4.1. China's reliance on the quota fill rate does not demonstrate that no
discrimination or restriction on trade exists
40. Contrary to what China alleges, the fact that export quotas were not fully utilized in 2011
and 2012, does not demonstrate that non-Chinese consumers of rare earths were not
subjected to higher costs resulting from the tr ade distorting effects of the Chinese export
restrictions on rare earths.
41. China's analysis is flawed, since China alleges the lack of restrictive effects of its export
quota by looking only at the two most recent years and completely disregards the fact that
the quotas have been in place for a number of years. Accepting China's line of defence
would allow for conclusions to be made based on the current market demand, despite the
fact that this demand had been distorted by the existence of the WTO-inconsistent measure.
Furthermore, while quota utilization can be a relevant factor, it is not in itself determinative
in establishing the existence of restrictive effects of an export quota. Moreover, the
European Union submits that not only did (as a result of the Chinese export quotas on rare
earths as well as its export duties) restrictions on international trade continue to exist in
2011 and 2012, but that these restrictions carried costs of substitution and business
uncertainty which affected non-Chinese users disproportionately more than Chinese
industry, which benefitted from a more stable and sufficient supply than its foreign
counterparts.
1.4.2. Important price differences ex ist between Chinese domestic prices
and foreign prices for rare earths as a result of the Chinese export
restrictions
42. By limiting the quantity expo rted, an export quota has implications for prices, which in turn
affected economic behaviour of operators an d welfare distribution. The European Union
submitted that export quotas on rare earths protect Chinese downstream industry, because
they increase export prices for those inputs above domestic prices. The European Union
disputes China's conclusion that based on the following grounds: (i) China's price
"adjustment" is not appropriate; (ii) for most of 2012 even adjusted export prices exceeded
domestic prices significantly; and (iii) even when export and domestic prices become equal
for a brief period, one may not conclude, as China did, that export quotas have no effect.
43. Furthermore and despite having been prompted to do so by the Panel, China put forward no
evidence to demonstrate that the excess of transport and trading costs for exporting may
amount to 10% of the value of rare earth exports. The European Union therefore disputes
the probative value of the conclusions that China draws from its price comparison which was
based on China's unsupported estimation on costs. Moreover, China provides no evidence on
neither that export sales are of higher quality nor that the relative qualities of export and
domestic sales has changed over time in way that explains the growth in the observed
export premia over the period 2010-2012.
44. Evidence submitted by the co-complainants sh ows that Chinese export quotas (and export
duties) increase export prices above domestic prices. Export quotas had a dramatic effect on
export prices when they were suddenly tighte ned in July 2010 and that they, in conjunction
with export duties, have ever since kept the ex port prices of most rare earths significantly
above domestic prices. The patterns in the ratio of export to domestic prices are strongly
consistent, especially when one recognizes the differences between heavy and light rare
earths and the demand-side connection of Europium with the heavy rare earths. Moreover, it
establishes the existence of a consistent price difference over a broader set of commodities
than China exhibited. The inter-temporal pattern, based on China's half-yearly
announcement of quota amounts, reflects on e event - the sudden extreme tightening of
export quotas on rare earths in July 2010, and the panic buying and stock-cycle that it
triggered. The quota has not been relaxed since 2010 and it is clear that the stock cycle has
not yet been completed. Thus the market for ra re earths has not yet achieved equilibrium,
especially the equilibrium that will pertain wh en the world economy fully recovers from the
financial crisis. All the evidence suggests that when it does settle down, maintaining export
quotas at the 2010 level will result in export prices exceeding domestic prices by a
significant amount: the initial shock hit all rare earths and hit far harder in export than
domestic markets, and even now towards the end of the de-stocking process, rare earth
prices are higher abroad than at home and, fo r 16 out of 24 of them, to a degree that is
statistically significantly greater than the excess that was observed before the export quota
was so grievously tightened in July 2010.
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45. Restricting exports of natural resources can give downstream producers just the edge they
need to stay above the curve in fiercely compet itive international markets. In contexts like
the one at issue in this dispute, where China has a near-monopoly supplier position of rare
earths with respect to which only limited substitution exists, significant and unpredictable
restrictions on exports, such as those that China started imposing in 2010, can have a
significant effect on downstream industries in competing import-dependent WTO Members.
Chinese export quotas (and export duties), notably through their price effects but also due
to the uncertainty of supply, also created an incentive for re-location of downstream
production from other WTO-Members to China which would have not existed in the absence
of those quotas.
46. Contrary to what China alleges, the two restrictions on exports (duties and quotas) cannot
be analysed in isolation. The presence of th e export duty may at times lead the quota to
have no apparent effect on foreign price, if the duty reduces quantity demanded below the
quota level. However, it would be erroneous to conclude that this would imply that the
export quota would have no effect (in the absence of the duty). The two export restriction
measures interact. China argues in its second written submission that the increases in prices
required to balance supply and demand can be brought about by either export duties or
export quotas. Given the existence of the expo rt duties, China has sought to show that
quotas have added no more discrimination against non-Chinese users. In other words, China
is "scarifying" export duties to make its case on export quotas appear more credible.
47. The fact that the export quotas and export duties at issue in this dispute have been
challenged by the Complainants under different legal claims is a reflection of the fact that
they are infringing different WTO obligations, and are also imposed by different legal
instruments under Chinese domestic law. However, this does not detract from the fact –
which China has not disputed – (i) that both export quotas and export duties are in place
and (ii) that both only affect market players outside China. Both also produce similar effects
and ultimately distort the market conditions in favour of China. If one were to accept
China's premise that the various elements that form part of its conservation policy cannot be
analysed in isolation, because they reinforce each other and produce similar and/or
complementary effects. The same should hold when analysing effects on foreign users,
which are manifestly affected by export quotas and export duties, which produce similar and
complementary effects.
48. While we may not have all the data to determine beyond any doubt that the removal of the
duties could result in quotas becoming binding again, the effect that export duties certainly
do have is that of increasing the price gap between domestic and foreign prices, which in
turn creates a competitive advantage for Chinese downstream producers over foreign
producers; this advantage would not have existed in the absence of export duties. It is also
because of this discriminatory effect on foreign users - which they share with export quotas
- that the effects of both export duties and ex port quotas have to be analysed together -
and not because of their relation to conservation or environmental protection the existence
of a genuine link with which is in any event highly questionable.
1.4.3. The amounts of available export quotas for rare earths are not
determined in a transparent and predictable manner
49. China has put in place a system whereby the amounts of export quotas available for any
given year are set in a manner which is both arbitrary and non-transparent. China's yearly
decisions on the setting of export quotas affe ct the rights of other WTO Members and their
operators to an undisrupted and predictable international trade in rare earths. Any
restriction to such trade, even if provisionally justified as related to conservation within the
meaning of Article XX(g), must be administer ed in a transparent and predictable manner.
China's failure to do so constitutes arbitrary and unjustifiable discrimination and a disguised
restriction to trade within the meaning of the chapeau.
50. The European Union submits that China does not base its quota setting decisions on
objective and verifiable criteria. Up until 2012 China did not disclose any background as to
the criteria that informed its decision on the quantities of rare earths that were made
available for export. In 2012 China for the first time published a declaration, which
explained in very general terms and ex post facto how the quotas were set. Moreover, China
discloses no detail about its mid-term or long-term conservation targets and only provides
very general criteria that allegedly serve as basis for the decision on the setting of export
quotas. It is not clear from the evidence that China presented to this Panel what will be the
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relative weight ascribed to each of the criteria in its yearly decisions. Furthermore, past
practice in the setting of export quotas for rare earths seems to confirm that actual and
projected domestic consumption will not always carry the same weight in the final decision
as demand of rare earths for export. While China's lack of transparency makes it difficult to
establish this with certainty, it seems that if the same consideration have been relied upon
since the introduction of the export quotas, the importance ascribed to each of them for the
setting of the export quota and production ca p was not the same each year. Nowhere in the
documents presented to this Panel does China indicate that any change is to be expected in
that respect.
1.4.4. The rationale for the Chinese expo rt restrictions does not relate to
conservation and the discrimination that is inherent to those
restriction was entirely avoidable
51. In accordance with the jurisprudence of the Appellate Body in Brazil – Retreaded Tyres to
determine whether Chinese export quotas on rare earths are discriminatory in violation of
the chapeau of Article XX the Panel will need to consider whether the rationale that China
provides for the discrimination relates to the alleged conservation objective of the measure.
52. As already noted, China misinterprets the scope of "conservation" under Article XX(g). It is
clear - when Article XX(g) is interpreted correctly – that the objective of conservation does
not justify measures aimed at protecting and furthering one's own industrial policy goals, as
China has done in this case. This also shows that the trade distortive effects inherent to the
export restrictions and the manner in which China administered them were by no means
accidental. Quite to the contrary, they were th e result that China sought to achieve in the
context of its industrial policy.
53. Moreover, the discrimination which is inherent to export quotas on rare earths was entirely
avoidable. As explained by the Appellate Body, discrimination can be considered as arbitrary
or unjustifiable, in cases where it is avoidable and foreseeable. In a case like this where the
rationale for the measure at issue is not even related to conservation, the only acceptable
alternative is abolishing the measures altogether.
54. However, even if – quod non – the Panel were to consider that China was justified to take
certain measures to help enforce China's restrictions on production by preventing
smuggling; signal the need for exploring ot her sources of supply; and safeguard China's
domestic industry from surges in foreign demand, the European Union submits that this
could have been done without distorting trade e.g. through bilateral and multi-later
international dialogues or ad hoc action responding to actual needs. The European Union
submits that in view of the declared objective, the impact of the Chinese export quotas (on
non-Chinese users of the materials specifically and international trade generally) is
disproportionately severe. These negative effects on international trade are only accentuated
by the lack of transparency and due process in the setting and administration of export
quotas and the additional imposition of expo rt duties. For all these reasons, the export
quotas constitute arbitrary and unjustifiable discrimination and a disguised obstacle to trade.
2. CHINA'S EXPORT QUOTAS FOR TUNGSTEN ARE IN BREACH OF CHINA'S WTO-
OBLIGATIONS
2.1. CHINA'S POLICY CONCERNING TUNGSTEN
55. The European Union notes at the outset that this overview of China's " conservation policy for
tungsten", appears to be similar in structure to China's "comprehensive policy for rare
earths"; although containing considerably fewer component measures, which China itself
seems to acknowledge by not calling it "compr ehensive". China's export quota on tungsten
does not meet the conditions of sub-paragraph (g) and of the chapeau of Article XX of the
GATT 1994.
2.1.1. China's export quotas on tung sten do not meet the conditions of
sub-paragraph (g) of Article XX of the GATT 1994
56. The European Union submits that China's ex port quotas on tungsten, in violation of
Article XI of the GATT 1994, are not measures "relating to the conservation of exhaustible
natural resources" within the meaning of Arti cle XX (g) of the GATT 1994. As China claims
that its commitments under paragraphs 162 and 165 of China's Working Party Report on the
export quotas on tungsten are also justified under GATT Article XX(g), the arguments made
by the European Union rebutting China's claims apply mutatis mutandis.
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57. The European Union does not contest the fact that "tungsten" is a "natural resource".
However it is important to note that the export quotas that China imposes on "tungsten" are
not only imposed on the "tungsten ores" themse lves, which are not even allocated a quota,
but are also imposed on various forms of "tungsten" products which have undergone some
degree of further processing. Moreover, China's claim for a "close and genuine relationship"
between the export quotas that it imposes on tungsten and the objective of conservation is
not supported by evidence. As already submitted above, the few explicit textual links
referred to by China do not at all explain the relationship between the export quota and the
alleged conservation objective.
58. In order to compensate for the missing textual link, China claims post hoc that its export
quotas on tungsten "enhance the effectiveness of China's conservation policy", by signalling
to foreign users of tungsten the need to develop and locate other sources of supply or to
develop substitutes. However, the European Union recalls that since China started
dominating the world tungsten market from the 1970s, many others operations in other
countries simply shut down operations as they could not compete with China's cheaper
prices. In addition to the more systemic arguments against the appropriateness and
effectiveness of such "signalling" with regard to the conservation objective, the EU would
like to point out that such a "message" is also ineffective as, substitutes to tungsten are not
easily found.
59. Furthermore, China's export quotas on tungsten are not "made effective in conjunction with
domestic restrictions on production or consumption" and do not meet the requirements of
the "even-handedness test."
60. With regard to China's conditions for access to the tungsten industry, the European Union
submits that, as for rare earths, China does not substantiate why these "access conditions"
– are functioning as a "domestic restriction" within the meaning of Article XX (g) of the GATT
1994. The "Opinions on the Integration and Exploitation of Mineral Resources" is essentially
a plan to create order out of a chaotic situation, and is - if anything - an encouragement to
mine more, and not less. With regard to the other measures that China refers to, the
European Union submits that, as explained for rare earths, establishing order in the mining
sector and consolidating the industry does not necessarily lead to a limitation in production.
To the contrary, more efficient industries, which have to proof a certain scale of production
and minimum recovery rates, are most likely to mine more than less.
61. With regard to China's alleged volume restri ctions on the production of tungsten, the data
presented by China does not prove that China has volume controls in place as the
established targets seem to have always been exceeded. Moreover, as from 2002 onwards,
the amount of the "extraction plan" for tungsten was continuously and consistently
increasing. Moreover, the European Union disagrees with China's assertion that the
combined effect of the production quota and the export quota is that the available amount of
tungsten for domestic consumption in 2012 is decreased comparing to the year 2011. To the
contrary, the export quotas have the effect of reserving or diverting production that could
otherwise have been consumed abroad to the Chinese market. Furthermore, with reference
to the resource tax on the extraction on tungsten ores, like for rare earths, China does not
substantiate its arguments on how exactly this resource tax limits production.
62. The European Union therefore submits that Ch ina has not demonstrated that it has effective
restrictions on domestic production or consumption in place. The " even-handedness" test
required by GATT Article XX(g) is therefore not satisfied. However, even if quod non, the
Panel were to accept that China has a restriction on domestic production or consumption in
place, the European Union submits that China's export quotas on tungsten still do not pass
the "even-handedness" test as required by GATT Article XX (g). While " identical" treatment
of domestic and foreign consumers may not be required, China would "need to show that
the impact of the export duty or export quota on foreign users is somehow balanced with
some measure imposing restrictions on domestic users and consumers in order for its
measures to be "even-handed".
63. China's export quotas on tungsten are an added burden on foreign consumers, and this
element in itself is already enough to prove th at the export quotas imposed by China do not
meet the "even-handedness" requirement of GATT Article XX(g). In China, as from 2002
onwards, the amount of the "extraction plan" for tungsten was continuously and consistently
increasing. During the same time frame, export quotas on tungsten had already been in
place, and as from 2003 onwards, there is a noticeable, steady and continuous tightening of
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the export quotas imposed by China. Additional ly, the Panel should also keep in mind that
the foreign consumers of tungsten also have the additional burden on the imposition of the
export duties on tungsten. Naturally, the export duties on tungsten are not imposed on
Chinese domestic consumers.
2.1.2. China's export quotas on tung sten do not satisfy the requirements
of the chapeau of Article XX of the GATT 1994
64. If, quod non, the Panel were to consider that the Chinese export quotas on tungsten can be
provisionally justified under paragraph (g) of Article XX, the European Union submits that
these measures in any event fail to satisfy the requirements of the chapeau. The European
Union begins by noting that China carries the burden of proof to justify its export restrictions
on tungsten under Article XX, including under the chapeau. China's submission fails to
provide an explanation as to the differential treatment that its export quotas afford to China
as compared to all other WTO Members.
65. The export quotas on tungsten impose an ad ditional restriction on exports, which does not
exist with respect to trade in tungsten for domestic consumption. Furthermore, data
submitted by China confirms that unlike the qu antities available for domestic downstream
users, which show an increasing trend, export quotas have been tightened every year
between 2003 and 2009, increased in 2010, only to then again be reduced abruptly the year
after.
66. China's line of defence oversimplifies and underestimates the impact of the Chinese export
quotas on tungsten on the world market in tungsten. As China itself notes, China presently
produces 83% of the world's tungsten supply. Holding such an important share of the world
market necessarily means that any reduction to the quantities available will produce
economic effects on the world market for tungst en. In assessing the trade distortive impact
of China's measure it is also important to consider that China did not and continues not to
disclose the criteria based on which the quotas are set for each year, making its yearly
decisions entirely arbitrary and unpredictable and thereby accentuating their negative
effects. China's export restrictions on tungsten did not pursue conservation goals, but were
rather motivated by protectionist objectives. The objective to provide an advantage to its
industry over its competitors in other WTO Members is apparent from the "design,
architecture and revealing structure", as well as from its effects.
3. CHINA'S EXPORT QUOTAS FOR MOLYBDENUM ARE IN BREACH OF CHINA'S WTO-
OBLIGATIONS
3.1. CHINA'S EXPORT QUOTAS ON MOLYB DENUM DO NOT MEET THE CONDITIONS OF
SUB-PARAGRAPH (G) AND OF THE CHAPEAU OF ARTICLE XX OF THE GATT 1994
67. The European Union contests China's argument that the export quotas imposed by China, in
violation of Article XI of the GATT 1994, genuinely are "relating to the conservation of
exhaustible natural resources" within the meaning of Article XX(g). As China claims that its
commitments under paragraphs 162 and 165 of Ch ina's Working Party Report on the export
quotas on molybdenum are also justified under GATT Article XX(g), the arguments made by
the European Union rebutting China's claims apply mutatis mutandis.
68. China's interpretation of the meaning and scope of "conservation" is erroneous. China's
export restrictions on molybdenum are not "made effective in conjunction with restrictions
on domestic production or consumption", and thus do not meet the requirements of sub-
paragraph (g) of Article XX. More over, the requirements of the chapeau of Article XX are
also not satisfied.
3.1.1. China's export quotas on moly bdenum do not meet the conditions of
sub-paragraph (g) of Article XX of the GATT 1994
69. The European Union does not contest the fact that molybdenum is a "natural resource", but
notes the fact that the export quotas that China imposes on "molybdenum" are also imposed
on various forms of molybdenum products, which have already undergone some further
processing. Moreover, the asserted claim that China's export quotas on molybdenum "relate
to" conservation rests solely on the fact that the "Public Notice of Application Conditions and
Application Procedures for the 2012 Export Quotas of Indium, Molybdenum and Tin" –
published in November 2011 - contains the phrase "in order to protect the resources".
However, the document that China refers to does nothing more than pay lip service to the
general concepts of the protection of resource s and the environment. In the opinion of the
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European Union China has not proved that the export quotas it imposes on molybdenum are
"related to the conservation of exhaustible natural resources" as is required by Article XX (g)
of the GATT 1994.
70. China's export quotas on molybdenum are not "made effective in conjunction with domestic
restrictions on production or consumption" an d do not meet the requirements of the "even-
handedness" test. As regards the measures that China claims as those which control the
access to the molybdenum industry China simply refers to the document entitled, "Opinions
on the Integration of Exploitation of Mineral Resources" which is clearly not a measure
aimed at "conservation", and also indicates that the target and mission of this integration is
to: "significantly improve the ability of exploiting and utilizing mineral resources." As regards
China's "volume restrictions" on molybdenum, the data produced by China indicates that in
the years that this "production plan" on molybdenum was introduced (i.e. 2010 and 2011),
the actual level of production of molybdenum in China exceeded the level set in the plan by
around 30,000 Tons. The data provided by Chin a also indicates a dramatic increase in the
volume of molybdenum extracted in the last de cade. Moreover, with regard to the resource
tax, China does not substantiate how this resource tax would actually limit production.
71. Additionally the European Union submits that China's export quotas on molybdenum do not
meet the "even-handedness" test required by GATT Article XX (g). While "identical"
treatment of domestic and foreign consumers is not required, China would "need to show
that the impact of the export duty or export quota on foreign users is somehow balanced
with some measure imposing restrictions on domestic users and consumers in order to
prove the even-handedness of its measure." In the opinion of the European Union, China's
export quotas on molybdenum are an addition al burden only on foreign consumers of
molybdenum, and do not therefore meet the "even-handedness" requirement of
Article XX(g).
3.1.2. China's 2012 export quotas on molybdenum do not meet the
requirements of the chapeau of Article XX of the GATT 1994
72. If, quod non, the Panel were to consider that the Chinese export quotas on molybdenum can
be provisionally justified under paragraph (g) of Article XX, the European Union submits that
these measures in any event fail to satisfy the requirements of the chapeau. The European
Union notes that China failed to meet its burden to show that export quotas on molybdenum
satisfy the conditions of the chapeau, notably with respect to the condition that the measure
not be applied in a manner which would constitute arbitrary or unjustifiable discrimination.
In assessing the trade distortive impact of China's measure it is also important to consider
that China did not and continues not to disclos e the criteria based on which the quotas are
set for each year, making its yearly decisions entirely arbitrary and unpredictable and
thereby accentuating their negative effects.
4. THE PRIOR EXPORT PERFORMANCE AND MINIMUM REGISTERED CAPITAL
REQUIREMENTS ON RARE EARTHS AND MOLYBDENUM ARE INCONSISTENT WITH
PARAGRAPH 5.1 OF CHINA'S ACCESSION PROTOCOL AND PARAGRAPHS 83 OR 84
OF THE WORKING PARTY REPORT
73. China has violated its trading rights commitm ents by imposing prior export performance and
minimum registered capital criteria. Article XX of the GATT 1994 is not available to justify
China's violations of commitments to abolish prior export performance and minimum
registered capital requirements. However, even if Article XX of the GATT 1994 were
considered to be available, quod non, China failed to make a prima facie case under
Article XX of the GATT 1994. The European Union notes that the manner in which China
attempts to have this Panel apply the Article XX GATT exception to its violations of the
trading rights commitments under the Accession Protocol is both legally and logically
incoherent. China's argumentation ignores that the obligations under its Accession Protocol
relating to trading rights are distinct from and additional to obligations under the
GATT 1994.
74. The European Union is challenging China's imposition of prior export performance, prior
export experience, and minimum capital requir ements. The European Union considers prior
export performance as a subset of prior export experience; that is, by requiring an exporter
to satisfy specific prior export performance requirements for rare earths and molybdenum,
China also requires exporters to demonstrate prior export experience.
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5. CHINA'S 2012 EXPORT DUTIES FOR RARE EARTHS, MOLYBDENUM AND
TUNGSTEN ARE INCONSISTENT WITH CHINA'S WTO OBLIGATIONS
75. Despite the fact that a previous panel and th e Appellate Body have already ruled that China
cannot resort to the GATT 1994 Article XX general exceptions in order to defend the export
duties it imposes on various products, China still chose to ask this Panel to issue a
preliminary ruling on the applicability of Article XX of the GATT 1994 to paragraph 11.3 of its
Accession Protocol. The European Union repeats its position that the panel and consequently
the Appellate Body in China-Raw Materials did not err in ruling that Article XX of the GATT
Agreement was not applicable to paragraph 11.3 of China's WTO Accession Protocol and that
the Panel should follow established jurisprudence.
76. The term " WTO-plus provisions" is not a term which is contained in China's Accession
Protocol, the WTO Agreement or any of the agreements contained in the Annexes to the
WTO Agreement. As regards the place of accession protocols in the WTO legal universe, this
issue would appear to have been exhaustively addressed in Article 1(2) of China's Accession
Protocol, which does not refer at all to the Annexes to the WTO Agreement in their entirety,
or individually to specific Agreements contai ned in the Annexes. The interplay between the
annexed agreements among themselves and with the numerous Accession Protocols has to
be assessed on a case by case basis. As to the relationship between paragraph 11.3 of
China's Accession Protocol and the provisions of the GATT, (notably the applicability of
Article XX), the panel and Appellate Body in China-Raw Materials have after an exhaustive
analysis denied such applicability. The European Union fully subscribes to this result. It is
only logical that accession protocols were considered as integral parts of the GATT 1947, as
in fact there was no other agreement to which they could have "been an integral part of" in
the pre-WTO era.
77. In order to establish whether a measure can be justified under Article XX(b) of the GATT
1994, the Panel would need to examine: (i) whether the policy reflected in the measure falls
within the range of policies designed to achiev e the objective of or, put differently, whether
the policy objective is for the purpose of, "protect[ing] human … life or health". In other
words, whether the measure is one designed to achieve that health policy objective; (ii)
whether the measure is "necessary" to achieve said objective; and (iii) whether the measure
is applied in a manner consistent with the chapeau of Article XX.
78. According to established WTO case-law, the fi rst step in order to analyse whether a measure
can be justified under Article XX(b) of the GATT was to verify that the policy objective of the
measure falls within the range of policies designed to protect human, animal or plant life or
health. The term " necessary" contained in the text of GATT Article XX(b) has also been
developed by WTO case-law. In the Brazil-Retreaded Tyres dispute, the Appellate Body
commented on how a panel might conclude that a measure also " apt to produce a material
contribution" to its stated objective at some future time. However, according to the panel in
the China-Raw Materials dispute the burden of proof was on China to provide evidence about
the potential future contribution to the desi red policy goal, by supporting its claim with
sufficient evidence.
79. The European Union submits that China's " economic theory ", i.e. that the reduction in
foreign demand for these materials, (brought about by the increase in export prices a due to
the imposition of the export duties) will necessarily result in less production and therefore
less pollution in China is at best incomplete. What China does not state is that the decrease
in foreign demand would also result in the diversion of production to the Chinese domestic
market. This in turn provides an incentive to the more intensive use of such raw materials
by China's domestic downstream industries, making the Chinese economy in the long-run
even more dependent on the use of such in puts. The European Union adds further that
China also does not provide any evidence or data on how the imposition of these export
duties on rare earths, tungsten and molybdenum might have already resulted in a decrease
in demand, production and consumption of these products, and how this already might have
had a beneficial effect on environmental and health protection in China. China also does not
provide any explanation on the criteria it has us ed to set the level of the export duties, and
what specific effects on production would be expected from a specific duty level.
80. Moreover, China has remained silent on the relationship between export duties and export
quotas which are imposed on the very same products. It also does not at all explain why it
has chosen to defend its export quotas by Ar ticle XX(g) but not with Article XX (b) of the
GATT Agreement, despite being specifically asked to do so by the Panel. Furthermore, China
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makes reference to the less-trade restrictive " alternative measures" that China could have
taken in order to achieve its objective. The European Union notes that China confirms that is
already using a "diverse range of complementary measures" in order to achieve its objective
of environmental protection. The European Union believes that what is really important and
essential for environmental and health protection is that China enforces these measures and
if possible, even improve on them.
81. The European Union submits that China did not make a prima facie case under the chapeau
and that it is in any event clear that its ex port duties could not be justified under the
chapeau of Article XX. Despite conceding that its export duties discriminate against
consumers from other WTO Members, China fails to put forward any fact or argument as to
why this discrimination should be considered as justified under the chapeau. The European
Union recalls that export duties by increasing prices for foreign customers fail to reduce
overall consumption and do not therefore cont ribute to the reduction of production and
reduction of environmental impact that would flow from it. In addition, according to the
Appellate Body, discrimination is also arbitrary or unjustifiable, in cases where it is avoidable
and foreseeable, such us in cases, where alternative measures exist which would have
avoided or at least diminished the discriminat ory treatment. China failed to put forward
evidence that would demonstrate the compliance of its export duties with any of these
criteria.
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ANNEX B-3
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF JAPAN
First Part of the Integrated Executive Summary of Japan
I. Introduction
1. This dispute challenges China's dominion over global trade in rare earths, tungsten, and
molybdenum.1 China restricts access to these materials through a range of WTO-inconsistent
export measures, including export quotas, export duties, and the restrictive administration and
allocation of export quotas.
2. China's export measures are inconsistent with the letter and spirit of its obligations under
the GATT 1994, WTO Accession Protocol, and China's WTO Working Party Report. Moreover, China
has intensified the restrictiveness of its export measures: (1) export quota amounts have shrunk;
(2) the range of products covered by export quot as and duties has expanded; and (3) the criteria
for obtaining export quotas have become even more stringent.
3. China's restrictive policies have systemic implications for the WTO and its Members. China
is the world's leading producer of rare earths, tungsten, and molybdenum - crucial inputs in the
industrial production of advanced technologies su ch as batteries, electric vehicles, wind turbines,
lighting, satellites, cell phones, hard drives, ca meras, computers, glass, chemicals, and high-
temperature steel. China's export measures are designed and structured to transform its
leadership in production of these key raw materials into leadership in advanced technologies at the
expense of its trading partners and the WTO system. China's export restrictions thus pose a major
threat to WTO Members (including both developed and developing countries) with limited resource
endowments that depend on imports of certain raw materials or industrial inputs.
II. Factual Background
A. The Raw Materials
4. Rare earths are a group of 17 chemical elemen ts in the periodic table – scandium, yttrium,
and the fifteen lanthanides (lanthanum, cerium, praseodymium, neodymium, promethium,
samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and
lutetium).
2 Because of their special properties of magnetism, luminescence and strength, rare
earths are key inputs in high-technology and clean-energy applications, including magnets in
motors, generators, and hard disk drives; battery alloys for energy storage in wind turbines or
hybrid and electric vehicles; phosphors in fluorescent lighting; fluid catalytic cracking catalysts in
petroleum refining; and polishing powders for flat panel displays and hard disk drives.
5. Tungsten is an element with the atomic number 74 that has the highest melting point and
lowest vapor pressure of all metals. Tungsten is primarily used to produce cemented carbides,
which are primarily consumed by the engineering, metal forming, and construction industries.
6. Molybdenum is a silvery metallic element with an atomic number of 42. Molybdenum is an
important alloying agent for steel, super alloys, and chemicals.
B. China's Export Duty Regime
7. China's General Administration of Customs (" Customs") has the authority to collect export
duties, and China's Tariff Commission is responsible for determining items subject to duties and
adjusting duty nomenclature, heading numbers, and duty rates.
8. Since 1 November 2006, China has imposed export duties on rare earths, despite China's
express commitment to abolish such duties. In 2012, the export duties on rare earths ranged
between 10 and 25% ad valorem.

1 The Chart of Raw Materials Names (Exhibit JE-3) sets out short form names and reference codes for
the specific products constituting the various forms of the raw materials at issue in this dispute.
2 Consistent with its Panel request, Japan treats thorium as a rare earth in this dispute because China
considers it as one of the "medium-heavy rare earths" and restricts its exportation both through export quotas
and duties.
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9. China has imposed export duties on tungsten and molybdenum since 2008, despite China's
express commitment to abolish such duties. 3 In 2012, China's export duties on tungsten and
molybdenum ranged from 5 to 20% ad valorem.
C. China's Export Quota Regime
10. China's Ministry of Commerce ("MOFCOM") has the authority to impose and administer
export quotas. MOFCOM, in conjunction with Customs, is responsible for formulating and
publishing an annual list of all goods subject to export quotas and making adjustments to the list.
MOFCOM typically issues annual export quotas in two batches, one in December of the preceding
year, and the other in July of the quota year.
4 Rare earths, tungsten and molybdenum are subject
to annual export quotas.
11. The annual export quota for rare earths is allocated between light rare earths and medium-
heavy rare earths. In 2012, China's rare earth export quota was 30,996 MT, including 27,122 MT
for light rare earths and 3,874 MT for medium-heavy rare earths.
12. The annual export quota for tungsten is allocated among four categories of tungsten
products: (1) tungstic acid and its salts; (2) tungstic trioxide and blue tungsten oxide; and
(3) tungsten powder and its products; and (4) ammonium metatungstate and paratungstate. In
2012, the total export quota for tungsten was 18,967 MT.
13. The annual export quota for molybdenum products is allocated among three molybdenum
product categories: (1) primary raw molybdenum; (2) chemical molybdenum products; and
(3) molybdenum products. In total, China's molybdenum quota for 2012 was 40,862 MT.
D. China's Quota Administration and Trading Rights
14. China required enterprises to meet prior export performance and minimum registered capital
requirements in order to obtain rare earth and molybdenum export quota rights in 2012.
E. China's Export Regime Supports Its Industrial Policies
15. China's export measures are neither designed nor structured to address any policy objective
other than to advance China's industrial policies with respect to rare earths, tungsten,
molybdenum, and other "strategic" raw materials where China's abundant production and
resources provide Chinese industries a competitive advantage. China's measures promulgated
since 1991, at both the central government and pr ovincial levels, demonstrate that the export
measures on rare earths, tungsten, and molybdenum served to promote China's downstream
industries and value-added exports.
III. Legal Discussion
16. China committed upon its accession to the WTO to reduce significantly its export restrictions
on important resources. China has utterly failed to meet its WTO commitments.
A. China's Temporary Export Duties Are Inconsistent with China's
Obligations under Part I, Paragr aph 11.3 of China's WTO Accession
Protocol
17. China committed in Paragraph 11.3 of its WTO Accession Protocol to "eliminate all taxes and
charges applied to exports," except in two specif ic situations – (1) where the taxes and charges
are covered by Article VIII and applied consistently with the requirements of Article VIII, and (2)
where the taxes and charges are imposed on product listed in Annex 6.
18. Despite this commitment, China imposes export duties at ad valorem rates ranging from 5
to 25 percent on various forms of rare earths , tungsten, and molybdenum. Neither of the two
exceptions set forth in Paragraph 11.3 of China's WTO Accession Protocol applies to China's export
duties on the raw materials.
19. China's export duties restrict supplies of critical raw materials to other WTO Members and
provide a substantial competitive advantage to Chinese users that produce downstream products
over foreign competitors. These Chinese producers have benefited from privileged access to key
raw material inputs for products ranging from magnets, batteries, windmills, to electric cars. The

3 Japan does not contest in this dispute the export duty on tungsten ores and concentrates under HS
No. 2611.00, which are included in Annex 6 of China's WTO Accession Protocol.
4 MOFCOM also has occasionally issued a supplementary batch between the first and second batches.
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Chinese downstream industries also benefit from price differentials between Chinese domestic and
export prices resulting from China's export duties.
B. China's Export Quotas Are Inconsis tent with China's Obligations under
Article XI:1 of the GATT 1994
20. Article XI:1 of the GATT 1994 prohibits WTO Members from instituting or maintaining
restrictions or prohibitions made effective through a quota on the exportation of any product. The
negotiating history of Article XI of the GATT shows that the provision was intended to guard
against the imposition of quantitative prohibitions and restrictions on raw material exports
intended to protect or promote domestic industry.
21. China imposes export quotas on rare earths, tungsten, and molybdenum contrary to the
dictates of Article XI:1 of the GATT. These export quotas are similar in structure and design to the
export quotas found to be WTO-inconsistent by the panel in China – Raw Materials.
22. China's export quotas on rare earths, tung sten, and molybdenum are also inconsistent with
Paragraphs 162 and 165 of the Working Party Report, which contain China's specific commitment
to eliminate export restrictions.
23. China's export quotas are neither designed nor structured to address any policy objective
other than to provide a competitive advantage to downstream users of rare earths, tungsten, and
molybdenum. They do not support any policy objective other than China's long-standing goal of
utilizing its abundant supplies of certain raw materials to develop and maintain global dominance
of key downstream industrial technologies.
C. China's Administration and Allocation of Its Export Quotas Is Inconsistent
with China's Obligations under Chin a's WTO Accession Protocol, China's
WTO Working Party Report, and the GATT 1994
24. In order to address WTO members' concerns on China's unusually broad restrictions on
trading rights, China committed during its WTO accession to ensure that all enterprises in China
shall have the right to trade in all goods throughout the customs territory of China, except those
listed in Annex 2A or Annex 2B of China's Accession Protocol.
25. Part I, paragraph 5.1 of China's WTO Accession Protocol, and paragraphs 83 and 84 of
China's WTO Working Party Report establish that all enterprises in China, all foreign enterprises,
and all foreign individuals shall have the right to export all products from China, except for goods
listed in Annex 2A or Annex 2B of China's acce ssion protocol, after December 11, 2004. These
commitments extend only to rare earths and molybdenum as tungsten is listed in Annex 2A.
26. China also committed in paragraph 83(a) of China's WTO Working Party Report to eliminate
any export performance or prior experience requirements as criteria for obtaining or maintaining
the right to export and to phase out completely its minimum registered capital requirements to
obtain trading rights after a three-year transiti on period. Paragraph 83(b) of the Working Party
Report reiterates China's commitment in Article 5. 1 of its WTO Accession Protocol to eliminate the
"examination and approval" system for enterprises to be granted trading rights, and with it any
minimum registered capital requirements. Paragraph84(b) of the Working Party Report states that
China's commitment to eliminate its prior experience and minimum registered capital requirements
applies to foreign enterprises and individuals in China.
27. Contrary to these commitments, China limits the right of enterprises to export rare earths
and molybdenum as part of its administration and allocation of the rare earth and molybdenum
export quotas. China applies prior export perf ormance, prior export experience, and minimum
registered capital requirements to restrict the enterprises' right to export rare earths and
molybdenum. China further relies on enterprises' prior export performance as a criterion to
allocate export quota rights.
IV. Conclusion
28. For the foregoing reasons, Japan respectfully requests that the Panel find that China's
measures are inconsistent with China's obligations under the GATT 1994 and China's WTO
Accession Protocol. Japan further requests, pursua nt to Article 19.1 of the DSU, that the Panel
recommend that China bring its measures into conformity with its obligations.
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Executive Summary of the Oral Statements of Japan at the First WTO Panel Meeting
I. Introduction
29. The Government of Japan would like to ex press its appreciation to the Panel Chairman,
Members of the Panel, and Members of the Secretariat on this important matter.
30. China uses export restrictions to limit access by global users to supplies of rare earths,
tungsten, and molybdenum through export restrictions in order to secure a competitive advantage
for China's domestic industries. China's export restrictions on these raw materials are inconsistent
with GATT Article XI:1 and China's commitments in its WTO Accession Protocol.
31. China does not deny that its export measures are prima facie inconsistent with Article XI:1
of GATT 1994 and its WTO Accession Protocol. Instead, China seeks to defend the WTO-legality of
its export quotas and trading rights measures by arguing they are justified under GATT
Article XX(g). China also defends the WTO-consistency of its export duty measures by claiming
that they are justified under GATT Article XX(b). China further contends that its export restrictions
satisfy the additional requirements of the Chapeau.
32. Since China has admitted that its measures are prima facie inconsistent with GATT
Article XI:1 and its WTO Accession Protocol, the Panel's task is to determine if (i) the export
quotas and trading rights measures qualify under the GATT Article XX (g) exception, and (ii) the
export duties qualify under the GATT Article XX( b) exception when these measures discriminate
against users overseas and are designed and structured to confer privileged access to domestic
industries and producers. China bears the burden of showing that its measures are justified under
Article XX.
II. Description of China's Export Measures
33. China agreed in Paragraph 11.3 of its Accession Protocol to phase out its broad use of export
duties. However, in 2012, China applied export duties of 10-25% on rare earths and 5-20% on
both tungsten and molybdenum.
34. Quantitative export restrictions are expressly prohibited by GATT Article XI:1 and
Paragraphs 162 and 165 of the WTO Working Party Report on China's accession. Nevertheless,
China maintains export quotas on rare earths, molybdenum, and tungsten. These export quotas
cover rare earth ores, separated and refined rare earths, and certain rare earth metals. China's
export quotas confer a competitive advantage on Chinese producers and exporters of value-added
products, such as rare earth magnets, wind turbines, and electric vehicles.
35. China agreed in Paragraph 5.1 of its WTO Accession Protocol and Paragraphs 83 and 84 of
the Working Party Report to phase out restrictions on trading rights and to extend such rights to
all firms regardless of nationality, except for ce rtain products listed in Annex 2A. China also
specifically agreed not to apply export perf ormance, prior export experience, and minimum
capitalization requirements in determining trading rights. Nevertheless, China still applies export
performance, prior export experience, and minimum registered capital requirements as part of its
quota application procedures for rare earths and molybdenum.
III. Distinctive Features of China's Export Quota Regime
36. China seeks to lump together various trade and conservation measures, as well as measures
plainly designed to provide preferences to domestic users, in what China terms a "comprehensive"
conservation policy.
37. From an Article XX(g) standpoint, the relevant Chinese conservation measures are those
aiming to control the pace of extraction of rare earth, tungsten, and molybdenum ores, which
represent the relevant "exhaustible natural resource" for purposes of Article XX(g). Accordingly, it
is wholly unclear how quantitative export restrictions of the type adopted by China here have any
connection to the conservation of rare earths, molybdenum, and tungsten ores. China's export
quotas set significantly lower quantitative caps compared with its purported domestic production
limits and do not control the pace of extraction. They serve only to restrict foreign access to
extracted ores as well as intermediate products derived from such ores.
38. China's export measures on rare earths, tungsten, and molybdenum were adopted to
guarantee privileged access to these key raw materials for domestic users and industries. The
measures were designed and structured to support China's industrial strategy of promoting its
domestic industries by transferring its advantage in extracting ores to the processing and
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separation of rare earths, molybdenum, and t ungsten, and ultimately, to manufacturing and
exporting value-added products containing these intermediate inputs.
IV. Legal Discussion
39. As the Appellate Body explained in U.S. – Gasoline , the application of an Article XX
exception requires a "two-tiered" analysis – (1) provisional justification of the measure under the
substantive provision of Article XX, and (2) further appraisal under the Chapeau to Article XX. The
burden of proof rests with China with respect to both tiers.
A. GATT Article XX(g)
40. As the party invoking GATT Article XX(g), China bears the burden to demonstrate that the
measures at issue (i) "relate to conservation of exhaustible natural resource," and (ii) are "made
effective in conjunction with restrictions on domestic production or consumption." China has failed
to meet both aspects of this burden.
1. "Conservation"
41. China's defense rests on its expansive reading of the term "conservation" for purposes of
Article XX(g). China essentially contends that resource-endowed countries are allowed by the
WTO Agreement to use their natural resources to bestow a competitive advantage on domestic,
value-added industries for the purpose of promot ing these domestic industries, even if at the
expense of their trading partners.
42. Nothing in the text of Article XX(g) suggests that "conservation" permits restrictions on
imports or exports that relate to the protection or promotion of domestic industries for industrial
development. In fact, WTO jurisprudence and the relevant negotiating history firmly establish that
GATT Article XX(g) may not be used to justify measures taken for domestic protection.
43. China's reliance on the Preamble of the WTO Agreement to justify its interpretation of the
term "conservation" is misplaced. The word "conservation" in Article XX (g) must be read in the
context of the balance struck under the WTO Agreement as reflected in text of the Preamble as a
whole. As the panel held in China – Raw Materials , this means that the right to sustainable
development does not override basic GATT rules, principles, and obligations.
2. "Exhaustible natural resource"
44. The relevant "exhaustible natural resource" for Article XX(g) purposes is rare earth,
molybdenum, and tungsten ores, as opposed to refined and separated intermediate products.
Processed rare earth, molybdenum, and tungsten products are not "natural resources" since they
require separation, processing, refining, and manufacturing.
3. "Relating to"
45. China bears the burden of showing "a clos e and genuine relationship" between the measure
(means) and conservation policy goals (ends). While a panel may take a Member's characterization
of a particular measure into account, a panel may also find guidance in the structure and operation
of the measure and contrary evidence proffered by complainants. As the panel in China – Raw
Materials explained, the focus of analysis should be on the "text of the measure itself, its design
and architecture, and its context."
a. Design and Operation of Measures
46. As the panel pointed out in China – Raw Materials , it does not matter from a conservation
standpoint whether a resource is consumed domestically or exported; instead, the key for
conservation is the rate of depletion of the raw ore. In fact, export restrictions such as those
adopted by China entail long-term, negative e ffects on the conservation of ores. Export
restrictions without equivalent quantitative restrictions on domestic consumption only increase
domestic demand and resource exploitation, leading to faster depletion. This has happened in
China – the tightening of its export restrictions led to skyrocketing domestic consumption.
47. Moreover, the design and structure of China' s export regime encourage a higher degree of
manufacturing and processing in China and confer a production cost advantage on China's value-
added industries. For example, Japan understands that China prohibits the export of rare earth
ores and concentrates, thereby effectively requiring separation and further processing to take
place in China. China also applies export quotas and duties to separated and refined rare earth
products, such as rare earth oxide, rare earth metals, and rare earth alloys, which incentivize
further downstream industries to relocate to China, but imposes no restrictions on exports of
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downstream, value-added products derived from rare earth, molybdenum, or tungsten
intermediates, such as, iPads, smartphones, high-temperature steel, or advanced steel tools.
48. A structural contradiction is that China's export quotas and duties apply broadly to not only
illegally produced but also legally produced rare earths, molybdenum, and tungsten. This is
nonsensical because raw materials produced in accordance with China's alleged production limits
on ores do not pose any discernible conservation concern, since they were legally produced in
accordance with China's production control scheme and desired rate of depletion. China's claimed
goals could be accomplished through narrowly focused, less trade-restrictive means, such as a
more robust and effective export licensing system.
49. Contrary to China's claim, China's export quotas do not prevent the smuggling and foreign
sale of illegally acquired materials. China's export restrictions increase the price of raw materials
outside China and create incentives for smuggling and illegal production.
50. China claims that its export restrictions serve as a "signal" to users of the need to diversify
their sourcing, invest in overseas rare earths, molybdenum, and tungsten mining projects, and
develop substitutes. But the same signal could be sent by setting an effective production limit. In
addition, in U.S. – Shrimp , the Appellate Body condemned the use of unilateral trade measures
whose "intended and coercive effect" is to compel foreign governments to adopt specific policy
decisions or to force foreign economic operation outside of its jurisdiction to act in a certain
manner. If true, China's use of export quotas as a punitive signaling device is a classic example of
a coercive signal.
51. China argues that its export restrictions operate as a "safeguard" for Chinese industries by
protecting against export surges. While this is probably the most straight-forward explanation for
China's measures, this is beyond the scope of Article XX(g) since it involves the protection of
domestic users and has nothing to do with conservation.
b. Text of the Measures
52. China relies on limited textual references added to its 2012 measures as support for its
Article XX(g) defense and asks the Panel to ignore all earlier measures. But, these limited
references are merely a belated effort to justify WTO-inconsistent measures. China's export
measures before late 2011 were bereft of references to resource conservation or environmental
protection. The Panel should examine these me asures closely, as they provide contextual
evidence of the disconnect between China's export measures and resource conservation.
4. "Made Effective in Conjunction wi th Restrictions on Domestic
Production or Consumption"
a. "Operate Jointly With" or "Work Together"
53. The Appellate Body explained in China – Raw Materials that the term "made effective in
conjunction with domestic production or consumption" means "the trade restriction must operate
jointly with the restrictions on domestic production or consumption" such as "when such trade
measures work together with restrictions on domestic production or consumption, which operate
so as to conserve an exhaustible natural resource" (emphases added). China's export and
domestic measures do not satisfy this requirement for a number of reasons.
54. The panel in China – Raw Materials explained that the level of conservation is determined by
the pace of extraction, which in turn depends on domestic production restrictions. China's export
quotas do not add anything to the domestic production restrictions from a conservation standpoint,
but merely impose an additional, unjustified burden on foreign users and exports.
55. Moreover, China lacks domestic regulations limiting consumption. China claims that there is
an implicit consumption limit (based on the difference between the production quota and the
export quota). But China's export quotas set a maximum quantity – as opposed to reserving a
minimum quantity – of rare earths, tungsten, and molybdenum available to foreign users. As
such, the export quotas cannot possibly limit domestic consumption.
b. China's Export Restrictions Lack "Even-Handedness"
56. In U.S. – Gasoline, the Appellate Body explained that application of the "in conjunction with"
requirement of Article XX(g) incorporates a re quirement of "even-handedness." The Appellate
Body's approach indicates that where domestic and foreign users do not receive identical
treatment, any regulatory disparity must have a rational basis in light of the relevant conservation
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purpose. A WTO Member imposing trade restrictions allegedly related to conservation must show
that any disparate treatment has a legitimate regulatory rationale.5
57. China's export quotas and duties fail to m eet this even-handedness test. China does not
impose any restriction on domestic users and consumers that corresponds to its export quotas.
Furthermore, there is no conservation-related regu latory basis for imposing a different regulatory
regime on foreign users in the form of export qu otas. While China argues that the export quotas
serve to prevent smuggling and sales of illegally produced raw materials to foreign consumers,
China has a reasonably available alternative to the imposition of the quota measures: China could
use its export licensing program to ensure that no illegally mined ores will be exported.6
B. GATT Article XX(b)
58. The Appellate Body held in China – Raw Materials that GATT Article XX defenses are not
available to China to justify export duties prohibited under Paragraph 11.3 of China's Accession
Protocol. Nevertheless, China asserted in its subm ission of February 15, 2013 that its export duty
measures are "necessary to protect human, animal or plant life or health" in accordance with GATT
Article XX(b).
59. China's Article XX(b) defense also does not address the panel's finding in China – Raw
Materials that one practical impact of imposing export duties on upstream products such as ores,
absent measures to curb downstream consumption, is that the Chinese domestic price will decline,
contributing to increased downstream production and thus increased demand for ores.
60. Like China's export quotas, China's export duties do not serve to deter the overall
consumption of rare earths, molybdenum, and tungsten, but are rather designed to incentivize
their domestic use and to protect and promote China's domestic industries.
61. China may increase the rates of resource tax to be imposed on a non-discriminatory basis
on ore production or tighten the claimed limits on domestic production, as a less WTO-inconsistent
reasonably available alternative measure to the expo rt duties. The export duties are not part of a
comprehensive policy to protect the environment, but are instead part of a discriminatory policy to
promote China's domestic industries together with the export quotas challenged here.
C. China's Measures Are Inconsistent with the Chapeau
62. In U.S. – Shrimp , the Appellate Body explained that the Chapeau is an expression of the
principle of good faith. The Appellate Body has consistently interpreted the Chapeau requirement
to disfavor both MFN-type discrimination between different WTO Members, as well as national
treatment-type discrimination between other WTO Members and the WTO Member maintaining the
WTO-inconsistent measure.
63. China's export quotas and duties fail to satisfy the Chapeau's requirement of good faith.
First, as the Appellate Body noted in Brazil – Tyres , a trade measure would not comply with the
Chapeau if the rationale for discrimination does not relate to the pursuit of an objective that was
provisionally found to be basis for Article XX justification. For the reasons previously stated,
contrary to China's claim, there is no conservation or environmental justification for China's export
measures; rather, they merely subject foreign us ers to an additional burden. Second, China's
export quotas and duties fall squarely within the category of disguised trade restrictions. The
design and structure of China's export restrict ions show that they serve only to provide a
competitive advantage to Chinese domestic downstream industries engaged in manufacturing and
exporting products requiring rare earths, molybdenum, and tungsten.

5 The Panel's "even-handedness" examination should rely on the design, structure and operation of the
relevant measures to assess whether there is any disparity in their regulatory impact, in light of the claimed
conservation purpose, on domestic and foreign parties, as opposed to the actual market effects of the
measures. Focusing on the actual market effects of China's WTO-inconsistent export restrictions, i.e., the
fulfillment or non-fulfillment of the export quota in a particular year, is inherently problematic because such an
approach may enable China to use the medium- and long-term trade distorting effects of its measures to
justify their continued application. See Japan's Answer to Panel Questions of First Panel Meeting, paras. 51-54,
60.
6 China's export quotas also are not structured to prevent raw materials from being illegally produced in
order to satisfy foreign demands (e.g., China's export quotas do not apply to downstream products requiring
the raw materials as inputs). Accordingly, China's export quotas do not prevent downstream products that
have incorporated illegally mined raw materials from being exported. China's export quotas yield a divergence
in Chinese domestic and export prices, thereby creating incentives for Chinese producers to produce the raw
materials illegally and subsequently to smuggle them out of China. Japan's Answer to Panel Questions, of First
Panel Meeting, para. 35.
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D. China's Restrictions on Trading Rights Violate Explicit Commitments in Its
WTO Accession Protocol
64. China contends that that its quota administration measures on rare earths and molybdenum
are justified under GATT Article XX by virtue of the introductory clause of Paragraph 5.1 as "an
integral part of the export quota system." However, China has failed to show that its export quota
systems comply with Article XX(g) of the GATT 1994. Moreover, Paragraph 84 (b) of China's
Working Party Report clarifies that minimum capital and prior export performance requirements
are not WTO-consistent governmental regulations on trade contemplated in the introductory clause
of Paragraph 5.1 of China's Accession Protocol.
65. Even assuming arguendo that China could invoke Article XX defenses for its trading rights
violations, China's trading rights restrictions may not be justified solely on the basis of China's
contention that its export quotas are justified under Article XX(g). China must independently show
that the quota administration measures at issue are justified under Article XX of the GATT 1994.
V. Conclusion
66. Japan has demonstrated in its opening and closing statements at the First Panel Meeting
that the design and structure of China's measures – most importantly, the quantitative export
restrictions – contribute solely to the development of China's domestic industries. They are not
justified by GATT Article XX(g) or GATT Article XX(b).
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Second Part of the Integrated Executive Summary of Japan
I. Introduction
1. China's export restrictions have severely disrupted global trade in rare earths, molybdenum
and tungsten, injured foreign industrial users outside of China, and forced resource-dependent
industries located in other WTO Members to relocate operations to China to gain access to needed
rare earth supplies.
2. An objective examination of the structure an d design of China's export regime and related
measures demonstrates that China's export restrictions shows they are designed to: ensure
Chinese industries have a competitive advantage in separation, refining and processing of rare
earths, tungsten, and molybdenum; disadvantage fore ign users by limiting quantities available to
them and making them pay higher prices; and transform China's competitive advantage in
producing raw materials, and particularly rare earths, into further advantages in the downstream
production of value-added technologies.
II. Legal Discussion
3. China does not deny the existence of its restrictive measures, or contest that (1) its export
quotas are inconsistent with GATT Article XI:1 and Paragraphs 162 and 165 of the Working Party
Report, which are made legally operative by Paragraph 1.2 of China's WTO Accession Protocol; (2)
its export duties are inconsistent with Paragraph 11.3 of the Accession Protocol; (3) its restrictions
on trading rights are inconsistent with Paragraph 5.1 of its Accession Protocol; and (4) its export
performance, prior export experience, and minimu m capitalization requirements are inconsistent
with Paragraphs 83 and 84 of the Working Party Report. China instead seeks to justify its
restrictive export quotas and trading rights violations under GATT Article XX(g), and its WTO-
inconsistent export duties under GATT Article XX(b).
A. China's Efforts to Justify its Export Quotas under Article XX(g) and the
Chapeau Are Contradicted by Their Structure and Design
4. Article XX(g) requires, as the Appellate Body explained in U.S. – Gasoline , a "two-tiered"
analysis. China must show that its measures (i) "relate to conservation of exhaustible natural
resource", and (ii) are "made effective in conjunction with restrictions on domestic production or
consumption". China also must demonstrate that its export restrictions do not result in "arbitrary
or unjustifiable discrimination" or a "disguised restriction on trade" under the Chapeau. The
burden of proof throughout rests with China.
5. The justifications proffered by China for its export quotas under Article XX(g) are flawed,
because China's export quotas bear no relationship to conservation, are not applied in conjunction
with corresponding domestic restrictions on prod uction or consumption, lack even-handedness,
and are inconsistent with the Chapeau.
1. China's Measures Are Unrelated to "Conservation"
6. "Conservation" in Article XX(g), according to China, goes beyond preserving exhaustible
natural resources and encompasses regulating their use for economic development. Nothing in the
text of Article XX(g), the negotiating history of GATT 1947 or the WTO Agreement, or GATT/WTO
jurisprudence support China's interpretation. The Appellate Body has explained that the definition
of "conservation" excludes economic developmen t and is tied to the preservation of natural
resources and the natural environment. The panel in China – Raw Materials also stated that
although WTO Members may use their natural resource endowments for "sustainable
development", such use must be in accordance with the WTO Agreements.
7. Japan's view is that Article XX(g) permits a Member to determine the appropriate level of
"conservation" but not to set aside resources for domestic users to promote economic
development or to protect or promote domestic indu stries. This view is supported by the text, the
panel's analysis in China – Raw Materials, and the Vienna Convention.
8. The negotiating history of GATT 1947 and report of the 1950 Working Party "D" on
Quantitative Restrictions support Japan's interpretation of Paragraph (g). They evidence that
"conservation" in Article XX(g) does not enable a Member to use trade measures to bestow a
competitive advantage on domestic industries under the pretext of "conservation" policy tools.
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9. China claims that the Preamble to the WTO Agreement supports its use of Paragraph (g) for
domestic protection. Such an interpretation is premised on a selective and flawed reading of the
WTO Agreement. The common objectives articula ted by WTO Members in the Preamble are more
multi-faceted than China acknowledges. Moreover, WTO Members agreed that the solution to
these objectives was to strengthen WTO rules and disciplines, not to permit WTO Members
promote their own economic development at the expe nse of their trading partners in violation of
WTO rules.
10. China's interpretation of Paragraph (g) is overly broad and would enable resource-endowed
countries to rely on "sustainable use and development" to justify limits on exports or imports of
natural resource-derived products in order to protect or promote its domestic processing and
value-added industries. If such practices become widespread, trade restrictions will proliferate,
and every WTO Member will lose.
2. The Design and Structure of China's Measures Show their Lack of a
"Substantial Relationship" with Conservation
a. The Relevant "Exhaustible Natural Resource"
11. Japan respectfully submits that the term "exhaustible natural resource" must be given
meaning in light of the text of Paragraph (g) and its negotiating history. The negotiating history
shows that the drafters of GATT 1947 designed Pa ragraph (g) to have a specific and limited scope
that is strictly limited to natural resource products . The drafters specifically rejected proposals by
certain delegates to expand the scope of Paragraph (g) by adding "or other" to Article 32(j) of the
draft ITO Charter or to expand the scope of Paragraph (g) to cover "manufactured products".
12. For purposes of Paragraph (g), the relevant "exhaustible natural resources" consist of rare
earth, molybdenum, and tungsten ores, as opposed to ore derivatives, such as refined and
separated intermediate rare earths, molybdenum, and tungsten; rare earth oxides; alloys; metals;
or value-added products containing rare earth, molybdenum, and tungsten elements, parts,
components, or other inputs. It is the extraction of rare earth ores that determines the rate of
depletion for conservation purposes. Intermediates, metals, alloys, and value-added products are
not "natural resources", since they require further separation, processing, and manufacturing steps
to process the raw ores from their natural state into pure rare earth elements. As a result, refined
materials are not "natural", nor are they "resources", but are instead artificial, man-made,
manufactured products, which do not qualify for the Paragraph (g) exception.
13. China's export measures are overbroad because they apply to intermediates, metals, and
value-added products containing rare earth inputs, not just ores. China has not explained why
export quotas for intermediate products, such as rare earth oxides and alloys, are necessary to
conserve the exhaustible natural resources at issue, i.e., rare earth ores, while asserting that the
extraction quotas on such ores are effective. Similarly, with respect to Paragraph (g)'s "in
conjunction with" and "even-handedness" requirem ents, if as here a WTO Member expands the
scope of an export quota to cover downstream processed and value-added products, Japan has
explained (in Japan's answer to Panel Question 14 2) that the Member should bear the burden of
demonstrating that domestic consumption restrictions are maintained on such products. This
becomes more and more problematic as the degree of downstream processing and manufacturing
increases, and the operational and functional connection between the trade-restrictive measures
and conservation of an exhaustible natural resource becomes even more attenuated.
14. If, as China contends, any product derived from a natural resource can be subject to
quantitative restrictions under Paragraph (g), its interpretation would cover virtually every
manufactured product, since most are derived in some form from an exhaustible natural resource.
In addition, China's interpretation would permit restrictions on processed and manufactured
products even in the absence of restrictions on the domestic consumption of the same products.
15. Accordingly, the expansive scope of China's ra re earth restrictions, and in particular their
overbroad application to processed rare earths, metals, and alloys, raises serious questions as to
(1) whether such measures "relate to" conservation of ores, and (2) are applied "in conjunction
with" restrictions on domestic production or consumption of ores.
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b. The Structure and Design of China's Measures
16. The text of Paragraph (g) requires that measures "relate to" conservation. China's export
regime lacks a close, genuine, and substantial relationship to conservation, because it is structured
to protect and promote Chinese industries engaged in refining and separating the raw materials
and the development and export of industrial, value-added products.
17. First, from a conservation standpoint, the form in which rare earths, molybdenum, and
tungsten are exported, or whether they are exported at all, should not matter. Instead, the focus
should be on the protection of ores existing within China. Second, China applies export quotas
and duties to separated and refined rare earth products without imposing corresponding
restrictions on exports of downstream, value-added products. As such, the structure and design of
China's export quotas encourage manufacturing and processing in China and undercut China's
ostensible conservation goals.
18. Moreover, China applies export quotas to rare earths produced legally under China's
production quotas. The overbroad application of China's export restrictions to legal raw materials
is inconsistent with the Appellate Body's finding in U.S. – Shrimp that conservation-related trade
measures should be narrowly targeted to achieve their purpose.
19. Finally, the lack of any connection between th e export quotas and conservation is evidenced
by China's sharp reduction in its export quota on rare earths from 2005 to 2012, even as domestic
consumption and production substantially increased over the same period.
c. China's Addition of New Textual References
20. China's justification of its export quotas as conservation measures relies heavily on recently
added textual references. China's approach is inconsistent with (1) the Appellate Body's decision
in Japan – Alcoholic Beverages II , which focuses on the objective structure, design, and
architecture of a measure and rejects an "aim and effect" test, and (2) the panel's decision in
China – Raw Materials , which provides that a mere reference to "conservation" in a measure does
not necessarily indicate that the measure is related to a legitimate conservation goal. Moreover,
the export measures relied on by China do not contain references to conservation, except for two
measures that appeared in late 2011, after the panel's decision in China – Raw Materials . Self-
serving, last-minute additions of textual references should be given little evidentiary weight,
especially because China's earlier measures prov ide clear contextual evidence of the lack of
connection to resource conservation when China's export measures were "made effective".
d. Relevance of China's Pre-2012 Measures
21. Contrary to China's claim that the Panel can only examine the measures related to the 2012
export quota systems, China's pre-2012 measures are highly relevant. Under Appellate Body
precedents, the Panel has the authority to examine earlier, related measures to ascertain whether
they shed light on the structure and design of China's measures. Moreover, China's request that
the Panel rely exclusively on current market conditions should not be accepted because current
market conditions are often, as here, seriously distorted by the long-standing, WTO-illegal
measures at issue.
e. China's Policy Justifications
22. China's purported policy rationales behind the export quotas are not persuasive. First, China
argues that the export quotas prevent the smugg ling and foreign sale of illegally produced raw
materials. However, by increasing the price of raw materials outside China, export restrictions
create incentives for smuggling and illegal prod uction. Moreover, China has not promulgated or
enforced any quota on domestic sales or consumption; indeed, China's downstream domestic
purchasers are not punished for purchasing illegally produced materials. If China's goal is really to
prevent smuggling and illicit production, this co uld be accomplished in a much more focused and
less WTO-inconsistent matter, i.e., implementing an export licens ing system to ensure that any
exported raw materials are legitimately produced and enforcing equivalent safeguards to trace the
origins of rare earths sold for domestic consumption consistent with GATT Article XX(d). China
does not explain why its efforts do not effectuate such enforcement and instead must focus on
exports irrespective of their legality.
23. China claims that export restrictions serve as a "signal" to foreign users of the need to
diversify their sourcing, invest in overseas mining projects, and develop substitutes. The same
signal could be sent in a more effective and less WTO-inconsistent manner by setting and
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enforcing production limits. China's use of export quotas as "signals" falls into the category of
unilateral coercive trade measures condemned by the Appellate Body in U.S. – Shrimp.
24. Finally, China argues that its export restrictions operate as a "safeguard" for Chinese users
by protecting against export surges. This straight-forward explanation for the Chinese measures is
plainly beyond the scope of Article XX(g) since it involves the protection of domestic producers and
has nothing to do with "conservation".
3. China's Export Quotas Are Not "Made Effective in Conjunction with
Restrictions on Domestic Production or Consumption"
25. A WTO Member seeking to invoke GATT Articl e XX(g) bears the burden of showing that its
"measures are made effective in conjunction with restrictions on domestic production or
consumption". This means the trade restriction must "operate jointly with" and/or "work together
with restrictions on domestic production or consumption" to conserve the applicable exhaustible
natural resource"; this provision is designed to ensure a WTO Member cannot single out imports or
foreign users for a disproportionate regulatory burden. The negotiating history of GATT 1947
shows that the drafters repeatedly rejected proposals to eliminate the "in conjunction with"
requirement in order to make it easier for contracting parties to promote industrial development.
The proposals were rejected because of widespread concerns that such an exception might unduly
restrict access to raw materials and invite protectionist abuses.
26. In Japan's view, the terms "operate jointl y with" and "work together with" mean that
conservation-related trade restrictions must be part of a unified regulatory scheme that involves
parallel restrictions on both exports (or imports) an d domestic production or consumption. In this
case, the relationship between China's domestic restrictions on rare earths and its export quotas
does not satisfy this requirement. China does not maintain parallel restrictions on domestic
consumption. At best, the relationship is a "vertical" one, where China's export quota restricts
trade in downstream products derived from rare earth ores and concentrates.
27. In addition, China's alleged production controls do not appear to have any "limiting effect" –
direct or indirect – on domestic production or consumption, and thus are not "made effective".
The production caps are at such high levels that they served as production targets, not limitations,
or have never been seriously enforced. The purported caps have been widely ignored, as China
has both "black mines" conducting illegal mining and production and a "rare earth black industrial
chain". That China has set ambitious targets for dramatically increasing the production of
downstream rare earth, tungsten and molybdenum products by 2015 further shows the caps are
not viewed as having any "limiting effect".
28. China also bears the additional burden of sh owing that its rare earth export quota is "even-
handed" and represents a balancing of the impact of the export quota on foreign users with
restrictions on domestic users and consumers. As the Appellate Body made clear in U.S. –
Gasoline, even-handedness does not involve an "effects test", but instead refers to a regulatory or
structural "impact" to be discerned from the de sign, structure and operation of the conservation
scheme. The panel's deliberate use of the word "balanced" in China – Raw Materials implies that
the impact of export restrictions must be counterbalanced, matched, neutralized, or maintained in
equilibrium by equivalent and regulatory structural burdens on domestic users and consumers.
While even-handedness does not require identical treatment, any disparities in regulatory impacts
must have a rational basis in light of the relevant conservation purpose.
29. As the panel indicated in China – Raw Materials , this means that "[i]n order to show
even-handedness, China would need to show that the impact of the export duty or export quota on
foreign users is somehow balanced with some measure imposing restrictions on domestic users
and consumers". China claims that there is an implicit consumption limit premised on the volume
difference between the production quota and the export quota. However, the export quota
scheme leaves domestic users free to purchase rare earths that are otherwise eligible for export.
This allows domestic consumption to increase beyond what China claims to represent a de facto
consumption limit; the main effect of the export quota is thus to reserve specific quantities of rare
earths for Chinese industrial users.
30. Far from demonstrating China's high-minded efforts to conserve a natural resource or
protect the interests of foreign rare earth consumers, the rare earths export quota scheme
underscores China's long-standing goal of transfor ming its abundant raw material resources into
global dominance in value-added production and exports.
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4. As a Factual Matter, China's Export Quotas Lacks Even-handedness
and Are Not Applied "In Conjunction with" Restrictions on
Domestic Production or Consumption
31. When the specific, distinctive features of China's export and production regimes are
examined in detail, as required under Article XX(g), the lack of even-handedness or any legitimate
conservation-related justification for the added burden on foreign users becomes even more
apparent. Importantly, the production (volume) restrictions imposed by China on the extraction of
ores, which are the key to controlling the rate of depletion, apply regardless of the destination or
use of the products, i.e., they apply both to foreign users and domestic users alike. Accordingly,
China's export restrictions do not "work together with" production restrictions by providing any
additional contribution to the conservation of rare earth ores.
32. By setting the levels of the export quotas significantly below the level of its alleged domestic
production caps, as China acknowledged in its First Written Submission, China has effectively set
aside specific quantities for domestic value-added producers. While China claims to impose
production quotas, production has vastly exceeded these "quotas" even as the export quotas have
been sharply reduced.
33. China attempts to characterize its production quotas and resource taxes as the domestic
counterparts of export quotas and duties. However, China's production quotas and resource taxes
affect domestic and foreign users equally, whereas China's export quotas and duties apply
exclusively to foreign users. As a consequence, because China does not impose any limits on
domestic sales/consumption or a tax that exclusively applies to domestic users, its export quotas
and duties have no domestic counterparts.
34. The design and structure of China's export quotas thus enhance domestic consumption.
China's export quotas subject foreign users to an added burden, to which domestic users are not.
This cannot be even-handed treatment.
35. In response, China argues that export quot as are required to prevent the smuggling of
materials produced in violation of domestic production quotas. Yet China has not promulgated or
enforced any quota on the domestic sale or consumption of illegal raw materials.
36. China further argues that, despite their discr etionary and non-transparent nature, the export
quotas are even-handed because China sets the quota by considering foreign demand. This
argument is invalid since adopting China's approa ch would require the Panel to justify the quotas
by their discretionary and non-transparent features themselves.
37. China also contends that the export quotas are even-handed because quotas were not filled
in 2011 and 2012 and there were only small price differences. China's position ignores the long-
term impact of the export quotas and the fact th at the price disparities are significant enough to
distort markets and trade flows. China has placed undue emphasis on actual foreign and domestic
prices, as WTO precedents show that "even-handedness" does not involve an "effects test".
38. China has imposed its export quotas on rare earths since 1999, and so their medium- and
long-term, trade-distorting effects, including their diminishment of foreign demand, are both
complicated and difficult to isolate. Accordingly, if the non-fulfillment of China's export quotas in
certain years is considered relevant to the Panel's "even-handedness" analysis, the Panel would be
effectively enabling China to use the trade-distorting effects of its WTO-inconsistent measures to
justify the continued application of such measures.
39. Moreover, the fulfillment or non-fulfillment of export quotas depends on various complex
market factors, such as current economic conditions, companies' corporate strategies and
behaviors, and the scale of production and cons umption of the exporting country. Accordingly,
relying on the fulfillment or non-fulfillment of export quotas in the "even-handedness" analysis
could lead to bizarre findings, including (1) that the same export quotas are WTO-consistent in the
years in which such quotas are not fully used but not WTO-consistent in other years, or (2) that
the same export quotas are WTO-consistent for WTO Members with large-scale consumption, but
not WTO-consistent for WTO members with small-scale consumption.
5. China's Export Quotas Fail to Satisfy the Appellate Body's Tests
under the Chapeau of Article XX
40. China has made little effort to justify its arbitrary and unjustifiable discrimination against
exports and foreign users. As the panel noted in China – Raw Materials , from a conservation
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standpoint, what matters is the rate of extraction of the underlying ore, not whether it is exported
or consumed domestically.
41. China's export quotas lack a legitimate regulatory objective and represent a disguised
restriction on international trade. The applicable standard, contrary to China's assertion, is not
whether China's export quotas are "hidden or concealed", but whether they pursue a "legitimate
policy objective", on the one hand, or on the other represents a pretext for protectionism,
discrimination, or abuse. The design and structur e of China's export quotas shows that they do
not serve any purpose, aside from benefitting China's downstream, value-added industries.
42. China claims that its export quotas do not disadvantage foreign users because they do not
lead to price differences and were not filled in 2011 and 2012. This claim is both legally irrelevant
and factually inaccurate. The "effects test" advocated by China was rejected in the Appellate
Body's decision in Brazil – Tyres . China's export quotas were not filled in 2011 and 2012 due to
the combined effects of a variety of economic factors, including the medium- to long-term, trade-
distorting impact of China's export quotas an d duties. First, the most prominent factor
contributing to the lack of full usage of the 2011 export quota was the panic and massive spike in
Chinese rare earth prices in 2011 caused by reductions in China's export quotas and increases in
China's export duties. Second, the reductions in China's export quota levels and concomitant
increases in China's export duties on rare earths forced many global downstream industries relying
on rare earths to shift some or all of their production to China. Finally, the continuing weakness of
the global economy diminished foreign demand for rare earths in 2011 and 2012. In short, even if
"effects" were relevant, which they are not, China's claim that its WTO-illegal export quotas do not
lead to adverse effects is simply inaccurate.
B. China Has Failed to Meet its Burden as to its Article XX(g) Defense for its
Restrictions on Trading Rights
43. China's restrictions on quota access violate China's explicit trading rights commitments
pursuant to Paragraph 5.1 of China's WTO Accession Protocol and paragraphs 83 and 84 of China's
WTO Working Party Report by sharply restricting access to such rights.
44. China claims that its legislative amendments to the Foreign Trade Law completed its
commitment to allow all enterprises the right to trade in all products. This is incorrect and legally
irrelevant. This assertion ignores other remaining restrictions and pre-conditions on trading rights
through instruments other than the Foreign Trade Law, including the export performance, prior
export experience, and minimum registered capital requirements imposed on rare earths.
45. China also contends that its restrictions on trading rights are justified under GATT Article XX
by virtue of the introductory clause of Paragrap h 5.1 as "an integral part of the export quota
system". However, China has failed to show that its export quota systems comply with
Article XX(g) of the GATT 1994. In addition, as to China's commitments under Paragraphs 83 and
84 of the Working Party Report, Article XX is not even applicable for the reasons enunciated by the
Appellate Body in China – Publications and Audiovisual Products. Even if China were somehow
entitled to invoke Article XX for trading rights restrictions, China has failed to demonstrate that
such restrictions have any relationship to "conservation".
C. China Has Failed to Meet its Article XX(b) Burden to Defend its Export
Duty Measures
46. China does not contest that its export duties are inconsistent with Paragraph 11.3 of the
Accession Protocol. Instead, China's attempts – three months after the due date of its First
Written Submission and shortly before the first substantive meeting of the Panel with the parties –
to justify its export duties under Article XX(b) of the GATT 1994.
1. Article XX Is Not Applicable to China's Export Duty Commitments
under Paragraph 11.3 of the Accession Protocol
47. The GATT Article XX exceptions are not available to defend the inconsistency of China's
export duties with Paragraph 11.3 of the Accession Protocol. China's proposed "intrinsic
relationship" test contradicts basic principles of international treaty interpretation and would lead
to absurd results. China's approach would render inutile specific provisions of other WTO
Agreements that incorporate the GATT Article XX ex ceptions in part or in full or omit such
exceptions entirely. China's approach also would render GATT Article XX exceptions applicable to
some post-1995 WTO accessions but not others, depending on the subjective expectations of
multiple participants in complex and multi-faceted negotiations.
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48. Moreover, contrary to China's claim, Paragraph 11.3 of China's Accession Protocol is an
integral part of the Marrakesh Agreement rather than the GATT 1994. Paragraph 1.2 of China's
Accession Protocol refers to the WTO Agreement, but not to the GATT 1994, making it clear that
China's Accession Protocol is an integral part of the "WTO Agreement". As the references in
Articles XI and XII of the Marrakesh Agreement demonstrate, the "WTO Agreement" is distinct
from the "Multilateral Trade Agreements", includin g GATT 1994, which are identified in Annex 1.
GATT 1994 by its terms incorporates only Protocols of Accession that predated entry into force of
the WTO Agreement.
2. Even if the GATT Article XX Exceptions Were Applicable to
Paragraph 11.3 of the Accession Protocol, China Has Not Met its
Burden with Respect to the Requirements of Article XX(b)
49. China's Article XX(b) defense fails to satisf y either of the two tiers of the Article XX(b)
analysis. First, China has failed to demonstrate that the export duties are necessary to fulfill its
claimed policy objectives. Second, China has not even attempted to justify its export duty
measures under the requirements of the Chapeau.
a. Necessary to Protect Human, Animal, or Plant Life or Health
50. The Appellate Body has stated that "an a ssessment of 'necessity' under GATT Article XX(b)
involves weighing and balancing a number of distinct factors, including the importance of the
interests or values furthered by a challenged measure, its trade-restrictiveness, whether a less
WTO-inconsistent measure is reasonably available, and the degree of contribution of the measure
to the realization of the ends pursued by it.
51. China's export duties have severely distor ted international commerce by restricting exports
of raw materials, introducing significant pricing disparities, and pressuring foreign producers and
users to relocate to China to ensure access to adequate supplies of rare earths. China's export
duties are not part of a comprehensive framew ork designed and structured to protect human,
animal, or plant health. China's policies demonstrate that its export duties are designed to
promote increased production and exportation of value-added downstream products that use the
raw materials at issue as inputs. This fact is also confirmed by the dramatic growth in China's
downstream products manufactured with rare earths, tungsten, and molybdenum.
52. China has not demonstrated that its export duties make a material contribution to
environmental protection. On the contrary, while China's export duties increase the differentials
between domestic and foreign prices, Chinese producers of rare earths, tungsten, and
molybdenum will be inclined to increase sales to domestic consumers.
53. China also has available several less WTO-inconsistent alternative measures to its export
duties. Unlike the export duties, an increase d resource tax would raise the price of both
domestically and foreign consumed ores and processed materials. The imposition of a pollution
tax or "Pigouvian tax," whereby producers are made to pay for each unit of pollution they generate
that matches the social cost of pollution, likewise would raise the price of both domestically and
foreign consumed ores and processed materials.
b. Requirements of the Chapeau
54. In addition to failing to meet the provisional burden of its GATT Article XX(b) defense,
China's defense also fails on Chapeau grounds. China asserts that its export duties do not
distinguish between the destinations of the prod ucts being exported. This is both factually
irrelevant according to Appellate Body jurisprudence, which has consistently interpreted the
Chapeau to cover both MFN-type discrimination between different WTO Members, as well as
national treatment-type discrimination between other WTO Members and the WTO Member
maintaining the WTO-inconsistent measure, i.e., China.
55. China's export duties constitute arbitrary or unjustifiable discrimination. China's export
duties are highly discriminatory because there is no corresponding tax on domestic consumption.
Moreover, China's export duties also constitute a disguised restriction on international trade. The
design and structure of China's export duties evidence that they do not serve any purpose other
than providing a one-sided competitive advantage to China's downstream industries.
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D. China's Export Restrictions Are Designed and Structured to Support
China's Industrial Strategy of Pr otecting and Promoting Value-Added
Industries and Exports
56. China's export quotas and duties are stru ctured and designed to provide a competitive
advantage to China's downstream industries that rely on rare earths, tungsten, and molybdenum
as production inputs. China included this strategy in both its 11th Five Year Plan and 12th Five
Year Plan , which set forth China's overarching economic goals from 2006 to 2015. Numerous
Chinese industrial measures promulgated between 2006 and 2012 target increased exportation
and production of value-added products while at the same time restraining the exportation of raw
and intermediate materials.
57. China's export quotas and duties have been an integral part of this longstanding industrial
strategy. China's Ministry of Environmental Protection ("MOEP") has stated that the export quotas
are implemented to "limit low level and promote high level, improve the export structure, and
increase the export of products with high adde d value" and that the export duty measure are
adopted by the state to "optimize the rare earth industrial structure and promote the sustained,
fast, and steady development of the rare earth indu stry". MOEP's precise description is supported
by other Chinese measures that expressly link China's export control mechanisms to the promotion
of value-added industries and exports.
58. The text of China's export quota measures further demonstrates their true purpose: to
protect value-added industries/exports. Exporters selling value-added products, with high levels
of technological content, receive priority in China's export quota application process.
59. The structure and design of China's export re strictions and related measures confirms that
they promote value-added industries and exports. China's export quotas and duties place the
strongest restrictions on mineral products with less value-added. By contrast, China still provides
VAT refunds, and does not impose export duties, on exports of value-added products.
60. In addition, the allocation of China's export quotas based on prior export and/or production
performance favors large producers and exporters. China views these enterprises as best
positioned to adopt an integrated production structure for value-added products.
61. China's export quotas also were implemen ted significantly earlier than the domestic
production quotas, further demonstrating a discernible connection between these measures.
China's industrial strategy has taken precedence over its production controls, as China has set
forth ambitious quantitative targets for downstream products and, in some instances, even
encouraged over-quota production to promote downstream industries.
62. The actual effects of China's export quot as and duties also demonstrate that these
restrictions promoted China's downstream indust ries. China's export quotas and duties have
produced a substantial price gap between domestic and export prices for raw and intermediate
materials. While China's export quotas on the raw materials decreased significantly from 2005 to
2012, both China's domestic consumption of the raw materials and China's production of
downstream products continuously increased over the same period.
63. In sum, extensive evidence demonstrates that China's export quotas and duties promote its
value-added industries and exports. China's export restrictions do not relate to resource
conservation and environmental protection when they operate to confer a commercial advantage
to China's downstream industries as part of official government policy.
II. Conclusion
64. For the foregoing reasons, Japan respectfu lly submits that the design and structure of
China's relevant measures– most importantly, the qu antitative export restrictions – together with
China's domestic measures, protect and promote the development of China's domestic industries,
and thus cannot be justified by GATT Article XX(g), nor GATT Article XX(b).
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Executive Summary of the Oral Statements of Japan at the Second WTO Panel Meeting
I. Introduction
65. While China seeks to confuse the legal issues by shifting the Panel's focus to the economic
effects of its export quota regime, the Appellate Body and Panel decisions show that the focus of
an Article XX(g) inquiry is not on "effects" or a party's aims or intentions, but instead is squarely
on the "design, structure, and operation" of China's export quotas.
66. China also accuses Japan of arguing that there are no circumstances in which China's use of
export quotas could ever meet the conditions se t forth in Article XX(g). This mischaracterizes
Japan's position, as Japan does not rule out that such circumstances may exist. The Panel should
resolve the legal claims set forth in this dispute with respect to the facts and legal measures
presented in this dispute, rather than engaging in an endless series of hypothetical scenarios,
which can be left for other panels and for another day.
67. Japan highlights the fundamental deficiencies in China's export quotas when they are viewed
as conservation measures and addresses China's arguments. Japan's focus will be on China's rare
earth export quota, which is at the heart of this case.
II. China's Export Quotas and "Conservation"
68. China's export quotas are, by their stru cture, design, and operation, fundamentally
inconsistent with China's professed intentions of controlling the rate of depletion of its rare earth
ores and preserving its rare earth ore supply for future generations.
69. First, China attempts to justify the export quotas on the ground that they facilitate the
enforcement of China's resource conservation policy. However, China could simply adopt export
licensing requirements, which would be less trade-restrictive yet equally effective. China's export
quota takes the form of a simple, blanket quantitative restriction on both legal and illegal rare
earths. China has yet to explain how rare earths produced in accordance with China's production
limits pose conservation concerns. China's export quotas tend to widen the price differentials
between domestic and export prices, and thus, to increase incentives for illegal mining and
smuggling. China's most recent tightening of the rare earth export has increased absolute levels
of smuggling.
70. Contrary to China's claims, its export quota system cannot serve as a tracing mechanism
supporting production regulations. The recipients of China's export quotas can readily sell or
transfer their export quotas, and accordingly the export quota system cannot ensure that the rare
earths actually exported were legally produced. In its answers and comments after the Second
Panel Meeting, China fails to demonstrate that the sale of an export quota is illegal, or that any
entity has been penalized for such behavior. Japan addresses this issue in its answer to Panel
Question 144 and its comments on China's answers to Panel Questions 143 and 144.
71. China also argues that its export quotas set maximum limits on the amounts that can be
exported and thus reduce incentives for illegal production. A more direct and WTO-consistent
solution would be for China to adopt and enforce tougher domestic restrictions on illegal mining.
Moreover, since the structure and design of China's export quota scheme does not cover value-
added products, the overall structure and design si mply mean that rare earths will be consumed
domestically, and exported in the form of value-added products.
72. China's export restrictions go beyond what traditionally has been defined as an "exhaustible
natural resource", i.e., ores. China argues that crude ores are not traded. This fails to explain
why China cannot control the pace of ore consumption, as China alleges that it regulates the
production of concentrates, which is the process of ore consumption.
73. Second, China insists that its export quotas serve as a "signal" of the limited availability of
raw materials to foreign users to encourage them to promote substitution and recycling. China
could have sent such a signal in a non-discriminatory and non-trade restrictive manner by
tightening its production or consumption limits.
74. Third, China argues that its export quotas operate as a "safeguard" to protect Chinese users
from a sudden and massive surge in foreign demand. As Japan has emphasized throughout this
dispute, the term "conservation" in Article XX(g) do es not justify the use of restrictions on imports
and exports for industrial development, or for the promotion or protection of domestic industry.
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III. China's Export Quotas and GATT Article XX(g)
A. "Relating to"
75. China's export quotas contradict its alleged goal of preserving rare earth ores for future
generations and instead accelerate the rate of depletion. China argues that the design and
structure of its export quotas on rare earths changed radically between 2011 and 2012, but their
structural deficiencies have not changed since their adoption more than 14 years ago.
76. China argues that the Panel should examine the allegedly beneficent intentions of China's
regulators and textual references that were added to China's export quota measures following the
Panel decision in China – Raw Materials. But the Appellate Body has consistently cautioned, since
Japan – Alcoholic Beverages II , against relying on subjective intentions. The design, structure,
and operation test avoids this morass by focusing on the objective features of the challenged
measures.
B. "In Conjunction with Restrictio ns on Domestic Production or
Consumption"
77. Even though a WTO Member invoking Paragr aph (g) bears the burden of showing that its
trade restrictions have been imposed "in conjunction with" restrictions on domestic production or
consumption, China's Second Written Submission barely discusses how the export quotas and
alleged domestic production restrictions "work together".
78. The structure and design of China's export qu otas evidence that they do not "work together"
with the domestic restrictions as part of a cons ervation scheme. There is no corresponding limit
covering domestic consumption. As observed by the panel in China – Raw Materials , this will
produce increased domestic consumption resulting from lower domestic prices, thereby offsetting
any reductions in foreign consumption. The domestic and export price differences caused by
China's export quotas also incentivize illegal mining and smuggling. Since China's export
measures do not make any discernible contribution to China's claimed conservation scheme, and in
fact actually work against this goal, the relati onship between the Chinese export and domestic
production measures is fundamentally different from that envisaged by the Appellate Body in U.S.
– Gasoline and U.S. – Shrimp.
C. Even-handedness
79. In China – Raw Materials , the panel determined that "even-handedness" requires that an
export quota be balanced by restrictions on domestic consumption. Again, China can control the
pace of depletion of rare earth ores ( i.e., exhaustible natural resources) by setting a non-
discriminatory and non-trade-distorting production or consumption limit on rare earths. This is
further explained in Japan's answers to Panel Questions 123 and 131.
80. Far from reserving specific quantities for export, the export quota scheme allows domestic
users to purchase rare earths, molybdenum, and tungsten that could otherwise be exported. In
other words, the design and structure of the export quota is to increase the amount and proportion
of domestic production available to Chinese industrial users at the expense of foreign users.
81. China further argues that suppliers in China prioritize exports because prior export
performance is used in the allocation of future export quotas. China's use of prior export
performance as one of the criteria for allocating export quota rights is itself a violation of China's
WTO obligations and thus should not be relied on to justify China's WTO-inconsistent quotas.
82. China also ignores the ruling by the panel in China – Raw Materials that, in order to
demonstrate even-handedness, China must show th at the impact of the export duty or export
quota on foreign users is "somehow balanced" with some measure imposing restrictions on
domestic users. China's export quotas and duties impose an added burden on foreign users,
beyond China's asserted production restrictions and resource taxes, while their Chinese
competitors are subject only to the latter set of measures.
83. In U.S. – Gasoline , the Appellate Body made clear that even-handedness does not involve
an "effects test", noting in particular the difficulty of determining causation. This observation is
particularly apt here, as China's decade-long WT O-inconsistent quotas have seriously distorted
prices and demand. As the Appellate Body indicated in Korea – Alcoholic Beverages , it would be
improper to allow a WTO Member to justify a WTO-illegal barrier for lack of trade effects, when
this very lack of trade effects was likely generated by the WTO-illegal measure itself.
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84. The Appellate Body's application of the even-handedness test in U.S. – Gasoline and U.S. –
Shrimp focused on whether domestic producers were subject to a comparable restrictive measure.
Even the lack of such a measure is not necessarily dispositive if its absence stems from a
legitimate regulatory distinction for the over-arching policy goal of "conservation of exhaustible
natural resources" explicitly referenced in Articl e XX(g). China has yet to explain how its different
treatment of rare earth exports and foreign users stems from a legitimate regulatory distinction for
conservation purposes.
D. Chapeau
85. China relies on its pricing arguments under Paragraph (g) also to contend that its export
quotas satisfy the requirements of the Chapeau. In Brazil – Tyres, the Appellate Body specifically
rejected an "effects test" in the Chapeau analysis. China's export quotas and export duties have
been structured, designed, and operated to favor Chinese domestic users. China's export
measures actually work against their ostensible conservation rationale by promoting increased
domestic consumption.
86. According to the Appellate Body, where there exists an alternative reasonably available,
which "could have avoided any discrimination" or is otherwise less inconsistent with the
GATT 1994, discrimination is arbitrary or unjustifiable. The Appellate Body further explained that
the imposing Member must explore adequate means of mitigating any administrative problems
relied on to justify rejecting the alternative measure.
87. A number of alternative courses of action ar e reasonably available to China, including the
enforcement of a non-discriminatory and non-trade-di storting extraction quota. China failed to
engage substantively on these alternatives.
88. Finally, China's continued insistence that expo rt quotas and export duties must be examined
separately is misguided. China appears to conflate the jurisdictional issue and the substantive
question. The chapeau requires that the export quotas "not [be] applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination … or a disguised restriction". As the
export duties are imposed concurrently with the export quota on the same products, the combined
operation of the export duties and export quotas is directly relevant to the examination of the
"manner" in which the export quotas are applied.
E. China's Economic Effects Arguments
89. China has repeatedly sought throughout this dispute to shift the Panel's focus to the alleged
lack of economic effects of its export quotas. China's claims regarding the pricing effects and the
trade-restrictive effects of the 2011 and 2012 rare earth export quotas are misplaced as a legal
matter, since neither Article XX(g)'s even-handedness requirement, nor the Chapeau, incorporates
an "effects test". The market distortions caused by China's 14-year imposition of export quotas on
rare earths highlight the aptness of this rule.
1. China Improperly Seeks to Limit the Panel's Factual Inquiry
90. China initially claimed that the Panel must li mit the scope of the evidence to be considered
to the actual effects of the export quotas observed in 2012. China's assertion incorrectly conflates
the Panel's terms of reference and its corresponding need to address the legal infirmities in China's
2012 measures, with the temporal scope of the factual evidence the Panel is to consider as part of
its "objective assessment of the matter before it " pursuant to Article 11 of the DSU. As the
Appellate Body emphasized in EC – Selected Customs Matters , "[e]vidence in support of a claim
challenging measures that are within a panel's terms of reference may pre-date or post-date the
establishment of the panel".
2. China's Arguments as to the Effects of the Export Quotas are
Invalid
91. While the Appellate Body has previously rejected effects tests under both Article XX(g) and
the Chapeau, if the Panel nevertheless determines to conduct such an analysis, it must consider all
of the available economic evidence in its analyses. This evidence demonstrates that (1) the export
quotas on rare earths were not fully used in 2011 and 2012 because of complex economic factors,
including the medium- and long-term distortions in rare earth supply and demand caused by
China's export quotas and export duties; (2) increases in foreign rare earth prices were caused by
China's sharp reductions in the export quota amounts; and (3) tectonic market shifts arose from
China's manipulation of the export quota, including stockpiling and the relocation of Japanese rare
earth consumers to China.
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92. China has claimed that if the rare earth quotas are not filled (such as in 2011 and 2012), it
is "economically impossible" for the quota to have caused any differences in domestic and foreign
prices. The expert reports submitted by Compla inants show: (1) there are circumstances under
which an unfilled export quota nonetheless affects prices and consumption in the export market;
(2) when foreign demand exceeds the volume permitted by an export quota, the foreign price will
increase to reduce foreign demand to the quota volume; and (3) statistical analyses demonstrate
that China's export quotas have had a major impact on relative export-to-domestic prices for rare
earths since mid-2010.
93. The export quotas have played a significan t role in the disparity between domestic and
foreign prices for rare earths. Metal Pages and Asian Metal data – which were proffered by China
– evidence that Chinese rare earths prices are generally significantly higher in foreign markets
than in China's domestic market. The only survey suggesting otherwise – in support of which
China has supplied no back-up data – is fundamenta lly distorted by China's illogical deduction of
export duties and an unexplained 10-percent fee. First, China improperly deducted from the FOB
price the export duty applicable to the rare earth product. For the reasons explained by
Complainants' experts, however, the economic effe cts of China's export duties and export quotas
must be evaluated together, not in isolation. Second, China illogically deducted a 10-percent fee
from the foreign prices even th ough the claimed export fees ( e.g., transportation and packaging
fees) are not unique to foreign users. Subseque ntly, China admitted the arbitrariness of the 10-
percent fee and claimed that a 5-percent fee would be just as suitable. The WTO dispute
settlement system cannot satisfy its mandate under DSU Article 3.2 if the types of economic
analysis proffered by China are to govern a Panel's assessment of an export quota measure.
94. The evidence before the Panel of the medium - and long-term distortions caused by China's
export quotas calls into question the relevance and accuracy of China's position that it properly
considers foreign demand when setting the total amount of the export quotas. China's domestic
production and consumption increased sharply as the export quotas were substantially decreased
during the 2005 to 2010 period. These market distortions, which remained in place in 2011 and
2012, illustrate why the Panel in Turkey – Textiles expressed such concerns about the non-
transparent, discretionary, and arbitrary nature of quotas, and why the Appellate Body has
consistently avoided an "effects test" for WTO violations.
95. Finally, the evidence before the Panel cont radicts China's claim that the foreign price
increases starting in 2010 should be attributed to "speculations". The drastic July 2010 reduction
of the rare earth quota created uncertainty about the future availability of rare earths and a rush
to procure rare earth supplies. These developm ents, including the resulting merry-go-round of
price increases, further speculative investments, further price increases, and ultimately a price
crash, originated in the non-transparent and arbitrary nature of the China's export quota regime.
This destructive, artificial cycle illustrates the ne ed to look skeptically on China's claims that the
export quotas have not had an effect on expo rt pricing or on the disparity between China's
domestic and foreign prices for rare earths.
IV. Trading Rights
96. Paragraphs 83-84 of Working Party Report are made legally operative by Paragraph 1.2 of
the Accession Protocol, not Paragraph 5.1. The Appellate Body's decisions in China – Audiovisuals
and China – Raw Materials indicate that the applicability of the GATT's general exceptions to a
particular Chinese accession commitment hinges on whether there is an explicit textual link
between the GATT exceptions and the specific commitment at issue. That textual link does not
exist in Article 1.2. Even if China were somehow en titled to invoke Article XX to defend its export
performance, prior export experience, and minimum capital requirements, China has yet to explain
how they "relate to" conservation and are counter-balanced by equivalent domestic sales
performance and minimum capital restrictions on Chinese domestic producers for purposes of
"even-handedness". Indeed, these trading rights criteria represent a thinly disguised form of
discrimination against foreign firms and foreign invested enterprises.
V. Conclusion
97. As the party seeking to invoke Article XX(g), China bears the burden of showing that its
export quotas satisfy the Article XX(g) and Ch apeau requirements. China has failed in every
respect. The structure, design, and operation of China's rare earth export quotas are inconsistent
with its professed conservation goals. High-level Chinese industrial planning measures show that
the export quotas and duties promote its downstream, value-added industries. For the foregoing
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reasons, Japan respectfully requests that the Pane l find that China's export quota, export duty,
and trading rights measures violate its obligations under GATT Article XI:1, China's WTO Accession
Protocol, and the WTO Working Party report.
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ANNEX B-4
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF CHINA
First Part of the Integrated Executive Summary of China
I. INTRODUCTION
1. This executive summary of the submissions made to date by the People's Republic of China
("China") before the Panel in China – Measures Related to the Exportation of Rare Earths,
Tungsten and Molybdenum (WT/DS431, WT/DS432 and WT/DS433) provides an overview of the
following arguments by China:
 China's export quota systems for light and medium/heavy rare earths are justified under
Article XX(g) of the GATT 1994.
 China's export quota system for tungsten is justified under Article XX(g) of the
GATT 1994.
 China's export quota system for molybdenum is justified under Article XX(g) of the
GATT 1994.
 China's trading rights commitments in Paragraph 5.1 of China's Accession Protocol and
Paragraphs 83 and 84 of the Working Party Report do not prevent the use of prior export
performance and minimum capital criteria to administer the rare earths and
molybdenum export quota systems.
 The general exceptions of Article XX of the GATT 1994 are available to China to defend a
potential violation of Paragraph 11.3 of China's Accession Protocol.
 China's export duties on rare earths, tungsten and molybdenum are justified under
Article XX(b) of the GATT 1994.
II. ARGUMENTS
 RELATING TO CHINA'S EXPORT QUOTA SYSTEM
A. Scope of the Panel's jurisdiction
2. Because the Complainants have challenged only China's 2012 export quota systems, the
question is not whether the export quota systems that applied before 2012 meet the conditions of
Article XX(g) of the GATT 1994. Therefore, th e Panel should examine whether the design and
structure of the 2012 export quota systems, workin g together with the other elements of China's
conservation policy in place in 2012 and today (including the restrictions on domestic production
and consumption), meet the different legal criteria of Article XX(g). Further, because
Complainants have made separate and distinct claims against China's export quota systems for
rare earths apart from China's export duties for rare earths, the Panel must examine China's
defense for its 2012 export quota system separa te and apart from China's defense for its 2012
export duties.
B. China's 2012 export quotas on light and medium/heavy rare earths are
justified under Article XX(g) of the GATT 1994
1. The 2012 rare earth export quot as relate to conservation of
exhaustible natural resources
3. Rare earths are non-renewable natural resources. Intense exploitation of China's rare earth
resources leads to their depletion in quantity and quality. The exhaustible nature of China's rare
earth resources is particularly acute for China because it is at present the only country that
supplies the world markets with a significant amount of both light and medium/heavy rare earths.
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4. Measures justified under Article XX(g) of the GATT 1994 must relate to the specific policy
goal of " conservation" of exhaustible natural resources. The panel in China – Raw Materials
conducted a detailed analysis of the term "conservat ion" in light of its context – consisting of the
text of Article XX(g) and its preamble – and taking into account the international law principle of
Permanent Sovereignty over Natural Resources. The panel concluded that the term "conservation"
encompasses measures aimed both at preserving exhaustible natural resources in their current
state, as well as regulating their use for economic development today. The panel stated that,
under a proper interpretation of Article XX(g) of the GATT 1994, resource-endowed WTO Members
are "entitled to manage the supply and use of those resources through conservation-related
measures that foster the sustainable development of their domestic economies".1
5. Through China's export quotas, China reconciles the need to conserve exhaustible rare earth
resources for future use with the need to use these resources for sustainable economic
development today. In particular, the export quotas:
 help to enforce China's domestic conservation policy by reducing incentives for the
mining or production in violation of the applicable requirements (including access
conditions to the industry and environm ental requirements) and extraction and
production quotas, since they enable the Chin ese authorities to trace the sources of the
exported rare earth products and send a signal to domestic producers that an unlimited
export market does not exist and that it is therefore not financially attractive to invest in
new or expanded illegal production;
 ensure that the burden of its conservation po licy is not solely on domestic Chinese users
of rare earths, providing incentives to both domestic and foreign users to explore the
use of alternative sources of supply;
 provide a safeguard against uncertainty in the market in respect of sudden speculative
and pre-emptive demand surges that would di srupt the supply of rare earths to both
domestic and foreign consumers.
6. China further demonstrated, based on the text and context of the measures embodying the
2012 export quotas, that there is a "close and ge nuine relationship of ends and means" between
the quotas and the conservation objective:
 Certain of the measures embodying the 2012 export quotas, in particular the Notice of
the Application Standards and Application Procedures for the 2012 Export Quota and the
Notice Publishing the List of Enterprises Applying for the Export Quota for Rare Earth and
Coke in 2012, refer explicitly to the objective to "protect resources" and all of the
challenged 2012 quota measures refer to Article 16(4) of the Foreign Trade Law and
Article 35 of the Regulations on the Administ ration of the Import and Export of Goods
that form the legal basis for the quotas and explicitly link export quotas with China's
policy of conserving resources.
 State Council policy documents, in particular the 1991 Circular,2 designating rare earths
as a "specified mineral subject to protective mining", and the State Council's 2011
Several Opinions 3 explicitly state that the export quotas are part of a comprehensive
conservation programme.
7. China continued and also demonstrated that the "design and architecture" of the 2012
export quota system is to conserve the exhaustibl e rare earth resources. The 2012 export quotas
were formulated and set in conjunction with a 2012 extraction controlling quota and production

2 Exhibit CHN-12: 1991 Circular on Qualifying Tungsten, Tin, Antimony, Ion-Absorption-Type Rare Earth
Minerals as Specified Minerals of which the National Protective Mining is Prescribed, (Guo Fa (1991) No.5,
15 January 1991).
3 Exhibit CHN-13: Several Opinions of the State Council on Promoting the Sustainable and Sound
Development of the Rare Earth Industry (Guo Fa [2011] No. 12), 10 May 2011.
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quota on domestic production of smelted and se parated rare earth products. These quotas are
thus "interconnect[ed]"4 and form an integrated whole that the Panel must consider together.
8. Under the system, the export quota volumes and conditions are set in a rational manner
through a coordinated process by all competent Chinese Ministries (NDRC, MOFCOM, MLR and
MIIT), simultaneously with extraction controllin g and production quotas, with the objective of
conserving rare earth resources. In line with the guidance provided by the State Council in its
Several Opinions , the quota volumes are determined taking into account "situations concerning
domestic resources, production and consumption, and the international markets".
5 This ministerial
cooperation allows China to use the quotas, together with other domestic restrictions, to "manage
the supply and use" of the resources, balancing the need to preserve resources for future
generations with the needs of foreign and domestic current users. China has been successful in
doing so, as the rare earth export quotas were not filled in 2012, showing that foreign users had
access to all light and medium/heavy rare earth products they needed.
2. The export quotas are made effect ive in conjunction with restrictions
on domestic production and consumption
9. A conservation-related export restriction will only comply with Article XX(g) of GATT 1994 if
it "works together with" restrictions on domestic production or consumption. The Appellate Body
found that the phrase "made effective in conjunction with restrictions on domestic production or
consumption" in Article XX(g) imposes a requirement of " even-handedness in the imposition of
restrictions, in the name of conservation, upon the production or consumption of exhaustible
natural resources".
6 This means that the burden of the conservation policy must not be on foreign
trade alone.7 China must thus combine the export restrictions with restrictions on either domestic
production or consumption.8 However, the panel in China – Raw Materials found that this "does
not oblige" the resource-endowed Member "to en sure that the economic development of other
user-countries benefits identically from the exploitation of the resources of the endowed
countr[y]".9
10. China's comprehensive rare earth conservation policy in 2012 includes both export and
domestic restrictions, and includes the following five categories of domestic restrictions:
 measures limiting and controlling the access of Chinese businesses to enter or expand
operations in the rare earth industry;10
 extraction and production quotas controlling the volume of new rare earth products
being mined, produced and consumed;11
 a significantly increased resource tax imposed upon rare earth producers;12
 compliance with environmental requirements, including Emission Standards and a
requirement to make a deposit for ecological recovery that impose significant
compliance costs upon rare earth producers;13 and,
 rigorous enforcement actions to ensure compliance with these four categories of
domestic restrictions.14

4 Exhibit CHN-13: Several Opinions, Paragraph II(5).
5 Exhibit CHN-13: Several Opinions, Paragraph II(7). See also Exhibit CHN-63: Declaration on the
Setting of 2012 Export Quotas on Rare Earth Products.
6 Appellate Body Report, U.S. – Gasoline, p. 20-21 (original emphasis). See also Panel Report, China –
Raw Materials, paras. 7.402, 7.462.
7 Appellate Body Report, U.S. – Gasoline, p. 21.
8 China's Answers of 14 March 2013, paras. 148-149.
9 Panel Report, China – Raw Materials, para. 7.404 (emphasis added).
10 China's First Written Submission, paras. 166-173.
11 China's First Written Submission, paras. 174-189.
12 China's First Written Submission, paras. 190-195.
13 China's First Written Submission, paras. 196-203.
14 China's First Written Submission, paras. 204-225 and Annex.
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11. China has provided extensive evidence that th e effect of the access conditions; extraction,
production, and export quotas; resource tax; and environmental requirements was to restrict
domestic production and consumption of rare earths.
12. The totality of the evidence presented by Chin a shows that its measures have restricted
domestic production of new rare earth products. 15 Production of rare earths has been decreased
significantly since the rare earth extraction controlling quota was introduced in 2006. 16 A c t u a l
extraction reduced from 120,800 REO tons in 2006 to 84,943 REO tons in 2011 and actual
production of smelted and separated rare earth products reduced from 156,969 REO tons in 2006
to 96,934 REO tons in 2011. 17 Moreover, the evidence also showed that China was effective in
combating out-of-quota illegal production, especially since it initiated in 2010 intensified
enforcement actions.
18
13. China has also provided argument and evidence that its measures have restricted domestic
consumption of newly mined and produced rare eart hs. The combined effect of the export quotas
and production quotas is to limit domestic consumption of newly mined and produced rare earth
products. By subtracting the export quota from the production quota and providing incentives to
exporters to fill their export quota ( i.e. by basing the calculation of an exporter's quota share on
past export performance), China effectively restricts the share of the total production quota
available to Chinese domestic consumers.19 The burden of the conservation policy is thus both on
domestic and foreign users and, therefore, Chin a's quota system meets the requirement of even-
handedness in the imposition of restrictions.
14. A consideration of the operation of China's export quota system in conjunction with its
domestic restrictions supports this conclusion. China demonstrated that the export quota and
production quota volumes for 2012 were set in such manner as to restrict domestic consumption.
The volume of newly mined and produced rare earth products that was available to domestic
consumers for 2012 was 66,400 REO tons. This was significantly below the actual domestic
consumption in 2011, i.e. 83,110 REO tons. Further, evidence on the reduction in the growth of
domestic consumption,
20 and on the increase of domestic prices 21 and corresponding demand-
softening effect on downstream consumers, 22 shows that China made the export restrictions
"effective in conjunction with" restrictions on domestic production and consumption.
3. The export quota system complie s with the Chapeau of Article XX
15. China's 2012 export quota measures for light and medium/heavy rare earths make no
distinction in respect of the destination of th e products that are exported. Therefore, the
application of China's 2012 export quota measures do not treat similarly-situated WTO Members
differently. Moreover, during the past two years, the rare earth export quotas were not filled, but
the export quotas were still maintained at the same levels. Foreign users could obtain all rare
earth products they needed. Hence, no "arbitrary or unjustifiable discrimination" was caused
between foreign users from different WTO Members, nor between foreign and domestic Chinese
users, as a result of the application of the 2012 rare earth export quota system.
16. China's 2012 export quotas on light and medium/heavy rare earths do not constitute a
"disguised restriction on international trade" either. The Complainants did not provide evidence
that the 2012 export quota systems had the intention, let alone the effect, of providing benefits to
the domestic rare earths-consuming downstream industry. Indeed, the 2012 export quotas for
light and medium/heavy rare earths were not filled. The export quota volumes were thus more
than sufficient to meet foreign demand for both light as well as medium/heavy rare earths. China

15 China's First Written Submission, Table 1; China's Oral Statement of 26 February 2013, paras. 31-32
and Figure 1.
16 Exhibit CHN-137: Rare Earths Data (1999-2012).
17 Ibid.
18 China's First Written Submission, para. 183; China's Oral Statement of 26 February 2013, para. 32
and Figure 1.
19 China's First Written Submission, paras. 184-189; China's Oral Statement of 26 February 2013,
para. 39; China's Answers of 14 March 2013, paras. 69-72, 150, 156-158; China's Comments of 25 March
2013, paras. 52-58.
20 See China's Oral Statement of 26 February 2013, paras. 33-34 and Figure 2.
21 Ibid., paras. 40-41, Figure 3 and Table 1.
22 Ibid., para. 42.
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has also provided evidence that the domestic and export prices of different rare earth metals and
oxides follow the same evolution over time (factori ng out the effect of the export duty and other
export-specific costs).23 This demonstrates that the export quotas did not cause any disguised
restrictions on international trade.
17. Further, China's 2012 export quota system creates incentives for exporters to meet the
demand of foreign users of rare earths. These in centives are created through the criteria through
which China administers the quota system and the formula on the basis of which the enterprise's
export quota share is calculated. The prior ex port performance and minimum registered capital
criteria function to identify those companies that have a serious interest in exporting the products
at issue, and that are equipped with the necessary expertise and resources to engage in the trade
thereof. China has demonstrated that, rather than denying access to the same producers that
supply domestic consumers, China's export quota system ensures that the same efficient and
reliable suppliers are selected to supply the export market. Of the 42 major Chinese producers of
smelted and separated rare earth products, 37 hold the export quota on their own or have access
to the quota through their parent or affiliated enterprises.
24
18. When determining the size of the share of the export quota allocated to individual export
enterprises, a formula is applied that is based on the enterprise's past export performance. The
consequence of the use of such formula is that, if an exporter has not completely used the export
quota that was allocated for a given calendar year, it will receive a smaller allocated volume for
the next year. These export quota-related requir ements considerably increase the likelihood that
foreign consumers will actually receive the amount of rare earth products that China specified in
the export quota.
C. China's 2012 export quotas on tungsten are justified under Article XX(g) of the
GATT 1994
1. China's 2012 export quota on tungst en relates to the conservation of
exhaustible natural resources
19. Tungsten is a non-renewable natural resource. Intense exploitation of China's tungsten
resources leads to their depletion in quantity and quality. Thus, China's tungsten resources are
"exhaustible natural resources" within the scope of Article XX(g) of the GATT 1994.
20. China's 2012 export quota for tungsten, in combination with measures restricting domestic
production or consumption, "relat[es] to conservation" of China's tungsten resources:
 The measures embodying the 2012 export quot a for tungsten show that a "close and
genuine relationship of ends and means" exists between the export quota and the
conservation objective. In particular, the text of the Public Notice of the Qualification
Standards and Application Procedures of the 2012 Tungsten State Trading Enterprises,
and Tungsten Export Supply Enterprises refers explicitly to the conservation objective.
Moreover, the measures embodying the 2012 tu ngsten export quota are adopted on the
basis of Article 16(4) of the Foreign Trade Law, Article 35 of the Regulations on the
Administration of the Import and Export of Goods and the Measures for the
Administration of Export Commodities Quotas which all refer to China's conservation
objective.
 Further, in the 1991 Circular the State Council designated tungsten as a "special mineral
under the national protective mining" and mandates that exploration, processing and
export of tungsten is subject to strict planning in order to "reasonably develop, utilize
and protect" the tungsten resources.
25

23 China's Oral Statement of 26 February 2013, Figures 4 and 5; China's Answers of 14 March 2013,
paras. 196-203.
24 China's Oral Statement of 26 February 2013, para. 48 and Annex.
25 Exhibit CHN-12: 1991 Circular, second introductory paragraph, section 4 (first subparagraph) and
section 5 (fourth subparagraph).
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2. The export quotas are made effect ive in conjunction restrictions on
domestic production and consumption
21. China's tungsten export quotas work together with the following categories of restrictions on
domestic production and consumption:
 measures limiting and controlling the access to the tungsten industry;26
 measures directly controlling the volume of the resources being extracted,
produced and consumed, by means of extraction quotas (limiting the amount of
tungsten concentrates that can be extracted) and production quotas;27
 a resource tax on tungsten producers to ensure that the price of the resources
reflects their costs;28 and,
 measure requiring mines to make a Deposit for Ecological Recovery.29
3. The export quota system complie s with the Chapeau of Article XX
22. China's 2012 export quota on tungsten makes no distinction at all in respect of the
destination of the products that are exported. Therefore, it is not applied "in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between countries where the
same conditions prevail".
23. Further, the application of China's 2012 export quota on tungsten does not constitute a
"disguised restriction on international trade" either. China demonstrated that significant quantities
of tungsten products were imported into China during 2011 and 2012, showing that that foreign
consumers of tungsten were also capable of securing supplies of tungsten outside o f Ch in a . I f
China's users were able to secure tungsten on the world market, then this implies that foreign
consumers of tungsten would be able to secure the same. This demonstrates that the export
quota does not constitute a disguised restriction on international trade.
D. China's 2012 export quotas on molybdenum are justified under Article XX(g) of
the GATT 1994
1. China's 2012 export quota on mo lybdenum relates to the conservation
of exhaustible natural resources
24. Molybdenum is a non-renewable natural resource. Intense exploitation of China's
molybdenum resources leads to their depletion in quantity and quality. Thus, China's molybdenum
resources are "exhaustible natural resources" within the scope of Article XX(g) of the GATT 1994.
25. China's 2012 export quota for molybdenum, in combination with measures restricting
domestic production or consumption, "relat[es] to conservation" of China's molybdenum
resources. The measures embodying the 2012 ex port quota for molybdenum show that a "close
and genuine relationship of ends and means" exists between the export quota and the
conservation objective. In particular, the text of the Public Notice of Application Conditions and
Application Procedures for the 2012 Export quotas of Molybdenum explicitly refer to China's
conservation goal. Moreover, the measures embodying the 2012 molybdenum export quota are
adopted on the basis of Article 16(4) of the Foreign Trade Law, Article 35 of the Regulations on the
Administration of the Import and Export of Goods and the Measures for the Administration of
Export Commodities Quotas which all refer to the conservation objective.
2. The export quotas are made effect ive in conjunction restrictions on
domestic production and consumption
26. China's molybdenum export quotas work toge ther with the following categories of
restrictions on domestic production and consumption:

26 China's First Written Submission, paras. 313-317.
27 China's First Written Submission, paras. 318-328.
28 China's First Written Submission, para. 329.
29 China's First Written Submission, paras. 330-332.
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 measures limiting and controlling the access to the molybdenum industry;30
 measures directly controlling the volume of the resources being produced and
consumed, by means of production quotas;31
 a resource tax on molybdenum producers to ensure that the price of the resources
reflects their costs;32 and,
 measure requiring mines to make a Deposit for Ecological Recovery.33
3. The export quota system complie s with the Chapeau of Article XX
27. China's 2012 export quota on molybdenum makes no distinction at all in respect of the
destination of the products that are exported. Therefore, it is not applied "in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between countries where the
same conditions prevail".
28. Further, the application of China's 2012 export quota on molybdenum does not constitute a
"disguised restriction on international trade" ei ther. China provided evidence that the export
quotas for molybdenum were not filled in the past two years.
34 Foreign users could thus obtain
access to all the molybdenum products they wanted . China also applies prior export performance
and minimum capital criteria to administer the molybdenum export quotas in order to select
exporters in China that are capable to supply the export quota share allocated to them.
E. China's trading rights commitments do not prevent China from using of prior
export performance and minimum regi stered capital requirements to
administer the export quotas for rare earths and molybdenum
29. Prior to China's accession to the WTO, only specialized enterprises had the right to import or
export. Such "foreign trade operators" were required, on the basis of China's Foreign Trade Law to
have a certain minimum capital and a required record of import and export. In response to
concerns by some WTO Members, China made a commitment in Paragraph 5.1 of its Accession
Protocol to "progressively liberalize the availability and scope of the right to trade". This
commitment was further elaborated in Paragraphs 83 and 84 of the Working Party Report. Today,
after amendment of the Foreign Trade Law , China no longer applies such conditions to foreign
trade operators. Hence, in 2012, all enterprises in China have the right to trade in all goods.
30. However, this does not mean that China can no longer regulate trade, including by means of
export quotas to conserve exhaustible natura l resources. Indeed, the Appellate Body in China –
Audiovisual Products has confirmed that China's obligations in Paragraph 5.1 are qualified by the
opening clause of this Paragraph, which specifies that China's trading rights commitments are
"[w]ithout prejudice to China's right to regulate trade in a manner consistent with the WTO
Agreement".
35
31. The commitments in Paragraphs 83 and 84 of the Working Party Report are also qualified by
China's right to regulate trade, since these Paragraphs deal with the same subject-matter as
Paragraph 5.1, have similar titles and are on an equal legal footing. Moreover, the panel in China
– Audiovisual Products found that the obligations in Paragraph 83(d) "should be interpreted so as
to be consistent with those of Paragraph 5.1".
36 I n t h a t s a m e d i s p u t e , t h e A p p e l l a t e B o d y h a s
confirmed that Paragraph 84(b) "cannot impair China's power to impose … regulatory measures in
respect of trade in goods that the covered agreements affirmatively recognize that China may
take".37
32. Therefore, enterprises that have the right to trade may be subject to "WTO consistent
requirements relating to … exporting", such as export quotas justified under Article XX(g) as well

30 China's First Written Submission, paras. 362-365.
31 China's First Written Submission, paras. 366-370.
32 China's First Written Submission, paras. 371-373.
33 China's First Written Submission, para. 374.
34 Exhibit CHN-139: Molybdenum Data (1999-2012).
35 Appellate Body Report, China – Audiovisual Products, para. 219.
36 Panel Report, China – Audiovisual Products, para. 7.310.
37 Appellate Body Report, China – Audiovisual Products, para. 225 (emphasis added).
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as criteria to administer these export quotas. Indeed, in the specific and exceptional situation
where a WTO Member uses export quotas, the permi tted export volume of the products subject to
the quota must be allocated to exporting enterprises in some manner.
33. In respect of the export quotas on light and medium/heavy rare earths and molybdenum –
which are justified under Article XX(g) – exporting enterprises must apply for obtaining a share of
the annual export quotas. The prior export performance and minimum registered capital
requirements are among the criteria that China uses to ensure that the export quotas are allocated
to enterprises that are able to fulfill their export contracts. Hence, these criteria are criteria
relating to the administration of the WTO-consistent export quotas and are not limitations on the
right to trade.
34. Therefore, China's use of these quota allo cation criteria is not prevented by the
commitments in Paragraph 5.1 of the Accession Protocol or Paragraphs 83 and 84 of the Working
Party Report, which are indeed qualified by China's right to regulate trade in goods in a manner
consistent with the WTO Agreement . If the Complainants wanted to separately challenge China's
quota allocation criteria, they should have ch allenged these measures under the specific WTO
obligations applicable to quota allocation rules, including Article X:1, Article X:3(a) and Article XIII
of the GATT 1994.
35. China also explained why the European Union's claim that the requirement in Article II.1.2 of
the Application Conditions for the 2012 Export Quotas for Molybdenum violates China's
commitment in Paragraph 84(b) of the Working Party Report because it would, allegedly, "allow
[Chinese authorities] discretion to select between the applicants based on their own preference by
arbitrarily deciding which level of prior export performance is sufficient"
38 must be dismissed.
China explained that it was sufficient for manufacturing and trading enterprises that applied for a
share of the 2012 export quota for molybdenum, and that had obtained an export quota before, to
show any level of export performance.
36. It is well-established in the Appellate Body's jurisprudence that, where a term or provision of
domestic law may admit of different possible interpretations or meanings, but can, in all cases, be
interpreted and applied in a WTO-consistent manner, absent other evidence, a panel must
presume that a responding Member will interpret and apply the measure in a WTO-consistent
manner.
39 The European Union does not provide any evidence that would support its allegation
that the decision on the eligibility of foreign en terprises to obtain a share of the export quotas
would be taken in a discretionary manner. Therefore, in the absence of such evidence, the Panel
must presume that Article II.1.2 of the Application Conditions for the 2012 Export Quotas for
Molybdenum will be applied in a WTO-consistent manner.
III. CHINA'S ARGUMENTS RELATING TO CHINA'S EXPORT DUTIES
A. Availability of Article XX of the GATT 1994 to defend a violation of
Paragraph 11.3 of China's Accession Protocol
1. Introduction
37. China argues that the general exceptions of Article XX of the GATT 1994 are available to
defend a violation of China's export-duty commitments under Paragraph 11.3 of China's Accession
Protocol. A careful analysis of the legal nature of China's Accession Protocol and of its precise
legal relationship with the WTO Agreement and the multilateral trade agreements annexed thereto
shows that Paragraph 11.3 of China's Accession Protocol is an integral part of the GATT 1994. As
a consequence, China may have recourse to Arti cle XX of the GATT 1994 to defend a violation of
Paragraph 11.3 absent an explicit statement to the contrary in China's Accession Protocol or
elsewhere in the covered agreements. China explai ns that the terms "nothing in this Agreement"
in the chapeau of Article XX of the GATT 1994 do no t exclude but rather confirm the availability of
Article XX of the GATT 1994 to defend a violation of China's export-duty commitments. An

38 European Union's Answers of 14 March 2013, para. 28.
39 See Appellate Body Report, U.S. – Oil Country Tubular Goods Sunset Reviews, para. 173; Appellate
Body Report, U.S. – Section 211 Appropriations Act, para. 259; Appellate Body Report, Chile – Alcoholic
Beverages, para. 74. See also Appellate Body Report, U.S. – Continued Suspension, para. 314; Appellate
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appropriate holistic interpretation, taking due account of the object and purpose of the WTO
Agreement, confirms China's view that it may justify the use of export duties through recourse to
Article XX.
2. Paragraph 11.3 of China's Accession Pr otocol is an integral part of the
GATT 1994
38. China stresses that post-1994 accession protoc ols are not covered agreements in and by
themselves. Rather, they stipulate the terms under which a new Member accedes to the WTO,
more specifically, according to Article XII:1 of the WTO Agreement, "to [the WTO Agreement] and
the Multilateral Trade Agreements annexed thereto". In other words, post-1994 accession
protocols serve to specify, including by mean s of "WTO-plus" commitments, how a WTO Member
takes up the obligations in the WTO Agreement and the multilateral trade agreements annexed
thereto. This overarching intrinsic link be tween post-1994 accession protocols and the WTO
Agreement and the multilateral trade agreements annexed thereto is a defining feature of the WTO
accession process.
40
39. The list of covered agreements in Appendix 1 of the DSU is exhaustive and post-1994
accession protocols do not figure on that list. The mere fact that Paragraph 1.2 of China's
Accession Protocol stipulates that China's Accession Protocol shall be an integral part of the WTO
Agreement does not change this fact. China recalls in this context that the Trade Policy Review
Mechanism (TPRM), governed by Annex 3 of the WTO Agreement is equally an integral part of the
latter according to the express terms of Article II:2 of the WTO Agreement. However, the TPRM is
not a covered agreement since it does not figure in Appendix 1 of the DSU. Rather than being
covered agreements in and by themselves, post-1994 accession protocols stipulate, including
through "WTO-plus" provisions, how the covered agreements will apply as between the newly
acceding Member and the incumbent WTO Membership. Thus, e.g., Paragraph 11.3 of China's
Accession Protocol adds to a specific covered agreement, namely the GATT 1994, as applicable
between China and its fellow Members.
40. It follows from Article XII:1 of the WTO Agreement, read together with Article 1.2 of China's
Accession Protocol , that when confronted with a "WTO-plus" provision in China's Accession
Protocol, the treaty interpreter has to proceed in two distinct steps. First, the treaty interpreter
has to determine, on a case-by-case basis in light of the subject matter and the underlying
rationale of a given accession commitment, to which of the covered agreements listed in Appendix
1 of the DSU, that commitment intrinsically relates to. Second, once it has been established to
which covered agreement a given accession commitment intrinsically relates to, it is indeed of
utmost importance to carefully investigate whether the acceding Member may have waived its
right to have recourse to the exception provisions contained in the relevant covered agreement to
defend a violation of any integral parts of that agreement.
41
41. In the case of China's export-duty commitments in Paragraph 11.3 of China's Accession
Protocol, this investigation involves a careful consideration of important contextual provisions,
notably Paragraphs 5.1 and 7.3 of China's Accession Protocol . This consideration leads to the
necessary conclusion that it would have been contrary to the rule of effective treaty construction
for the drafters to include an explicit reference to Article XX of the GATT 1994 into Paragraph 11 3
of China's Accession Protocol. That provision being an integral part of the GATT 1994, China may
have recourse to the exceptions of Article XX of the GATT 1994 absent an express statement to
the contrary in Paragraph 11.3 of China's Accession Protocol or elsewhere in the covered
agreements.
42
42. China argues that the export-duty commitments undertaken by China in Paragraph 11.3 of
China's Accession Protocol bear an intrinsic relationship to two specific GATT-provisions, namely
Article XI:1 and,43 most importantly, Article II:1(a) of the GATT 1994.44 Paragraph 11.3 of China's
Accession Protocol expands for China upon these two GATT-provisions.

40 China's Rebuttal Submission Regarding its Request for a Preliminary Ruling, paras. 13-28.
41 China's Comments of 25 March 2013, paras. 4-13; China's Answers of 14 March 2013, paras. 2-20.
42 China's Answers of 14 March 2013, paras. 2-20; China's Comments of 25 March 2013, paras. 4-13.
43 China's First Written Submission, paras. 431-434.
44 China's Rebuttal Submission Regarding its Request for a Preliminary Ruling, paras. 22-24.
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43. Thus, nothing in the text of Article II:1(a) of the GATT 1994 would prevent a WTO Member
to make commitments on export duties in its Goods Schedules. Some Members have indeed done
so. In principle, Article II:1(a) of the GATT 19 94 accommodates both types of bindings – import
and export duties. It requires that Members "shall accord to the commerce of the other
contracting parties treatment no less favourable than that provided for in… the appropriate
Schedule". The reference to "commerce of the other contracting parties" can be both import or
export commerce; the nature of the obligations under Paragraph 11.3 and Article II:1(a) is thus
essentially the same, i.e., a border measure affecting either import or export.
3. The terms "nothing in this Agreement" in the chapeau of Article XX of
the GATT 1994 do not exclude but confirm the availability of Article XX
of the GATT 1994 to defend a violat ion of Paragraph 11.3 of China's
Accession Protocol
44. China argues that a correct interpretation, under the rules of the Vienna Convention, of the
phrase "nothing in this Agreement" in the chapeau of Article XX of the GATT 1994 does not
narrowly limit the availability of the exceptions under Article XX to defending violations of
obligations listed in the GATT 1994 as it entered into force on 1 January 1995. Rather, the
exceptions under Article XX are also available to excuse violations of intrinsically GATT-related
"WTO-plus" provisions contained in post-1994 accession protocols. The latter category thus
consists of those provisions that are not part of the text of the GATT 1994 as it entered into force
on 1 January 1995 but that nevertheless have to be treated as an integral part of the latter, such
as Paragraph 11.3 of China's Accession Protocol.
45
4. An appropriate holistic interpretation, taking due account of the object
and purpose of the WTO Agreement, confirms that China may justify
the use of export duties through recourse to Article XX of the
GATT 1994
45. In China's view, interpretation of a specific provision of WTO law, as part of a holistic
exercise taking duly into account the object and purpose of the WTO Agreement, may not lead to a
result that effectively prevents Members from achieving the fundamental objectives enshrined in
the Preamble of the WTO Agreement. This is due to the fact that it is the objectives stipulated in
the Preamble that effectively reflect the object and purpose of the WTO Agreement as a whole.
46. Among the most important of the fundamental ob jectives enshrined in the Preamble of the
WTO Agreement is the promotion of human welfare, the raising of living standards, the optimal
use of resources, and the protection and preserva tion of the environment. The interpretative
value of the WTO's fundamental objectives must be taken into account when deciding whether
Article XX is available to justify a potential violation of Paragraph 11.3 of the Accession Protocol.
47. In China's view, for provisions contained in the GATT 1994 as it entered into force on 1
January 1995 as well as for intrinsically GATT-related "WTO-plus" provisions in post-1994
accession protocols, it is the availability, absent express language to the contrary, of the
exceptions under Article XX of the GATT 1994 that ensures that Members are not deprived of their
capacity to effectively contribute to the achievement of the WTO's fundamental objectives.
46
B. China's substantive defense of the expo rt duties under Article XX(b) of the
GATT 1994
48. In 2012, China provided more than 90% of all rare earth supply, while its territory was
estimated to hold only 23% of the world's rare earth reserves. Hence, while many countries
benefit from China's resources, China stands almost alone in bearing the burden of this production.
This burden includes the grave harm that the mini ng and production of rare earth products causes
to the environment and, as a consequence, to the health of humans, animals and plants in China.
Studies about tungsten and molybdenum mining in China also concluded that their production
entailed significant risks to the environment.

45 China's First Written Submission, paras. 436-444; China's Rebuttal Submission Regarding its Request
for a Preliminary Ruling, paras. 35-42; China's Answers of 14 March 2013, paras. 21-25.
46 China's First Written Submission, paras. 445-458; China's Rebuttal Submission Regarding its Request
for a Preliminary Ruling, paras. 43-55.
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49. Article XX(b) of the GATT 1994 protects China's sovereign right to adopt a policy to tackle
the environmental harm arising from the production and consumption of rare earth, tungsten and
molybdenum resources and, therefore, to protect human, animal or plant life or health. China's
export duties on rare earths, tungsten and molybdenum products are integral part of an integral
part of a comprehensive policy that has the goal to reduce pollution and protect the health of
China's population, its animals and plants. China demonstrated this on the basis of documents
announcing and describing this policy as well as from other measures that China has adopted as
part of this policy.
50. The duties increase the price of exported rare earth, tungsten and molybdenum products, in
a synergetic relationship with the resource tax and the Deposit for Ecological Recovery, as well as
the imposition and enforcement of costly environm ental regulations to control pollution created by
the production of these products. By increasi ng the price of the domestic and foreign-bound
products, demand for these products will decrease and, therefore, production of rare earth,
tungsten and molybdenum products in China will be reduced, resulting in less pollution connected
with both mining and production. These price adju sting measures function together with industry
access conditions requiring compliance with specific environmental requirements, including
Emission Standards, and environmental compliance inspection. Accordingly, the export duties are,
together with these other measures, "apt to make a material contribution to the achievement of
[the] objective" of protecting human, animal or plant life or health.
47
51. China recalls that the Appellate Body in Brazil – Retreaded Tyres , stressed that
"[s]ubstituting one element of this comprehensive policy for another would weaken the policy by
reducing the synergies between its components, as well as its total effect".48 Therefore, the export
duties, as part of such comprehensive policy, are "necessary" to protect "human, animal or plant
life or health".
52. China's export duties do not make a distinctio n according to the destination of the products
being exported. In the absence of any distinction based on origin or destination, there is no cause
to consider that the export duty is applied "in a manner that would constitute arbitrary or
unjustifiable discrimination between countries where the same conditions prevail". Further, the
application of China's export duties does not constitute a "disguised restriction on international
trade" either. The export duties are tailored to, and are an intrinsic part of, China's policy aimed
at protecting the environment against the harms following from excessive mining and production
of rare earth, tungsten and molybdenum products

47 Appellate Body Report, Brazil – Retreaded Tyres, para. 145.
48 See also Appellate Body Report, Brazil – Retreaded Tyres, para. 172.
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Second Part of the Integrated Executive Summary of China
I. INTRODUCTION
1. This second part of the executive summary of the submissions made by the People's
Republic of China ("China") before the Panel in China – Measures Related to the Exportation of
Rare Earths, Tungsten and Molybdenum (WT/DS431, WT/DS432 and WT/DS433) provides an
overview of the following arguments by China:
 China has a comprehensive conservation policy for rare earths.
 Article XX(g) of the GATT 1994 permits WTO Members to balance conservation
with the objective of sustainable economic development.
 China's rare earth export quotas relate to the conservation of exhaustible natural
resources.
 China's rare earth export quotas are made effective in conjunction with restrictions
on domestic production and consumption.
 Complainants failed to rebut China's arguments and evidence showing that China's
rare earths export quota system is not applied in a manner that would violate the
requirements of the chapeau of Article XX of the GATT 1994.
 Complainants failed to rebut China's arguments and evidence showing that there is
no causal connection between the export quotas for tungsten and molybdenum
and any commercial advantage provided to downstream Chinese users of tungsten
and molybdenum.
II. CHINA HAS A COMPREHENSIVE CONSERVATION POLICY FOR RARE EARTHS
2. China's conservation policy for rare earths had its origin in 1991 when the State Council
designated rare earths as "special minerals under national protective mining" which China must
"reasonably develop, utilize and protect".
1 In 2005, the State Council specified in another Circular,
that "[f]or the purpose of conserving domestic resources [including rare earths], it is necessary to
control the export amount of certain exhaustible resource products while controlling the domestic
production and consumption of them". 2 In its 2011 Several Opinions – an instrument that is
legally binding for all Ministries, Agencies, Commissions, and provincial and local Chinese
authorities3 – the State Council set out a strong and clear rare earth policy requiring "effective
protection and a rational utilization" 4 o f r a r e e a r t h s f r o m m a n d a t e d a c t i o n b y a l l r e s p o n s i b l e
authorities within China.
3. China's rare earths conservation policy consists of: (i) a strict control of the access to the
rare earth industry; (ii) taxation and prices as adjusting measures; (iii) tackling harm to the
environment caused by rare earth mining and production; (iv) strict quantitative control of the
extraction in mines and production of smelted and separated rare earth products as well as export,
whereby the interconnection among the extraction quota, production quota and export quota is
ensured; and (v) strict enforcement of laws and regulations relating to the rare earth industry.
4. China's strict annual quantitative limits on, first, the extraction of rare earths in mines in
China, second, on the processing into smelted and separated products and third, on the export of
those products, work as detailed in the following paragraphs.
5. China's conservation policy starts with the rare earths in the ground. The extraction quota
controls the annual depletion rate of the rare earth resources.5 This quota is split up between light

1 Exhibit CHN-12: 1991 Circular, second introductory paragraph.
2 Exhibit CHN-62: Circular on Measures Limiting the Export of Certain of High-Energy-Consuming, High-
Polluting and Resource-Related Products, (Fa Gai Jing Mao [2005] No.2595), 9 December 2005, Section III
(emphasis added).
3 Exhibit CHN-185: The Status and Effect of Several Opinions of the State Council on Promoting the
Sustainable and Sound Development of the Rare Earth Industry in China's Domestic Law System, 9 June 2013.
4 Exhibit CHN-13: Several Opinions, Introductory Paragraph.
5 China's Second Written Submission, para. 36; China's First Written Submission, paras. 24, 175.
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and medium/heavy rare earths according to the main types of ores and their geographical location
in China. This quota is monitored by the Ministry of Land and Resources (MLR).6
6. China also imposes a production quota on smelted and separated rare earth products in
addition to the extraction quota. This quota is set and administered by the Ministry of Industry
and Information Technology (MIIT). It covers ro ughly the same total volume as the extraction
quota, with a slight adjustment for the rare earth concentrates that get lost during further
processing.7 This second quota – imposed at the smelting and separating stage of the rare earths
supply chain – facilitates the enforcement of the extraction quota against illegal mining. Indeed,
were there only an extraction quota and given th e difficulty of detecting illegal mining, illegal
mines could sell their ore products to smelting and separating enterprises, who could process
unrestrained quantities of these illegal products without being inspected.
8 Further, the monitoring
and enforcement of the production quota by a diffe rent Chinese Ministry (MIIT) than the MLR that
monitors the extraction quota, doubles up on the enforcement of China's rare earth conservation
goal.
7. The production quota also furthers China's conservation policy by effectively placing an
annual limit on extraction in cases where smelting and separating enterprises have unused stocks
o f u n p r o c e s s e d r a r e e a r t h c o n c e n t r a t e s d u e t o l a c k o f d e m a n d i n t h e p r e v i o u s y e a r . I n t h e
absence of a production quota, these enterprise s could produce unrestrained amounts of smelted
and separated products from (a) these older concentrate stocks, in addition to (b) the full amount
of rare earth concentrate that is produced according to the new extraction quota for the running
calendar year. Yet, because China imposes a production quota, in the new year the smelting and
separating enterprises will only need to use a part of the new ores that can be produced according
to the extraction quota for that year. These ente rprises will indeed use their stocks first. The
result of the production quota is that demand for newly extracted ores will be limited – and keep
ores in the ground.
8. Finally, China also imposes export quotas to manage what is effectively the world supply of
the volume of rare earth products determined in the extraction and production quotas. Through
the enforcement of the quotas, China signals to rare earth users in China and abroad that it is
serious about preserving rare earths for future use, while at the same time ensuring an
appropriate supply for foreign and domestic commer cial users today. China thus relies on the
export quotas to balance the conservation object ive with the objective of sustainable economic
development. The export quotas apply to the rare earth products that are actually internationally
traded and thus drive the depletion of the resources: rare earth oxides, metals and salts.
9
III. ARTICLE XX(G) OF THE GATT 1994 PERMITS WTO MEMBERS TO BALANCE
CONSERVATION WITH THE OBJECTIVE OF SUSTAINABLE ECONOMIC
DEVELOPMENT
9. China addressed Complainants' interpretation of Article XX(g) that China – and indeed, all
resource-endowed WTO Members – can, in the fram ework of a conservation policy, do nothing to
control the international sale and marketing of its rare earth products once extracted from Chinese
soil. China explained that their interpretation rejects the Raw Materials panel's holding that a WTO
Member can rely on export quotas to "us[e] and manag[e] resources in a sustainable manner that
ensures the protection and conservation of the environment while promoting economic
development".
10
10. This interpretation is embedded in the co ntext of the Preamble of the WTO Agreement, 11
which points to the WTO Member's challenge of dealing with the tension between realizing the
needs of WTO Members at different levels of economic development through "optimal use" 12 of

6 China's Answers of 14 March 2013, para. 94; China's Second Written Submission, para. 36.
7 China's Second Written Submission, para. 37 and footnote 94; China's First Written Submission,
paras. 24, 176-183.
8 China's Second Written Submission, para. 37.
9 China's Second Written Submission, paras. 12-13, 70-71.
10 Panel Report, China – Raw Materials, para. 7.375.
11 Panel Report, China – Raw Materials, paras. 7.373-7.376.
12 Panel Report, China – Raw Materials, para. 7.374.
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resources, on the one hand, and the "protection and conservation" of the resources for future use,
on the other hand.13
11. This interpretation is also consistent with the international law norm of Permanent
Sovereignty over Natural Resources. 14 This norm gives resource-endowed countries the right to
"freely use and exploit their natural wealth and resources … for their own progress and economic
development".15 In light of this fundamental international law norm, it is simply not credible that
resource-endowed countries would, by acceding to the WTO, have relinquished this fundamental
norm and not be permitted to balance the needs of their own citizens with the rights of foreign
users of such resources.
16
12. The negotiating history of the GATT also suppo rts this interpretation. Brazil proposed to
permit the use of export restrictions to preserve scarce natural resources where the resources are
so limited that, in case of unlimited export, the supply would be inadequate for domestic needs.
17
In response, the negotiators in the Committee on Quantitative Restrictions "recognized that there
might be cases in which such action would be unobjectionable",18 but that it needed to be "subject
to sufficient safeguards".19
13. China explained that Complainants err that this interpretation would create a loophole in the
disciplines of the GATT 1994 and would let protectionism prevail. 20 C h i n a d o e s not use the
challenged export quotas to promote its domestic industry at the expense of foreign users, but in
order to reconcile its conservation policy with sustainable economic development needs. It cannot
be the case that, once exhaustible natural resources are extracted from the ground, resource-
endowed WTO Members would be prevented from managing these resources and from balancing
the needs of their own citizens with the rights of foreign users of such resources.
21 Article XX(g)
and its chapeau include stringent safeguards to prevent a resource-endowed Member from abusing
its right of supply-management under Article XX(g) to promote its domestic industry at the
expense of foreign users of the natural resources at stake. The export quotas must indeed be
"made effective in conjunction with restrictions on domestic production or consumption", requiring
the resource-endowed Member not to compromise the achievement of its conservation objective
by permitting unlimited domestic production an d consumption. Moreover, as required by the
chapeau, the export quotas must not be applied in a manner that would constitute "arbitrary or
unjustifiable discrimination" or a "disguised restriction on international trade".
IV. CHINA'S RARE EARTH EXPORT QUOTAS RELATE TO THE CONSERVATION OF
EXHAUSTIBLE NATURAL RESOURCES
A. China provided evidence that it send s the correct conservation signals to
the market
14. China explained in Part I of its executive su mmary that through the export quotas, China
reconciles the need to conserve exhaustible rare earth resources for future use with the need to
use these resources for sustainable economic development today. Like any commodity market,
the rare earths market functions on information and market participants react to signals received
from major suppliers and consumers. Given China's current unique position as being practically
the sole supplier of rare earths in the world, any signals sent through its policies will directly
trigger reactions in the market. It is therefore incumbent upon China to send the right signals that

13 Panel Report, China – Raw Materials, para. 7.375.
14 Panel Report, China – Raw Materials, paras. 7.377-7.381.
15 Exhibit CHN-49: U.N. G.A. Resolution 626 (VII), Right to Exploit Freely Natural Wealth and Resources
(21 December 1952).
16 China's Oral Statement of 18 June 2013, para. 15.
17 See Exhibit CHN-187: Verbatim Report of the First Meeting of the Sub-Committee of Committee II on
Quantitative Restrictions and Exchange Control, E/PC/T/C.II/QR/PV/1, 11 November 1946, p. 15. See also
Exhibit CHN-188: Verbatim Report of the Fifth Meeting of the Sub-Committee of Committee II on Quantitative
Restrictions and Exchange Control, E/PC/T/C.II/QR/PV/5, 18 November 1946, p. 79.
18 Exhibit CHN-189: Preparatory Committee of the International Conference on Trade and Employment,
Committee II, Report of the Sub-Committee on Quantitative Restrictions and Exchange Control,
E/PC/T/C.II/59, 21 November 1946, p. 5 (emphasis added).
19 Ibid.
20 See China's Oral Statement of 18 June 2013, para. 13; China's Answers of 8 July 2013, paras. 5-7;
China's Comments of 17 July 2013, para. 15.
21 China's Oral Statement of 18 June 2013, para. 15; China's Answers of 8 July 2013, para. 3.
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contribute to its conservation objective. China provided evidence that, when China sets the export
quota volumes for a given calendar year at the end of the preceding year, "simultaneously" 22 with
the production quotas, China effectively sends the following signals to the market for the coming
year:
15. First, China signals to would-be illegal producers 23 in China that the risk/reward ratio is
insufficient to start up illegal activity. Given the already intensified enforcement efforts against
illegal production and smuggling, China's export quotas help to further reduce the economic
incentive to produce illegally. Under a given level of enforcement, without an export quota in
place, entities in China will consider the potential that a significant part of all legally produced rare
earth products could be exported, leaving the domestic Chinese market in a supply squeeze. This
could occur because of a speculative demand surge or because of governmentally-promoted
foreign stockpiling.
24 Because the legitimate Chinese producers cannot produce more than the
assigned production quota – and there are no othe r rare earth supplies of any significance outside
China – there would be great incentives for illegal producers to meet the shortfall in domestic
Chinese demand. The predictable level of supply from legal sources to both domestic and foreign
markets, an expectation resulting from the presence of an export quota, removes this incentive for
conservation-frustrating illegal production and selling to the domestic market.
25
16. Second, the export quotas – even when not filled in certain years – send the signal that
unlimited supplies from China cannot and will not last. Without the export quotas, the risk exists
that foreign users, investors, and financing institutions – knowing there is unlimited export from
China – would not likely proceed with rare eart h projects outside China and the burden of the
conservation policy would be solely on China. China provided evidence of a considerable increase
in the number of new rare earth mining projects starting up outside China and securing investment
since 2010. A report by China's rare earth expert John Goode details these many new
investments.
26 Further evidence supporting this effect is the development of substitutes and the
initiation of recycling efforts. 27 China also provided evidence of substitution by Chinese
downstream users,28 and the initiation of rare earths recycling projects by Chinese enterprises and
the preparation of research and development and recycling projects. 29 This shows that China sent
the correct signal to rare earth enterprises, investors, and financing entities, both in China and
abroad.
17. Third, China signals to the Chinese and foreign users of rare earths what the respective
volumes of supply will look like in the coming year. These transparent announcements
30 allow
Chinese and foreign users to adjust their behavior. Such announcements will dampen any
likelihood of panic, speculative and pre-emptive buying, to which the rare earths market is

22 Exhibit CHN-13: Several Opinions, Paragraphs II(7) and VI(20); Exhibit CHN-21: Provisional
Measures on the Administration of the Directive Production Plan of Rare Earth, (Gong Xin Bu Yuan [2012]
No.285), 13 June 2012, Article 4 and Exhibit CHN-63: Declaration on the Setting Of 2012 Export Quotas on
Rare Earth Products, paras. 2 and 4.
23 Illegal producers may either be mining or producing without the required license or may be legitimate
producers that engage in over-quota mining or production.
24 Exhibit CHN-153: Rare earths – demand and speculation. Report Prepared by Dr. David Humphreys,
April 2013, pp. 3-5; Exhibit CHN-190: Rare Earth Metals, Parliament Office of Science & Technology, Postnote
Number 368 January 2011, p. 4.
25 China's Comments of 25 March 2013, paras. 49-50.
26 Exhibit CHN-192: The impact of Chinese rare earth quotas on non-Chinese exploration, development,
demand and production. A review by J.R. Goode, June 2013.
27 Exhibit CHN-192: The impact of Chinese rare earth quotas on non-Chinese exploration, development,
demand and production. A review by J.R. Goode, June 2013.
28 Exhibit CHN-132: "Three Concerns Behind the Prosperity of Rare Earth Listed Companies", 21st Century
Business Herald, 2 August 2011, pp. 2-3.
29 China's Answers of 8 July 2013, paras. 107-108 and Exhibit CHN-214: Introduction of the Rare Earths
Recycling in China, Association of China Rare Earth Industry, 3 July 2013.
30 Specified in the different batches for 2012: Exhibit CHN-57: Notification of the Ministry of Commerce
on the Supplement to the 2012 First Batch of Rare Earth Export Quota (Shangmaopi [2012] No. 618), 16 May
2012; Exhibit CHN-56: 2012 Notification on List of Rare Earth Export Enterprises and First Batch Rare Earth
Export Quota, (Ministry of Commerce, Shangmaohan, No. 1133, 26 December 2011) and ; Exhibit CHN-58:
Notification of the Ministry of Commerce regarding the Second Batch Rare Earth Export Quota of 2012 (Shang
Mao Han [2012] No. 627), 16 August 2012.
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particularly sensitive.31 Further, such announcements signal that China is willingly supplying the
actual commercial needs in the market, 32 but not foreign governments' stockpiling programs. 33
Thus, the export quotas serve to prevent specul ative surges from happening that would cut-off
access to the limited rare earth supplies, threatening sustainable development.34 China's evidence
that the rare earths market had cooled down in 2012 and is now a "normal" market reflects
consumers' confidence in China's rare earth policy, of which China's 2012 export quota is an
important part.35
B. The text, context, and design and arch itecture of the 2012 export quotas
demonstrate that they relate to conservation
18. Further evidence that the export quotas "relat e[] to conservation" lies in the "text of the
[challenged quota] measure[s]", and their "context". 36 China has explained that the very text of
the challenged export quota measures, as well as the policy documents to which they are tied,
focus on the conservation objective.37
19. The connection of the export quotas to China's conservation policy is also found in the
"design and architecture"38 of the 2012 export quota measures.
20. First, China recalls that the 2012 export quota volumes are set simultaneously with the
extraction and production quotas as part of a coordinated effort by MIIT, MLR, NDRC and
MOFCOM.39 When determining the quota levels in 2012, the Ministries took into account the
situations concerning domestic resources, domestic and foreign demand and domestic and foreign
consumption.40 In this manner, they balanced the need to conserve the resources for future use
with the need to use these resources for economic development today. The export quota system
is thus designed to function together with the extraction and production restrictions, which all
conserve resources.
21. Second, the export quotas are applied at the level of smelted and separated rare earth
products. China thus controls the export of the rare earth products at the upstream "rare earths
industry" stage of the rare earths supply ch ain, where the production quota also applies.
41 This
aspect of the architecture of China's export quota system again demonstrates that it is related to
conservation. The smelted and separated rare eart h products are the products that are actually
traded. Hence, these are the products for which the supply can be "managed" effectively. 42 In
order to manage the supply of the limited volume of rare earth products, the rare earth export
quotas must cover all products produced by the rare earth industry and that form the inputs for
the downstream industries using rare earths.43
22. Third, in reply to Complainants' argument that rare earth salts, oxides and metals are not
"exhaustible natural resources", China explained that the clause "relating to conservation of
exhaustible natural resources" does not require that the exact marketable product that is the

31 Exhibit CHN-153: Rare earths – demand and speculation. Report Prepared by Dr. David Humphreys,
April 2013, pp. 3-5 and Exhibit CHN-1: Information Office of the State Council, "Situation and Policies of
China's Rare Earth Industry", Beijing, June 2012, p. 27.
32 Exhibit CHN-1: Information Office of the State Council, "Situation and Policies of China's Rare Earth
Industry", Beijing, June 2012, p. 25.
33 Exhibit CHN-190: Rare Earth Metals, Parliament Office of Science & Technology, Postnote Number 368
January 2011, p. 4.
34 China's First Written Submission, paras. 146-154; China's Oral Statement of 26 February 2013,
paras. 23-25; China's Answers of 14 March 2013, para. 88; China's Second Written Submission, paras. 53-61.
35 China's Answers of 8 July 2013, paras. 40-44; China's Comments of 17 July 2013, para. 65
36 See Panel Report, China – Raw Materials, para. 7.418.
37 See China's First Written Submission, paras. 91-112.
38 See Panel Report, China – Raw Materials, para. 7.418.
39 Exhibit CHN-13: Several Opinions, Paragraphs II(7) and VI(20); Exhibit CHN-21: Provisional
Measures on the Administration of the Directive Production Plan of Rare Earth, (Gong Xin Bu Yuan [2012]
No.285), 13 June 2012, Article 4 and Exhibit CHN-63: Declaration on the Setting Of 2012 Export Quotas on
Rare Earth Products, paras. 2 and 4.
40 Exhibit CHN-13: Several Opinions, Paragraph II(7) and Exhibit CHN-63: Declaration on the Setting Of
2012 Export Quotas on Rare Earth Products, paras. 4-5 and 11.
41 China's Second Written Submission, para. 77.
42 China's Second Written Submission, paras. 12-13, 70-71.
43 China's Answers of 8 July 2013, paras. 133-140, 141-147, 293-298, 308-314; China's Oral Statement
of 18 June 2013, paras. 10, 32-33 and Figure 1; China's Second Written Submission, paras. 11-12, 62-79.
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subject-matter of the measures at issue be only the raw form of exhaustible natural resources
themselves. Indeed, in U.S. – Gasoline, the measures that were found to relate to conservation of
clean air (the baseline establishment rules) applie d to the quality standards of different types of
gasoline, not the clean air itself .44 Hence, when designing measures to conserve an exhaustible
natural resource, a WTO Member's measure can only control those aspects of trade and markets
that it can control to achieve the conservation objective. In order to protect the non-renewable
rare earth ores from excessive depletion, China's export quotas cover the products it can control
and that are traded internationally – rare earth oxides, metals, salts and alloys. These are the
products that are traded – not raw, unprocessed rare earth ores.
23. Fourth, China does not apply further export quotas to the downstream products using rare
earths as inputs. This would have required China to impose a quota for all the downstream
products that are produced at the same downstream stage of the rare earths supply chain. These
downstream products are made from a percentage of rare earths, mixed with other non-rare earth
inputs. For instance, a NiMH battery contains 30-50% Nickel, but only 5-10% of the rare earth
Lanthanum. Hence, a quota on such batteries would effectively also impose a quota on nickel,
which is not intended by China and may create trade-distortions.
45 Moreover, identifying the rare
earth content in such end-use products, and setting this off against the export quota volume,
requires sophisticated, time-consuming and costly analysis.
46 China already achieves its
conservation objective through the current product coverage of the export quotas. It does not
need to engage in additional burdensome, trad e-distortive and ineffective quota-setting for
downstream products.
V. CHINA'S RARE EARTH EXPORT QUOTAS MEET THE EVEN-HANDEDNESS
CONDITION SINCE THEY ARE MADE EFFECTIVE IN CONJUNCTION WITH
RESTRICTIONS ON DOMESTIC PRODUCTION AND CONSUMPTION
A. China has effective restrictions on domestic production
24. China provided evidence that, since the introd uction of the extraction quota in 2006 until
today, extraction of rare earths has been reduced by 43%.47 Further, since the introduction of the
production plan in 2007 until today, actual production of smelted and separated rare earth
products has fallen by 35%. 48 Moreover, China ensures the effectiveness of the domestic
production restrictions by means of effective enforcement, in particular after 2010, when efforts
were intensified.
49 In 2011 and 2012, the actual level of extraction was lower, not higher than the
extraction quota. Further, in 2012, the actual level of the rare earth production was lower, not
higher, than the production quota. China also provided detailed evidence of how numerous illegal
mines were closed down.
B. China has effective restrictions on domestic consumption
25. China provided evidence on actual consumption of rare earths in China, demonstrating that
China's domestic consumption actually declined by 28% from 2010 to 2012 and now rests at levels
not seen since 2006. Not surprisingly, this consumption drop coincided with the start of China's
intensified enforcement actions in 2010.50 Moreover, China demonstrated that domestic prices for
various rare earth products increased by at least 31 percent and much higher for many products.
These higher domestic prices levels reflect, at least in part, the passing-through of additional costs
of mining and producing rare earths such as mandated environmental compliance, the resource
tax, and the mandatory deposit for ecological recovery; as well as reduced supply arising from the

44 Appellate Body Report, U.S. – Gasoline, p. 19.
45 China's Second Written Submission, para. 77.
46 China's Second Written Submission, para. 78.
47 Exhibit CHN-191: Updated Rare Earths Data (1999-2012).
48 Exhibit CHN-191: Updated Rare Earths Data (1999-2012).
49 See China's First Written Submission, paras. 204-220 and Annex; China's Oral Statement of
50 See China's First Written Submission, para. 209, referring to Exhibit CHN-39: Circular on Carrying out
the Special Nationwide Rectification Campaign on the Exploitation Order of Rare Earth and Other Minerals,
(Ministry of Land and Resources, Guo Tu Zi Fa [2010] No. 68), 10 May 2010 and para. 217, referring to Exhibit
CHN-85: Circular Establishing Mining Zone Assistant Administrators Team of Ore Districts of Rare Earths and
Other Materials, (Guo Ti Zi Ting Fa [2010] No.52), 27 July 2010. The enforcement continues until today, as
discussed in China's First Written Submission, paras. 204-220 and Annex; China's Oral Statement of 26
February 2013, para. 28.
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rare earth extraction and production quotas. 51 These higher prices had a demand-softening effect
on Chinese downstream consumers of rare earth products. China provided evidence how Chinese
permanent magnet producers saw their profit and revenue decrease
52 because end-consumers of
permanent magnets adjusted their purchasing behaviour, leading to reduced demand. 53 C h i n a
demonstrated that similar effects could be noticed for Chinese LED fluorescent powder
producers.54
C. China's domestic restrictions meet the even-handedness requirement
26. China meets the even-handedness requirement in Article XX(g) as long as it ensures that
the impact of the conservation policy is on both domestic as well as foreign users. The text of
Article XX(g) makes clear that China may ensure such impact on domestic users of rare earths
either through restrictions on domestic production or restrictions on domestic consumption. 55
Domestic production and consumption restrictions produce the same effect : a production cap on
the resources subject to conservation limits the access of domestic consumers to the newly
produced resources – just like a consumption cap for such newly produced resources.
27. China provided evidence to demonstrate that its 2012 conservation policy met the even-
handedness requirement. China pointed to the structure, design and operation of its quota system
to show that its 2012 quota system restricts domestic production and consumption.
56
28. The structure and design of the quota – in particular the manner in which the different quota
volumes are determined – show that China meets the even-handedness requirement. To ensure
that the impact of the conservation policy would, in 2012, not solely be on foreign users, the
Chinese Ministries – when setting the production and export quota volumes for 2012 at the end of
2011 – set these volumes "simultaneously"
57 and made a rational assessment of the expected
demand in China and abroad. 58 The export quotas are thus designed to work together with the
domestic production quota. The Ministries consulted all available evidence at that time, including
customs information and information by the authority responsible for rare earth industry statistics,
as well as industry reports, showing the consumpt ion and production of rare earths in previous
years as well as the forecasted developments in China and in other countries.
59
29. The operation of the 2012 quota system further demonstrates even-handedness. A
"consideration of the predictable effects" 60 of the quotas shows that China meets the even-
handedness requirement in respect of the 2012 quotas. The facts indeed support that in 2012
China indeed restricted domestic consumption of newly produced rare earth products and ensured
that the impact of the conservation policy was also on domestic users. On the basis of information
of actual Chinese domestic consumption levels in 2010 and 2011 and predictions of expected
consumption for 2012, Chinese Ministries set the production and export quotas at such levels that
the volume of newly produced rare earth products that would be available for domestic
consumption in 2012 was below the expected domestic consumption. The combination of the
export and production quotas for 2012 thus sent a signal to domestic consumers in China that
domestic consumption of newly produced rare earths in China would be restricted. This balances
any effect of the export quotas on foreign consumers.
30. Of course, these production and export quota volumes for 2012 were set in late 2011. How
the different quotas operated in practice can only be examined ex post – i.e. once the year to
which the quotas applied has passed.
61 The actual effects of the quotas in 2012 also support
China's argument that it ensured even-handedness during 2012. In 2012, the export quotas were

51 China's Oral Statement of 26 February 2013, para. 41.
52 Exhibit CHN-133: Chengdu Galaxy Magnets Shareholding Co. Ltd, 2012 Provisional Report.
53 Exhibit CHN-132: "Three Concerns Behind the Prosperity of Rare Earth Listed Companies", 21st
Century Business Herald, 2 August 2011, p. 2.
54 Exhibit CHN-132: "Three Concerns Behind the Prosperity of Rare Earth Listed Companies", 21st
Century Business Herald, 2 August 2011, p. 3.
55 China's Second Written Submission, para. 84.
56 China's Answers of 14 March 2013, paras. 61-63.
57 Exhibit CHN-13: Several Opinions, Paragraph II(7).
58 Exhibit CHN-13: Several Opinions, Paragraph II(7). See also Exhibit CHN-63: Declaration on the
Setting of 2012 Export Quotas on Rare Earth Products.
59 Exhibit CHN-63: Declaration on the Setting of 2012 Export Quotas on Rare Earth Products, para. 5.
60 Appellate Body Report, U.S. – Gasoline, p. 21 (underlining added).
61 China's Second Written Submission, para. 95.
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not filled and thus were more than enough to meet foreign users' needs. China's economic expert
Prof. Jaime de Melo has explained that when expo rt quotas are not filled, there cannot be any
difference between domestic and foreign prices as a result of the export quotas. 62 Hence, there
cannot be any un-evenhanded impact on foreign users. In such a situation, it would not further
the achievement of the even-hande d requirement nor of China's conservation objective to further
restrict domestic consumption below the level obtained by deducting the actual export from the
production quota volume. The production quota sets the volume of new production of rare earths
that China considered appropriate for 2012.
63
VI. COMPLAINANTS FAILED TO REBUT CHIN A'S EVIDENCE THAT CHINA'S RARE
EARTHS EXPORT QUOTA SYSTEM IS APPLIED IN A MANNER THAT DOES NOT
VIOLATE THE REQUIREMENTS OF THE CHAPEAU OF ARTICLE XX OF THE
GATT 1994
A. Legal test under the chapeau of Article XX of the GATT 1994
31. The key required analysis of the Panel under the chapeau is to assess the actual operation of
China's export quota systems. The Appellate Body in U.S. – Gasoline indeed stated that "[t]he
chapeau by its express terms addresses, not so much the questioned measure or its specific
contents as such, but rather the manner in which that measure is applied".
64 Hence, in contrast to
the requirement of even-handedness in Article XX (g) of the GATT 1994 – for which it is sufficient
to show that China has imposed restrictions on domestic production or consumption – under the
chapeau of Article XX(g) it becomes relevant how China has allocated the limited supply to
domestic and foreign users through the export quota system. This requires a consideration of the
basis on which the allocation was made and whether the allocated quantities were sufficient to
meet demand.
32. Hence, under the chapeau, the challenged 2012 export quota must not be assessed in the
abstract, but in the concrete market circumstances in the year in which they operate.
Complainants have argued that no effects-tests exists under Article XX(g) or its chapeau. In
response, China argued that, first, that the Appellate Body found in U.S. – Gasoline that the
analysis under the chapeau focuses on "the manner in which [a] measure is applied", which
essentially requires a consideration of the operation of the challenged measure in practice.
65
Second, Complainants' arguments forcefully show that they fabricate a per se prohibition on export
quotas as part of a conservation policy. They consider it irrelevant to examine whether an export
quota meets the separate conditions of Article XX( g) and its chapeau, since, in their view, the
quota is always illegal. Complainants have never explained where in the GATT 1994 such per se
prohibition is imposed.
B. The export quota system allocated the limited supply in a manner
sufficient to meet foreign demand
33. China allocated the limited supply of rare eart h products in 2012 on the basis of past and
expected consumption patterns in China and abroad,
66 thereby trying to approach as closely as
possible what the foreign and domestic consumers "might be expected to obtain" 67 under normal
market circumstances. This is consistent with Appellate Body's finding in U.S. – Shrimp that, in
respect of the discrimination-concept in the chapeau of Article XX, "discrimination results not only
when countries in which the same conditions prevail are differently treated, but also when the
application of the measure at issue does not allow for any inquiry into the appropriateness of the
regulatory program for the conditions prevailing in those exporting countries ".
68 Therefore, an
export quota system does not "arbitrar[ily] or unjustifiabl[y] discriminate" if it takes into account

62 Exhibit CHN-157: Jaime de Melo, Selected Economic Issues Regarding Export Quotas and Production
Quotas, April 2013, para. 37.
63 China's Answers of 14 March 2013, para. 174
64 Appellate Body Report, U.S. – Gasoline, p. 22 (emphasis added).
65 Appellate Body Report, U.S. – Gasoline, p. 22.
66 See Exhibit CHN-63: Declaration on the Setting of 2012 Export Quotas on Rare Earth Products,
paras. 10-20, following the State Council's mandatory criteria specified in Exhibit CHN-13: Several Opinions,
Paragraph II(7).
67 Article XIII:2 of the GATT 1994.
68 Appellate Body Report, U.S. – Shrimp, para. 165 (emphasis added). See also Panel Report, EC –
Tariff Preferences, para. 7.227.
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the fact that different conditions prevail in different countries – i.e. the different demand patterns
in China and abroad. This is indeed the case for China's export quota system.69
34. The application of the 2012 rare earth export quotas did not result in any "arbitrary or
unjustifiable discrimination", since the lack of quota fill in 2012 shows that foreign users could
obtain all the supply of any type of rare earth product they needed. There was thus simply no
unequal or discriminatory treatment as a consequence of the application of the 2012 export
quotas.
C. Complainants failed to establish that the challenged 2012 export quotas
are the genuine and substantial caus e of differences between domestic
and foreign prices of rare earth products
35. The Complainants' basic argument in this dispute is that China uses export quotas to provide
a price advantage for China's downstream users of rare earths. However, Complainants have
failed to establish a genuine and substantial causal link between China's export quotas and alleged
lower prices for domestically sold rare earths compared to the prices paid by foreign users of rare
earths.
36. China explained, based on economic expert ev idence, that an unfilled export quota cannot
be the cause of price differences.
70 Hence, given that that the challenged 2012 rare earth export
quotas were unfilled (just as in 2011), any price differences in 2012 cannot be the result of the
export quota challenged by the Complainants and defended by China under Article XX(g), but must
be due to other factors.
37. Rather than to focus on the effect of the 2012 rare earths export quotas they challenged,
the Complainants focused on the 2010 reduction of the export quotas. Complainants fail to
recognize that, from March 2010 through 2012, China adopted a number of new conservation
measures. China demonstrated that the reduction of the export quota in July 2010 followed major
cuts in the extraction and production quotas by, respectively, 25 and 22% 71 a s w e l l a s a r a r e
earths-specific enforcement campaign.72 In 2011, the Emission Standards entered into force73 and
the resource tax was increased. 74 In May of that year, the State Council set out the conservation
policy in great detail in its Several Opinions. In light of these facts, there is no basis for
Complainants' claim that the export quota was the direct cause of the price effects, given that in
2010 the export quota cut was only one of many new conservation measures; and in 2011 the
export quota was not changed and the quota was not filled. Both domestic Chinese users and
foreign users saw their prices increase significantly during 2010 and 2011 before collapsing
throughout 2012 and finally reaching a new equilibrium in May 2013.
38. China also demonstrated that, during 2012, the difference between domestic and foreign
prices for the same rare earth products collapsed dramatically by the end of 2012. 75 T h e
narrowing, and, in many cases, elimination of the price gap throughout the year 76 demonstrates
that the 2012 export quota could not be aimed at maintaining or creating a price difference to
advantage China's domestic rare earth users.
39. Furthermore, China established that by the end of May 2013 the pricing data shows very
similar foreign and domestic prices for rare earth metals of 8 rare earth elements. These rare

69 China's Second Written Submission, paras. 102-108; China's Oral Statement of 18 June 2013,
paras. 46-47.
70 Exhibit CHN-157: Jaime de Melo, Selected Economic Issues Regarding Export Quotas and Production
Quotas, April 2013, para. 37.
71 See Exhibit CHN-137: Rare Earths Data (1999-2012). The extraction quota in the Directive
Production Plan reduced from 119,500 REO tons in 2009 to 89,200 REO tons in 2010. The production quota
for smelted and separated products reduced from 110,700 REO tons in 2009 to 86,000 REO tons in 2010.
72 Exhibit CHN-39: Circular on Carrying out the Special Nationwide Rectification Campaign on the
Exploitation Order of Rare Earth and Other Minerals, (Ministry of Land and Resources, Guo Tu Zi Fa [2010] No.
68), 10 May 2010.
73 Exhibit CHN-31: Emission Standards of Pollutants from Rare Earths Industry, Ministry of
Environmental Protection, GB 26451—2011, 24 January 2011).
74 Exhibit CHN-13: Several Opinions, Paragraph II(8). Exhibit CHN-29: Circular by Ministry of Finance
and State Administration of Taxation to Adjust Rare Earth Resource Tax (Cai Shui [2011] No.22), 15 March
2011.
75 China's Answers of 8 July 2013, para. 44-45 and Table 2.
76 China's Answers of 8 July 2013, Table 2.
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earth metals constitute the inputs for the most important downstream industries, in particular
permanent magnets and NiMH batteries. 77 This evidence cannot be reconciled with Complainants'
claims that the only purpose of China's 2012 and 2013 export quota systems is to promote China's
downstream users of rare earths. Hence, if China' s export quotas were really intended to provide
a price advantage to the important Chinese users of these rare earth elements, China failed
miserably.
D. Complainants have failed to establish that the challenged 2012 rare earth
export quotas are the genuine and su bstantial cause of relocation of
industries using rare earth elements as inputs from outside China to China
40. Complainants also failed to provide evidence showing that the export quotas were the cause
of relocation of rare earth users to China. Were their argument correct, there should have been
strong evidence of a significant relocation to China since the reduction of the export quota and
overall production quota volumes between 2007 and to day. Nonetheless, no such evidence exits.
China provided detailed information of Foreign Direct Investment by companies in three important
rare earth-using industries in China (NiMH batteries, rare earth catalyst and permanent magnets)
and originating from the Complainants. This showed that the number of foreign companies
participating in these sectors has been very limited over time, with the bulk of it taking place
before the reduction of China's export quota volumes since 2007.
78 This directly contradicts
Complainants' argument that the export quotas had no other purpose than to promote relocation
of downstream rare earths-using industries to China. Complainants failed to rebut any and all of
China's evidence in this respect.
VII. THERE IS NO CAUSAL CONNECTION BETWEEN THE EXPORT QUOTAS FOR
TUNGSTEN AND MOLYBDENUM AND ANY COMMERCIAL ADVANTAGE PROVIDED
TO DOWNSTREAM CHINESE USERS OF TUNGSTEN AND MOLYBDENUM
41. China has also provided price data for tungsten and molybdenum in its second written
submission.79 This data as well as the price gap analysis showed the absence of any significant
price differences between domestic and foreign tungsten and molybdenum prices. This evidence
contradicts Complainants' assertion that the design and operation of China's export quotas for
tungsten and molybdenum has been to advantage Chinese downstream users of these products.
80
Complainants failed to rebut this evidence, nor did they provide any evidence to support their
assertion.

Written Submissions by the United States, the European Union and Japan, 12 June 2013, pp. 4-5.
79 China's Second Written Submission, Sections VI and VII.
80 For tungsten, see China's Second Written Submission, paras. 188-190; For molybdenum, see China's
Second Written Submission, paras. 199-205.
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ANNEX C
ARGUMENTS OF THIRD PARTIES
Contents Page
Annex C-1 Integrated executive summary of the arguments of Argentina C-2
Annex C-2 Integrated executive summary of the arguments of Australia C-4
Annex C-3 Integrated executive summary of the arguments of Brazil C-7
Annex C-4 Integrated executive summary of the arguments of Canada C-8
Annex C-5 Integrated executive summary of the arguments of Colombia C-11
Annex C-6 Integrated executive summary of the arguments of the Republic of Korea C-13
Annex C-7 Integrated executive summary of the arguments of Norway C-15
Annex C-8 Integrated executive summary of the arguments of Peru C-16
Annex C-9 Integrated executive summary of th e arguments of the Russian Federation C-18
Annex C-10 Integrated executive summary of the arguments of the Kingdom of Saudi Arabia C-20
Annex C-11 Integrated executive summary of the arguments of Turkey C-23
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ANNEX C-1
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF ARGENTINA
1. Argentina has an interest in submitting comments solely in relation to the question whether
the Article XX defences of the GATT 1994 can be us ed to justify the imposition of export duties
by China in the light of the provisions of its Protocol of Accession (PA) to the WTO.
2. One of the most important systemic aspects ra ised in this dispute concerns the question of
whether the accession protocols are "complete and se lf-sufficient" agreements or whether, on the
contrary, they are, as an integral part of the GATT 1994 and the WTO Agreements, a component
that interacts and is interpreted as part of a broader legal framework.
3. "Integrality" means something more than mere addition or accumulation. Indeed, inasmuch as
the PA is an integral part of a broader whole  the WTO Agreements  it must be interpreted in
"conjunction" with the latter, since it has not only been added to the WTO Agreements but, as far
as China is concerned, "forms part of the covered agreements", defining the particular and specific
scope for China of the rights and obligations they contain.
4. In acceding to the WTO, China accepted a set of general rules within the specific scope defined
in its PA. In other words, in the absence of any particular specific rule defining the scope of a given
right or obligation, the general rules apply. With regard to export duties, while Article XI:1 of
the GATT 1994 contains a general rule providing for the elimination of trade restrictions with an
exception for export duties, paragraph 11.3 of the PA contains a specific rule with respect to that
instrument (export duties) that does not apply to other WTO Members.
5. It is necessary to keep in mind the rule of interpretation of Article 31 of the Vienna Convention
on the Law of Treaties, which provides that the terms of a treaty shall be interpreted "in good
faith … in their context and in the light of its object and purpose". A comprehensive and
harmonious interpretation of the Protocol of Acce ssion with the covered agreements is consistent
with that rule.
6. Likewise, pursuant to the principle of "effe ctiveness", as interpreted by the Appellate Body
itself, which found that a treaty interpreter is not free to "adopt a reading that would reduce whole
clauses or paragraphs of a treaty to redundancy or inutility"
1, if it were maintained that the
provisions of Article XX were applicable only if explicit mention thereof had been made
in paragraph 11.3 of the PA, paragraph 1.2 of the PA would become redundant and would not fulfil
the principle of "effectiveness".
7. Consequently, to deny the applicability of the exceptions under Article XX merely on the basis
of the text of paragraph 11.3 of the PA would be contrary to the object and purpose
of paragraph 1.2 of the PA, that is, that the la tter should be an "integral part" of the WTO.
Moreover, the rule contained in Article XX of th e GATT 1994 lays down a general exception which
Members may use, in specific circumstances, to justify measures which otherwise would be
inconsistent with multilateral rules, and which are aimed at protecting values as important as
human health and life and exhaustible natural resources, among other matters.
8. In a similar previous case, where the Appellate Body was required to decide whether the
exceptions provided for in Article XX of the GA TT 1994 were applicable to China by virtue of the
lack of an explicit reference in paragraph 11.3 of the PA, that interpretation appears to have been
excessively biased inasmuch as it was based on an exclusively textual interpretation.
2 In addition,
the Appellate Body appears to have attached too much importance to two other factors: (a) the
interpretation of the term "exceptional circumstances" in the Note to Annex 6 of the
Protocol of Accession and (b) the reference in the text of paragraph 11.3 of the PA to Article VIII of
the GATT 1994.

 Original Spanish.
1 WT/DS103/AB/R and WT/DS113/AB/R, paragraph 133.
2 WT/DS394/AB/R, WT/DS395/AB/R and WT/DS398/AB/R, in particular paragraphs 284, 285 and 303.
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9. Neither of these two factors offers a definiti ve or conclusive interpretation concerning the
applicability of Article XX. In short, the term "exceptional circumstances" in the Note to Annex 6 of
the PA merely refers to those conditions which might give rise to a change in the rates specified in
the schedule of products. No waiver of a general exception of the kind contained in Article XX can
be inferred from such restrictive language.
10. Regarding the reference to Article VIII of the GATT, in contrast to the lack of an explicit
reference to any other provision of the GATT in the paragraph in question, it too does not appear
to be sufficient in itself to support an interpretation involving an implicit waiver of a rule of general
application. As was said earlier, the reference to Article VIII would appear to be redundant, since
that article would have applied in any case.
11. There is no doubt that China, in its PA, accepted obligations of a scope different from that
which emerges from a mere reading of the Agreements regulating each of the respective topics.
That is the "WTO plus" dimension in relation to ex port duties under the PA, but there is nothing to
indicate that the acceptance of rules of differen t scope implies that, unless otherwise specifically
stated, there are parts or disciplines of the GATT 1994 that are not applicable to China. If a treaty
is an integral part of a set of norms, it does not seem necessary that it should contain explicit
references to each of the provisions of which it is, by definition, an integral part.
12. Accordingly, it seems relevant to ask: if the export duties applied by China are not the
instrument provided for in Article XI:1 of the GATT 1994, are they then instruments of a different
nature? Where is the nature of those instrume nts defined? And following the same line of
reasoning, the following question can also be asked: in the absence of any specific reference that
might serve to identify the export duties referre d to in China's PA with those referred to in
the GATT 1994, could it be inferred that their application is not subject to the
most-favoured-nation rule of Article I of that instrument? Or that they are not subject to the
security exception under Article XXI? Such interpretations appear to be neither permissible
nor reasonable.
Furthermore, are PAs "self-sufficient" or "complete" agreements, or on the contrary, are they to be
applied and interpreted in a broader context that gives substance and meaning to each of their
provisions?
Do the export duties referred to in paragraph 11. 3 of the PA constitute the same fiscal and trade
policy instrument as those referred to in Article XI:1 of the GATT, or are we speaking of a different
instrument? If so, what is it?
Should the general exceptions in Article XX of the GATT 1994 be invoked explicitly in specific
provisions of a PA, or should it be assumed that they apply  in a "general" way unless a Member
explicitly waives the right to apply them?
Can a Member's decision to refrain from recourse to provisions of a general nature be implicitly
assumed?
13. The key to answering these questions lies in the scope and interpretation given to the
expression "shall be an integral part" in paragraph 1.2 of China's PA, taking into account what was
said above about an integrated, harmonious inte rpretation that is not inconsistent with the
principle of the "effectiveness" of treaties.
14. The Appellate Body's decisions make a valuable contribution to the "security and
foreseeability" of the multilateral trading system. But the contribution of panels to that objective is
also valuable. That contribution must be made through an "objective assessment of the facts of
the case and the applicability of and conformity with the relevant covered agreements".
Argentina agrees that panels should not deviate from Appellate Body decisions, unless there is
good cause. However, it is aware that Members agreed that the recommendations and rulings of
panels cannot "add to or diminish the rights and obligations provided in the … agreements", which
means that, if a panel considered that the interpre tation given by the Appellate Body in a similar
earlier case added to or diminished the rights or obligations of a Member, it should not feel
compelled to ratify that interpretation.
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ANNEX C-2
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF AUSTRALIA
I. THE GENERAL AGREEMENT ON TARIFFS AND TRADE 1994
1. In its third party submission, Australia focuses on the interpretation of Article XX of
GATT 1994, particularly with regard to:

(a) the meaning of "relating to the conservation of exhaustible natural resources" in
paragraph (g);
(b) the meaning of "made effective in conjunction with restrictions on domestic
production or consumption" in paragraph (g); and
(c) the application of the chapeau of Article XX in justifying a measure that is
otherwise inconsistent with Article XI.

A. T HE MEANING OF "RELATING TO THE CONSERVATION OF EXHAUSTIBLE NATURAL RESOURCES"
2. Central to this dispute is whether China has satisfied the first part of Article XX(g) by
demonstrating a close and genuine relationship between its export restrictions and the goal
of conservation.

3. Australia refers to the view expressed by the panel in China – Raw Materials that "…a policy
of extraction would be more in line with a po licy to achieve conservation than one confined
to restricting exports. For the purpose of conservation of a resource, it is not relevant
whether the resource is consumed domestically or abroad; what matters is its pace of
extraction"1. Australia finds merit in that panel's view that it would be a limit on production,
not an export restriction, which is more prone to conserve a resource. That is to say, it
seems difficult for a Member to justify its export restraints by reference to the goal of
conservation in circumstances where only a relatively modest fraction of the capped
domestic production is permitted to be export e d . I n m a k i n g t h i s s t a t e m e n t , A u s t r a l i a i s
mindful that it does not wish to pre-judge the range of measures that Members might
choose to use for the purposes of conservation.

4. Australia agrees with China that the term "conservation" encompasses measures aimed both
at "preserving exhaustible natural resources in their current state, as well as regulating their
use for economic development today"
2. Nevertheless, Australia queries China's submission
that "pursuant to the principle of sovereignty over natural resources, States that possess
natural resources may develop policies to husband the use of the resources to promote the
production of more sophisticated processed products" 3. Whilst Australia agrees that States
have sovereign rights over their natural resources, Members have also exercised their
sovereign rights in becoming party to the WT O Agreements. Members have thus agreed to
exercise their sovereign rights in a manner that is consistent with their obligations under the
WTO Agreements.
4

1 Panel Report, China – Raw Materials, para. 7.428.
2 China's first written submission, para. 48.
3 China's first written submission, para. 58.
4 See S.S. Wimbledon (U.K. v. Japan), 1923 P.C.I.J. (ser. A) No. 1 (Aug. 17), p. 25; Exchange of Greek
and Turkish Populations, Advisory Opinion, 1925 P.C.I.J. (ser. B) No. 10 (Feb. 21), p. 21; Jurisdiction of
European Commission of Danube Between Galatz and Braila, Advisory Opinion, 1927 P.C.I.J. (ser. B) No. 14
(Dec. 8), p. 36, as referred to in Panel Report, China – Raw Materials, para. 7.379.
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B. T HE MEANING OF "MADE EFFECTIVE IN CONJUNCTION WITH RESTRICTIONS ON DOMESTIC PRODUCTION
OR CONSUMPTION"
5. WTO jurisprudence has established that the second part of Article XX(g) contains an "even-
handedness" requirement. That jurisprudence outlines what is not imposed by the even-
handedness requirement (as opposed to what is meant by "even-handedness"). That is, the
even-handedness requirement does not requ ire domestic and foreign consumers of
resources be treated in an identical manner by the resource-endowed Member 5. It does not
require an "empirical effects test" 6. Nor does it require a "separate showing that the
purpose of the challenged measure must be to make effective restrictions on domestic
production or consumption"
7.

6. Australia considers that the Panel has an important opportunity in its consideration of this
dispute to further develop Members' understan ding of the "even-handedness" requirement.
Australia submits that the mere existence of a restriction on domestic production or
consumption is not enough to establish even-handedness between the export restriction and
the domestic restriction. Rather, Australia submits that Article XX(g)'s even-handedness
requirement would require a careful consideration of the design, structure and application of
the domestic restrictions, and how those restrictions relate to the export restrictions. Such
an approach was taken with respect to import restrictions in US – Shrimp
8.

7. In a matter concerning export restrictions, Australia submits that the consideration of the
even-handedness requirement would require a co mparison between the export restrictions
and the restrictions on domestic consumption. That is, a Member's export restriction in the
name of conservation cannot be justified merely because of the existence of restrictions on
domestic production.

8. Accordingly, Australia considers pertinent the view expressed by the panel in China – Raw
Materials that a Member would need "to show that the impact of the export duty or export
quota on foreign users is somehow balanced with some measure imposing restrictions on
domestic users and consumers"
9 in order to satisfy the even-handedness requirement in
Article XX(g).

9. Australia, therefore, remains of the view that whilst Article XX(g) does not necessitate
equivalence in treatment between foreign consumers and domestic consumers, a Member
would need to demonstrate that there is a balance between its restrictions on foreign
consumers and its restrictions on domestic consumers. Otherwise, it would be difficult for
the Member to assert that it had applied export restrictions in an even-handed manner.
 10

C. T HE APPLICATION OF THE CHAPEAU OF ARTICLE XX
10. Australia considers that the reference in the chapeau of Article XX to discrimination extends
to measures which discriminate between the ex porting Member and its importing partners.
The Appellate Body's findings in US – Shrimp and United States – Gasoline would support
this submission.11 That is, discrimination could occur not only between different importing
Members, but also between the exporting Member and the importing Members concerned.

11. As noted in China's submission, the chapeau embodies a guarantee against abus de droit by
a Member invoking the exception. 12 The chapeau, which addresses arbitrary or unjustifiable
discrimination and disguised restrictions on international trade, plays an important role in
maintaining the delicate balance between the right of a Member to invoke the general
exceptions, and the rights of all other Memb ers under the substantive obligations of the
GATT 1994.

5 See Appellate Body Report, US – Gasoline, p. 21.
6 Ibid.
7 Appellate Body Report, China - Raw Materials, para. 361.
8 Appellate Body Report, US – Shrimp, para. 144.
9 Ibid (emphasis added).
10 See Appellate Body Report, US – Gasoline, pp. 20-21.
11 Appellate Body Report, US – Shrimp, para. 150.
12 China's first written submission, para. 71 in quoting Appellate Body Report, US – Shrimp, para. 158.
WT/DS431/R/Add.1 • WT/DS432/R/Add.1 • WT/DS433/R/Add.1

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12. In considering matters involving export restrictions on natural resources, Australia remains
of the view that the chapeau of Article XX requ ires the Member pursuing conservation goals
to restrict domestic consumption and exports in parallel. Where there is a substantial
disparity between a domestic production quota and an export quota, it would be difficult for
a Member to justify its discriminatory treatment of exports and domestic consumption.
WT/DS431/R/Add.1 • WT/DS432/R/Add.1 • WT/DS433/R/Add.1

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ANNEX C-3
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF BRAZIL
As requested by the Panel, in the present Execut ive Summary Brazil would like to highlight the
points it raised in its Written Submission, Oral Statement and Answers to the questions posed by the
Panel on March 1st, 2013, that, in its view, are the most relevant to aid the Panel in its decision:

I - Nature of Accession Protocols

Brazil understands that Accession Protocols are a part or the WTO Agreement and have links to
each of the different covered agreements as they establish the conditions by which a Member accedes
both to the WTO as a whole and to each specific agreement thereof . Therefore, on the one hand, they
are a covered agreement in their own right, falling within the purview of Article 1.1 of the DSU. On the
other, they establish specific obligations that apply in addition to or parallel with obligations set out in
one or more of the covered agreements, such as the GATT 1994 and, it this sense, should abide by the
same general rules and principles that regulate those agreements.

II - Applicability of the General Exceptions to Accession Protocols

As argued in its Third Party Submission and in its Oral Statement, Brazil believes that the
General Exceptions posited in Article XX of the GATT are a fundamental provision, for they strike a
balance between the policy space governments enjoy to pursue legitimate objectives and the
obligations under the multilateral trade system. In that sense, the provision provides a predictable and
transparent means to accommodate and harmonize conflicting obligations. While Brazil does not take a
definite position on the applicability of an Article XX defense in the present case, it believes that
restrictions on the Member's right to promote its sustainable development cannot be presumed or
inferred: they should only be deemed to exist in lig ht of compelling textual, contextual and systemic
evidences.

 With regards to omissions in the texts, Brazil is of the view that "omissions in different
contexts may have different meanings, and omission, in and of itself, is not necessarily dispositive", as
stated by the Appellate Body in Canada-Autos
1. Brazil if of the view that the mere fact that there is no
explicit reference in Article 11.3 of China's Accession Protocol should not be automatically assumed to
mean that the availability of defenses under such a fundamental provision to the multilateral trading
system as Article XX of the GATT 1994 was not implicitly intended by the Members.
 III - The Even-handedness requiremen t under Article XX(g) of the GATT
 As discussed in its Third Party Submission, Brazil believes that the meaning and scope of the
requirement of even-handedness remains in need of further clarification. Nevertheless the test, in
Brazil's view, requires restrictions on both domestic and international consumption or production, but,
as stated in US-Gasoline, there is "no textual basis for requiring identical treatment of domestic and
imported products". Furthermore, it can be stat ed that the requirement of even-handedness in
Article XX(g) must be read in a manner that allows a country to exploit its resources pursuant to its
own environmental and developmental policies and in accordance with its respective level of economic
development. It follows, then, that a resource-endowed country is entitled to calibrate its
conservational policies in a manner that allows it to benefit from the use of these resources
consistently with its developmental needs.

1 Canada – Autos (Appellate Body Report, paragraph 138).
WT/DS431/R/Add.1 • WT/DS432/R/Add.1 • WT/DS433/R/Add.1

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ANNEX C-4
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF CANADA
I. EXPORT DUTIES AND ARTICLE XX(B) OF GATT 1994
1. Article XX of GATT 1994 is not available to justify breaches of China's commitment to
eliminate export duties under paragraph 11.3 of its Accession Protocol. The ruling in China – Raw
Materials is clear on this point and is both relevant and applicable in the current dispute. China's
export duty obligations arise from its Accession Protocol, and not from GATT. The Appellate Body
has found that commitments made in each provision of an Accession Protocol are independent
from any related WTO Agreement. Therefore, for the general exceptions in GATT to be available to
justify a breach of an obligation in the Accession Protocol, there has to be an express link to the
GATT provisions. This conclusion is entirely supported by the ordinary meaning of terms of the
treaty and the context provided by related prov isions of China's protocol, in which there are
several explicit links. Rather than an "overly textualist approach to treaty interpretation", this is
the only interpretation that can result from a holistic application of the Vienna Convention on the
Law of Treaties.
2. The absence of a reference to Article I of the GATT 1994 in paragraph 11.3 of China's
Accession Protocol has no implication for China's MFN obligations when imposing export duties and
therefore by extension has no implication for the application of the GATT 1994 exceptions to
paragraph 11.3. China committed in paragraph 11.3 not to impose export duties on products not
listed in Annex 6 of the Protocol, and not to impose export duties above a maximum amount on
the 84 products listed in that Annex. These commitments are "WTO-plus" that supplement China's
existing commitments under the GATT 1994; they do not replace them. Therefore, export duties
that do not fall within one of the two prohibited categories above remain covered by China's
obligation under GATT Article I to impose duties only on an MFN basis.
3. The Panel should arrive at the same conclusion as that reached in China – Raw Materials .
The legal basis of the complaints regarding export duties is essentially the same in China – Rare
Earths as in China – Raw Materials. The measures at issue in both disputes are near-identical. The
Appellate Body in US – Stainless Steel (Mexico) observed that "[e]nsuring 'security and
predictability' in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies
that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same
way in a subsequent case" (para. 160) and that a panel's "failure to follow previously adopted
Appellate Body reports addressing the same issues undermines the development of a coherent and
predictable body of jurisprudence clarifying Members' rights and obligations under the covered
agreements as contemplated under the DSU" (par a. 161). The bar is therefore very high for a
panel to disregard an Appellate Body finding on a specific legal issue, and all the more so in this
dispute, which involves the same party, nearly identical measures and nearly identical products.
4. In the event the Panel finds that GATT Article XX(b) is available to China to justify its export
duties, the three legal requirements of that Article are not satisfied. First, the panel in China – Raw
Materials found that, to justify that the objectives of measures fall within the protection of health
and environmental protection, a Member must do more than simply produce a list of measures
referring to environmental protection and polluting products. China has not provided compelling
evidence that the export duties fulfill this aim. Second, since the export duties have apparently not
raised the domestic price, and have not limited domestic production of rare earths, tungsten and
molybdenum, they cannot be said to have made a material contribution to the objective of
environmental protection. And third, China has not demonstrated that less trade-restrictive and
feasible WTO-consistent alternatives available cannot be used in lieu of applying export
restrictions.
II. EXPORT QUOTAS AND ARTICLE XX(G) OF GATT 1994
5. China has also not demonstrated that its export quotas have met the two requirements to
be justified by Article XX(g) of GATT 1994.
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6. First, with respect to whether the measures are "related to" the conservation of an
exhaustible natural resource, the Appellate Body has explained that a measure must be "primarily
aimed at" conservation, and there must be "a clos e and genuine relationship of ends and means"
that requires an examination of the relationship between the general structure and design of a
measure and the policy goal it purports to serve. China relies on what it calls a comprehensive set
of measures relating to the conservation of strategic raw materials to support its claim. However,
if export restrictions are to conserve natural resources, they should be linked to production levels.
Since export restrictions have a direct impact on export volumes, in principle, the effectiveness of
such measures depends on whether a reduction in exports actually leads to a decrease in
production. Were China's export quotas to be prima facie defensible under Article XX(g), they
would have lowered domestic production or consumption of strategic raw materials. China would
therefore have to provide convincing evidence that its export quotas have in fact contributed to a
reduction in domestic production and consumption. Without such evidence, China's claim that its
export quotas are "related to" conservation would have to fail.
7. Second, China has not demonstrated that its export quotas are made effective "in
conjunction with" restrictions on domestic production or consumption that show "even-handed"
(although not identical) treatment of domestic industries and foreign trading partners. To satisfy
this requirement, there has to be more than minimal restrictions on domestic consumption that
may or may not become effective dependin g upon subsequent events. The panel in China – Raw
Materials concluded that "it is difficult to see how – if no similar or parallel restrictions are imposed
at all on domestic users or on domestic consumption and all limitations are placed upon the foreign
consumers alone – the export restrictions can be considered even-handed" (para. 7.465). Evidence
submitted by China in this dispute of limitations imposed on domestic production is insufficient to
demonstrate that these production limitations serve to balance the impact of the export quotas on
foreign users. Since they appear to have been imposed well after the export restrictions were put
in place, they cannot have been "made in conjunction" with export restrictions. Second, since a
limitation on production affects both foreign and domestic users, these limitations are not in
themselves evidence of a measure affecting only domestic users that acts to balance the effect of
the export restrictions that affects only foreign users.
III. CHAPEAU OF ARTICLE XX OF GATT 1994
8. Should China's export quotas be found to meet the exception for the protection of
exhaustible natural resources or should its expo rt duties be found to meet the exception for
measures necessary for protecting health and th e environment, China has still not demonstrated
that the measures satisfy the requirements of the chapeau of Article XX that they not be applied in
a manner that constitutes "a means of arbitrary or unjustifiable discrimination between countries
where the same conditions prevail" and that they are not "a disguised restriction on international
trade".
9. The way in which China manages the sales of rare earths, tungsten and molybdenum at
home and abroad appears to discriminate between Chinese and foreign markets. China has
implemented elaborate rules on applications for export quota licences that are tied to
environmental protection, but it is not clear to what extent domestic sales are subject to similar
rules. Export quotas are much more trade-restrictive than some viable alternatives, such as
environmental guidelines or production quotas. Regulating at source has a direct impact on
resource conservation without distinguishing between domestic and foreign consumption. China
has implemented legislation setting environmental guidelines and limiting domestic production,
which is evidence of its capacity to use these instruments in lieu of export quotas.
IV. PARAGRAPH 5.1 OF CHINA'S ACCESSION PROTOCOL AND PARAGRAPHS 83 AND
84 OF THE WORKING PARTY REPORT
10. China's restrictions on trading rights, such as the requirements for prior export performance,
prior experience and minimum registered capital, are inconsistent with paragraph 5.1 of China's
Accession Protocol and paragraphs 83 and 84 of the Working Party Report. China has not
demonstrated that recent amendments to the Foreign Trade Law mean that all enterprises have
the right to trade in all goods. Despite these changes to this law of general application, restrictions
remain through other instruments of specific application that apply for obtaining the right to trade
in strategic raw materials.
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11. China has also not demonstrated that its quota administration requirements are justified
under GATT Article XX(g). Paragraphs 83 and 84 of the Working Party Report are incorporated into
the Accession Protocol by virtue of paragraph 342 of that same report and paragraph 1.2 of the
Protocol itself. Therefore the analysis of applicability of GATT Article XX in China – Audiovisual
Products and China – Raw Materials applies in these circumstances.
12. In relying on this analysis, China incorrectly conflates the issue of whether the export quotas
(which govern the products being traded) are justified by Article XX(g) with that of whether the
trading rights restrictions (which govern who can trade) are themselves justified by Article XX(g).
However, the issue of whether export quotas are justified under Article XX(g) is a separate
question from whether restrictions on trading rights – imposed ostensibly as "eligibility
requirements" in support of the quotas – are themselves justified by a GATT exception.
13. A review of such restrictions on trading rights would consist of a three-part test: (i) are the
restrictions inconsistent with the trading rights commitments in paragraph 5.1; (ii) if they are
inconsistent, is there a "clearly discernible, objective link to the regulation of trade in the goods at
issue" (in this case strategic raw materials) such that the first part of paragraph 5.1 applies to
make them justifiable (this is just a threshold question); and (iii) if they are justifiable, then China
would have to demonstrate that they meet the test for Article XX(g) to determine whether it
justifies the breach. China has not even attempted to make this defence.
14. On the broader issue of whether paragraphs 83 and 84 of the Working Party Report are
subject to the general exceptions of GATT Article XX, to the extent that those paragraphs may be
seen to be elaborations of paragraph 5.1 of China' s Accession Protocol and that they must be read
in conjunction with that paragraph, it is arguable that Article XX would apply to breaches of
paragraphs 83 and 84, but only via the intermediary of paragraph 5.1. However, in the absence of
an express textual reference to GATT in paragraphs 83 and 84, Article XX would not justify
standalone breaches of these provisions, only a breach that simultaneously constitutes a breach of
paragraph 5.1.
WT/DS431/R/Add.1 • WT/DS432/R/Add.1 • WT/DS433/R/Add.1

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ANNEX C-5
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF COLOMBIA
I. INTRODUCTION
1. Colombia provided its views with respect to the following issues: (a) whether China has
fulfilled the conditions necessary to have reco urse to GATT Article XX(g); and (b) whether GATT
Article XX may be invoked to justify violations of the obligation contained in Paragraph 11.3 of
China's Accession Protocol.
A. Whether China has fulfilled the elemen ts necessary to ha ve recourse to
GATT Article XX(g)
2. Regarding the first issue, in its first written submission, China argues that the 2012 export
quota system for rare earths, tungsten and molybdenum is consistent with the requirements set
forth in GATT Article XX(g).
1
3. Colombia will comment solely on the second condition a measure must satisfy in order to be
justified under Article XX(g), namely whether the export restrictions in this case are applied in
conjunction with restrictions on domestic production or consumption.
4. The legal standard for Article XX(g) that has been consistently applied by WTO adjudicating
bodies requires that restrictions on domestic production or consumption impose a “limiting effect”
on the domestic consumption or production of the product at issue.
5. In Colombia's view, the limiting effect of restrictions on domestic production and
consumption can be assessed either by observing the tangible effects of the measure in any given
case or by determining if the measure can potentially contribute to produce a material limiting
effect in the consumption or production of the exhaustible natural resource.
6. The assessment of the limiting effect should be done on both a quantitative and qualitative
basis and taking into account all the variables related to the causal link between the measures and
the actual limiting effect. Therefore, restrictions on domestic production or consumption should be
deemed to have a limiting effect whenever such restrictions produce or have the potential to
produce a material limitation.
7. In its first written submission, China identifies a set of measures that it says it has
implemented in order to comply with the requisite of restricting domestic production or
consumption, among others, the implementation of measures directly controlling the volume of
production of rare earths
2 and measures imposing taxes on rare earth products. At this juncture,
Colombia will provide its view of whether these measures comply with the legal standard
established by GATT Article XX(g).
i) Measures controlling the volume
8. China alleges that two types of volume controlling measures have been implemented:
(i) restrictions on domestic production and (ii) restrictions on domestic consumption.
9. With respect to the restrictions on domestic production, China provides in its first written
submission rare earth production data. 3 Colombia wants to highlight that the data presented by
China illustrates that even though measures have been taken to limit domestic production, actual
production surpasses the production caps established for 2010 and 2011.

 Colombia requested that its oral statement serve as the integrated executive summary.
1 China's First Written Submission, para. 4.
2 China's First Written Submission, para. 164.
3 China's First Written Submission, Table 1 (footnotes omitted).
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10. With regards to the restrictions on domestic consumption, China provides in its first written
submission rare earth consumption data. 4 According to this data, the consumption quota is
ineffective inasmuch as the actual consumption was far greater than the established quotas for
2010 and 2011.
11. Therefore, such measures cannot be deemed to be restrictions on domestic consumption in
the terms of GATT Article XX(g).
12. In addition, China relies on the fact that “ the 2012 production restriction was set below the
actual production in 2010 and the expected production in 2011 […]”
5 as an argument to support its
assertion that its export restrictions do fulfill the conditions of GATT Article XX(g).
13. This assertion is based on an inaccurate interpretation of the panel in China- Raw Materials.
China interprets that the Panel in China-Raw Materials concluded that domestic productions quotas
would “restrict” within the meaning of Article XX(g) when the production limitations are set below
“the actual production rates.” In this regard, Colombia recalls that the Panel expressly clarified
that it is not sufficient to impose caps on domestic production; they have to actually restrict it in a
manner that ensures that the restriction is respected.6
14. In this case, it is Colombia's view that the circumstances described in paragraphs 9 and 10
above cast serious doubts on the effectiveness of the 2012 Directive Production Plan and, thus, it
is probable that this measure will not be justified under Article XX(g).
ii) Resource Tax
15. On the issue of the resource tax, China allege s that the resource tax that it has enacted has
the potential to reduce extraction since it is expected to increase prices and, thus, affect demand
and likely lessen consumption of rare earths.7.
16. Colombia understands the rare earth market to be a highly concentrated industry with few
suppliers of the goods and where demand can be expected to be highly inelastic. In markets with
inelastic demand, especially due to the highly inelastic demand, variations of prices affect the
observed demand in a lesser extent than the perc entage change in prices. Accordingly, measures
that increase prices, such as taxes, may not “restrict” production or consumption in the terms of
Article XX(g).
B. Whether GATT Article XX may be invoked to justify violations of the
obligation contained in Paragraph 11.3 of China's Accession Protocol
17. At the outset Colombia would like to note that it takes no definitive position on the issue of
whether Paragraph 11.3 of China's Accession Prot ocol is subject to Article XX. Nonetheless,
Colombia is not persuaded by an interpretation th at excludes the application of GATT Article XX to
a Member's Protocol of Accession, based solely on a textual approach.
18. Colombia considers that the Panel must determine whether for the application of GATT
Article XX to China's Accession Protocol an express reference to that provision is required or
whether the sole fact that the obligation bears an intrinsic relationship with any GATT obligations is
sufficient to conclude that this defense is applicable.

4 China's First Written Submission, Table 2.
5 Ibídem, paras.179 and 182.
6 Panel Report, China - Raw Materials, para. 7.464.
7 Ibidem, para. 194.
WT/DS431/R/Add.1 • WT/DS432/R/Add.1 • WT/DS433/R/Add.1

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ANNEX C-6
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS
OF THE REPUBLIC OF KOREA
1. As with China-Raw Materials ,1 this dispute again raises an important issue for all WTO
Members: how they can exercise their right to regulate the exportation of natural resources in a
WTO consistent manner. In terms of practical impact on international trade, this dispute carries a
crucial implication.

2. Although slight variations exist, this dispute raises basically the same issues that were
discussed and determined in the companion disput e of China-Raw Materials. The panel and the
Appellate Body in China-Raw Materials ruled that the export restrictions imposed by China on the
raw materials subject to the dispute were inconsistent with the rules of the WTO. More
importantly, they also ruled that the measures co uld not be justified by Article XX exceptions of
the GATT 1994.

3. Bearing this in mind, Korea raises two issues. One is how a WTO panel should take into
account prior panel and Appellate Body reports directly on point, relating to virtually the same
measure. The other concerns how the WTO Members should understand obligations under the
WTO Agreements in the context of general principles of international law.

A. I
MPLICATION OF THE PRIOR APPELLATE BODY DECISIONS ON VIRTUALLY THE SAME ISSUES

4. First of all, Korea notes that the challe nged measures for rare earths, tungsten, and
molybdenum are almost identical with those raised in China-Raw Materials. The framework laws
and regulations for the measures raised in the tw o disputes are also basically the same, or quite
similar, at least, in all material respects. Accordingly, the analytical framework established by the
China-Raw Materials panel and the Appellate Body should remain pertinent to the present dispute.

5. In particular, the respondent's argument in its First Written Submission is almost entirely
hinged upon the claim of Article XX defense. The respondent's claim on Article XX, however, can
be basically summarized as an assertion that it simply disagrees with the prior decisions of the
Appellate Body on the issue, and that the pres ent Panel should revisit the issue and possibly
overturn the previous Appellate Body decision.

6. With respect to the relevance of the prior Appellate Body reports in subsequent disputes, the
Appellate Body offered a succinct view in U.S.-Continued Zeroing.
2 As the Appellate Body stated
in the dispute, "legitimate expectations of Member s" created by the Appellate Body report should
be preserved as much as feasible "where they are relevant to any dispute." 3 It seems that the
almost identical nature of the measures between this dispute and China-Raw Materials sufficiently
satisfies the "relevance" standard mentioned in U.S.-Continued Zeroing.

7. As the Appellate Body has addressed virtually the same issue just a year ago with extensive
discussions, Members would expect that the preced ent should guide this Panel in resolving the
present dispute, barring any compelling reasons found to exist for this particular dispute.

8. Korea does note that Article XX defense plays an important role in the application of certain
covered agreements of the WTO. As China note s, WTO Members do have "the right to promote
fundamental societal interests besides trade liberalization," and "the possibility to resort to

 Korea requested that its oral statement serve as the integrated executive summary.
1 Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials,
WT/DS394/AB/R/, WT/DS395/AB/R, WT/DS398/AB/R, adopted 22 February 2012; Panel Reports, China –
Measures Related to the Exportation of Various Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R/ and
Corr.1, adopted 22 February 2012, as modified by Appellate Body Reports.
2 Appellate Body Report, United States - Continued Existence and Application of Zeroing Methodology
3 Id.
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exceptions is of crucial importance" 4 to all Members. This "general" statement of the objective of
Article XX, however, does not seem to offer a proper basis to revisit the jurisprudence of the
Appellate Body on the "specific" requirements for the application of Article XX. An argument can
be raised that it would run against the basic spirit of Article 3.2 of the DSU.

9. In an effort to have the Panel overturn the decisions of the Appellate Body, references to the
situations of other Members are also made by th e respondent. It is do ubtful, however, whether
the situations of other Members may carry any me aningful relevance to the determination of WTO
consistency of a measure of a respondent before a WTO panel.

B. WTO
 MEMBERS' OBLIGATION IN THE CONTEXT OF NATIONAL RESOURCES CONSERVATION POLICIES

10. It is stated by the respondent that "this case is about [its] right to conserve three of its
exhaustible natural resources in a manner consistent with its sustainable economic development
and the requirements of Article XX(g) of the GATT 1994."
5 In light of this, an argument is put
forward by the respondent to the effect that measures falling under natural resources conservation
policies should effectively remain unreachable by the WTO Agreements. Sporadic general
statements of the panel in China-Raw Materials
6 and principles of international law7 are referred to
by the respondent in this respect.

11. In Korea's view, it is important to note that this dispute is brought before a WTO panel in
accordance with the DSU, not before any other international tribunal. Established WTO
jurisprudence confirms that general statements or principles like these, by themselves, do not
prove or disprove violation of a covered agreement by a Member.
8 Nor can they replace or
override explicit terms stipulated in the WTO Agreements, including the GATT 1994 and the
Accession Protocol, in a dispute pending before a WTO panel. 9 In fact, Article 3.2 of the DSU
proscribes a panel from adding or reducing rights and obligations of a Member by deviating from
the provisions of the WTO Agreements.

12. This dispute presents important legal and factual implications for all WTO Members: i.e., (i)
the Panel's decision will again confirm the outer parameter of a Member's legitimate authority in
formulating and administering its policies regarding natural resources in its territory within the
context of the GATT 1994; and (ii) the Panel's deci sion will also carry a significant impact on the
global market of the three materials as the respon dent is the major sources of the global supply.
In that regard, Korea looks forward to a careful analysis and an informed decision of the Panel in
this dispute.

4 China's First Written Submission, para. 414.
5 China's First Written Submission, paras. 1, 15.
6 China's First Written Submission, para. 55.
7 China's First Written Submission, para. 56.
8 See Articles 3.2 and 19.2 of the DSU. See also, for example, Appellate Body Report, Chile - Taxes on
Alcoholic Beverages, WT/DS87,110/AB/R (January 12, 2000), para. 79; Panel Report, Dominican Republic -
Safeguard Measures on Imports of Polypropylene Bags and Tubular Fabric, WT/DS415, 416, 417, 418/R
(February 22, 2012), paras. 7.92-93.
9 See id.
WT/DS431/R/Add.1 • WT/DS432/R/Add.1 • WT/DS433/R/Add.1

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ANNEX C-7
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF NORWAY
1. Norway welcomes this opportunity to present its views on the issues raised in these panel
proceedings. Norway did not present a written third party submission to the Panel, and will
therefore briefly set out its views on one legal issu e in this oral statement. The issue relates to
whether the GATT 1994 Article XX may be invoked in relation to violations of paragraph 11.3 of
China's Accession Protocol. This issue was raised by China in a request for a preliminary ruling,
and is also among the questions posed by the Panel in advance of the first panel meeting.

2. The chapeau of the GATT 1994 Article XX explicitly refers back to the GATT itself, by
underlining that "nothing in this Agreement shall be construed to prevent the adoption or
enforcement" of the specific measures listed in the provision. However, in China – Publications and
Audiovisual Products, the Appellate Body held that GATT Article XX could be invoked in relation to
paragraph 5.1 of Part I of China's Accession Protocol.1

3. Unlike paragraph 5.1, paragraph 11.3 of China's Accession Protocol does not include similar
language as the introductory phrase relied on by the Appellate Body in China – Publications and
Audiovisual Products . Paragraph 11.3 simply states that "China shall eliminate all taxes and
charges applied to exports, unless specifically provided for in Annex 6 of this Protocol or applied in
conformity with the provisions of Article VIII of GATT 1994". There is nothing in the wording of this
paragraph that points to, or in any way indicates, that the drafters meant to allow for justification
under GATT Article XX.

4. Norway notes that the Appellate Body in China - Raw Materials, a case dealing with a similar
legal issue as the one in question, concluded that China's export duties could not be justified by
Article XX. In that case, the Appellate Body l ooked to Note to Annex 6 of China's Accession
Protocol for a possible recourse to the provisions of Article XX to justify imposition of export duties
on products not listed in Annex 6. The Appellate Body observed that they saw "nothing in the Note
to Annex 6 suggesting that China could invoke Article XX of the GATT 1994 to justify the
imposition of export duties that China had committed to eliminate under Paragraph 11.3 of China's
Accession Protocol".
2

5. Norway is of the view that the wording and the structure of the paragraph appears to
indicate that the only exceptions from the obligation to eliminate all taxes and charges applied to
exports are those expressly provided for in the paragraph itself. This is also in accordance with the
customary rules for treaty interpretation as codified in the Vienna Convention on the Law of
Treaties Article 31.

6. We believe the drafters could have made it clear in the paragraph if they wanted to include a
reference to GATT Article XX or equivalent exceptions. The omission by the drafters to include
other exceptions than those expressly mentioned in paragraph 11.3, suggests that they did not
intend to include the GATT Article XX exceptions.

7. Finally, Norway acknowledges that Appella te Body Reports as adopted by the Dispute
Settlement Body are only binding upon the parties with respect to the particular dispute in
question. However, as noted by the Appellate Body in US – Stainless Steel (Mexico), "this does not
mean that subsequent panels are free to disregard the legal interpretations and the ratio decidendi
contained in previous Appellate Body Reports that have been adopted by the DSB".
3 Norway sees
no reason for this Panel to divert from the Appellate Body's conclusion in China – Raw Materials
with respect to this question.

 Norway requested that its oral statement serve as the integrated executive summary.
1 Appellate Body Report, China – Publications and Audiovisual Products, WT/DS363/AB/R, para 233.
2 Appellate Body Report, China –Measures Related to the Exportation of Various Raw Materials,
WT/DS394/AB/R-WT/DS395/AB/R-WT/398/AB/R, para. 285.
3 Appellate Body Report, United States –Final Anti-Dumping Measures on Stainless Steel from Mexico,
WT/DS344/AB/R, para. 158.
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ANNEX C-8
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF PERU
1. Peru would like to thank the Panel for the opportunity granted to third parties to comment
on the case "China – Measures Related to the Exportation of Rare Earths, Tungsten
and Molybdenum".
2. Our country's participation in this dispute is based on a systemic interest relating to the
Panel's interpretation of various rights and obligations under the legal system of the WTO,
especially those that are little regulated such as export restrictions and the relationship between
the Protocols of Accession and the rest of WTO law.
3. With regard to the substance of the case, the delegation of Peru wishes to point out that
paragraph 1 of Article XI of the GATT establishes a general prohibition on quantitative restrictions,
on both exports and imports. This does not mean that the mere imposition of a condition on
imports or exports constitutes an infringement of the provisions of Article XI, since in China – Raw
Materials the Appellate Body observed that the co nditions imposed on the importation of a
commodity would need to have a limiting effect, having pointed out that Article XI of the GATT
1994 covers those prohibitions and restrictions that have a limiting effect on the quantity or
amount of a product being imported or exported.
4. Peru also notes that the article in question explicitly prohibits the imposition of import or export
licences and quotas. In this connection, and in line with what was said above, it should be pointed
out that licences are considered to be trade-restrictive if granted in a discretionary and
non-automatic way; therefore, those measures that do not possess these characteristics should be
consistent with WTO rules. In China – Raw Materials , the Panel noted that in a discretionary and
non-automatic licensing system the possibility of denying the licence would be ever present and
hence the system, by its very nature, would always have a restrictive or limiting effect.
5. With regard to export quotas, various panels have concluded that these measures are
inconsistent with paragraph 1 of Article XI of the GATT 1994, since they have a restrictive
or limiting effect. Among the cases in which panels have ruled in this way are: Japan - Agricultural
Products, United States – Sugar, France – Import Restrictions, and China - Raw Materials.
6. However, those members of the multilateral trading system which have imposed measures
of this type have generally cited as justification for applying them the exceptions contained in the
second paragraph of Article XI and those specified in Article XX of the GATT 1994, the latter
established in view of the need to protect values and vital interests of the State.
7. In this respect, it would be instructive for our delegation to know the balance that this Panel
will strike between the objectives of increasing production and trade and the promotion of values
and vital interests of the State, such as for example the conservation of exhaustible natural
resources and the protection of the environment and human and animal health.
8. The delegation of Peru also notes that the second part of paragraph 1.2 of the
Protocol of Accession incorporates the Protocol in the WTO Agreement, including the commitments
referred to in paragraph 342 of the Working Party Report. In this connection, paragraphs 162 and
165 of the Report establish that China: (i) would only apply export restrictions and licensing in
those cases where this was justified by the provisions of the GATT 1994; and (ii) upon accession to
the WTO would eliminate all non-automatic export restrictions, unless they could be justified under
WTO rules. It is a matter of interest for Peru that the Panel should establish whether the analysis
for determining non-compliance with these provisions should be identical or similar to that carried
out in the case of Article XI of the GATT 1994, or whether non-compliance with the latter
automatically implies non-compliance with the above-mentioned paragraphs of the Protocol of
Accession and the Working Party Report.

 Original Spanish. Peru requested that its oral statement serve as the integrated executive summary.
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9. Taking into consideration that the violation of Article XI would also signify a violation
of the Protocol of Accession, where quantitative restrictions are concerned, Peru would like
the Panel to carry out the corresponding analysis in order to determine whether the exceptions
contained in Article XX of the GATT 1994 would al so justify the obligations contained in the
Protocol in question.
10. Peru also attaches special importance to paragraph 11.3 of the Protocol of Accession
of the People's Republic of China, which requires China to eliminate all taxes and charges applied
to exports. In this respect, Peru would like the Panel to analyse whether there is non-compliance
with paragraph 11.3 of the Protocol of Accession and, if so, whether that non-compliance could be
justified by the general exceptions of Article XX, before which it would have to assess whether
those exceptions are applicable to paragraph 11.3 of the Protocol of Accession, taking account of
the findings of the Panel and the Appellate Body in China – Raw Materials, where it was concluded
that the absence of any reference to the applicability of Article XX of the GATT 1994 in
paragraph 11.3 of China's Protocol of Accession wo uld indicate the inapplicability of that general
exception. Our country would expect a broad interpretative development of this particular point.
11. We again welcome the opportunity to make this statement and respectfully request the Panel
to see fit to take into account the arguments put forward at this meeting, since greater clarity with
respect to Articles XI and XX of the GATT 1994, paragraphs 1.2 and 11.3 of the Protocol of
Accession and paragraphs 162 and 165 of the Working Party Report would contribute to the
appropriate application of these provisions by the Members of the WTO.
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ANNEX C-9
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF THE RUSSIAN FEDERATION
Dear Mr. Chairman, members of the Panel, parties to the disputes and staff of the
Secretariat: on behalf of the Russian Federation, we would like to thank you for the opportunity to
present our views on some of the issues raised in the disputes.
1. We will present our general observations on the issue of applicability of defences available
under the WTO Agreement to the commitments contained in Protocols of accession of members to
the WTO. This statement is without prejudice to the future findings on whether China's measures
in question are otherwise consistent with the provisions of the GATT, including Article XX thereof.

2. In the context of today's discussions we would like to note that we support the position of
Brazil, China and Colombia in respect of the issue that we will cover in our Statement.

3. In China – Raw Materials the Appellate Body ruled that the provisions of the GATT Article XX
are not available where there is no explicit reference to them in the commitment contained in the
Protocol, and the absence of such a reference represents ‘the Members' common intention not to
provide access to such defence.' These findings are a matter of serious concern for the Russian
Federation.

4. We would like to recall that the issue of the right of the new members to invoke the WTO
Agreement exceptions in respect of the commitments contained in the Protocols of accession was
repeatedly discussed in the course of Russia's a ccession to the WTO. In that context, Russia
proposed to include specific language in its Protocol of accession, stating that "nothing in these
commitments shall be understood to derogate from the rights of the Russian Federation under the
WTO Agreement as applied between the Members of the WTO by the date of accession of the
Russian Federation to the WTO". As discussed with Members this language was specifically designed
to re-state the right of the Russian Federation, inter alia, to use defences provided for in the WTO
Agreement, in particular in the GATT Articl es XX and XXI and GATS Articles XIV and XIV bis, in
respect of the commitments undertaken in its Protocol of accession. This language was reflected in
the draft Accession Protocol as attached to the draft Working Party report (in the document
WT/ACC/SPEC/RUS/25/Rev.3 of 15 October 2004).

5. However, Russia was assured by Members that in accordance with well- established
customary practices of the WTO and the understandi ng shared by the Members, this additional
language is redundant as all Members have eq ual availability of defences under the WTO
Agreement in the context of the whole integrity of all parts of the WTO Agreement, in particular
Multilateral Trade Agreements and Protocols of accession, with or without specific reference to
such defences in the Protocol of accession. Inclusion of such language in their view might have
been interpreted as the opposite, thus undermini ng the rights of those Members whose Protocols
of accession became effective before the accession of the Russian Federation and did not contain
similar language. Eventually, conforming to this understanding of the Membership Russia agreed
to delete the mentioned reference from the draft Protocol of accession and with such an
understanding it concluded the Protocol.

6. In this dispute we see that the same WTO Members deviate from their own previous
statements and understanding expressed in the cour se of Russia's accession to the WTO. This is a
matter of our systemic concern, as the multilateral trading system has no room for such double
standards.

7. Any Multilateral Trade Agreement or Protocol of accession cannot be interpreted apart from
the context of the WTO Agreement. This approach directly comes from the provisions of Article 3.2
of the DSU on the customary rules of treaty interpretation. The Vienna Convention on the Law of
Treaties states that "a treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context in the light of its object and
purpose".

 The Russian Federation requested that its oral statement serve as the integrated executive summary.
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8. In Russia's view, this good faith principle dictates that while interpreting the potential scope
of the commitments undertaken in the Protocols of accession of a particular Member it shall be
taken into account that among others the "General Exceptions" provisions are aimed at protecting
the most important values of the Members. It shall be rigorously investigated whether a Member
might have waived its right to protect such values as life and health of humans, animals and
plants, whether WTO accession might have affected its right to protect public morals. It is obvious
that such intention, if any, should be clea rly and unambiguously expressed by the acceding
Member. Without such express consent no Member shall be deprived of its right to protect the core
values. Only such expressly stated waiver might be considered as a deliberate choice and intent of
contracting parties. The opposite would be against not only the rule of good faith interpretation but
also against the spirit and principles provided for, in particular, in the preamble of the WTO
Agreement.

9. By otherwise interpreting the commitments undertaken the Panel will open the box of
Pandora. It shall be noted that it would affect not only the right of Members to apply measures
under Article XX of the GATT. The similarly worded defence is provided for, in particular, in the
GATT Article XXI. Can a Member be deprived of the right to protect its essential security interests
without its express consent? Can multilateral trading system be a barrier to international peace
and security, can it prevent Members from taking measures required by the UN? These questions
are not hypothetical. From the legal point of view defences under the GATT Article XX and
Article XXI in this particular case are identical. The decision that would endorse a silent consent
would clash the trade commitments of Members with their UN obligations.

10. This concludes our Statement. The Russian Federation hopes that the Panel finds these
observations ponderable. Thank you for your time and attention.
WT/DS431/R/Add.1 • WT/DS432/R/Add.1 • WT/DS433/R/Add.1

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ANNEX C-10
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS
OF THE KINGDOM OF SAUDI ARABIA
I. INTRODUCTION
1. The Kingdom of Saudi Arabia participates as a third party in these disputes in order to
provide its views on a number of important systemic issues raised by China's measures relating to
the exportation of rare earths, tungsten and molybdenum.
II. THE LIMITED SCOPE OF GATT ARTICLE XI:1 AS CONFIRMED BY THE PANEL AND
APPELLATE BODY IN CHINA – RAW MATERIALS
2. The panel and Appellate Body in China – Raw Materials confirmed the important but limited
s c o p e o f A r t i c l e X I : 1 o f t h e G A T T . A n o r d i n a r y reading of Article XI:1 makes it clear that WTO
Members are generally permitted to maintain export duties
1 and that this provision only prohibits
"restrictions" that impose absolute limits on imports or exports, thus permitting non-quantitative
restrictions which do not impose absolute limits on exports.
2 Moreover, the wording of Article XI:1
makes it clear that permissible export restrictions may be "made effective through … export
licences." It follows that where an export licensing regime is used to implement a restriction
permitted under Article XI:1, that regime will also be consistent with Article XI:1, provided that it
does not introduce any additional restriction that is unnecessary for its administration. Thus, non-
automatic export licenses are not per se WTO-inconsistent.
3 Accordingly, if the measure is
permitted by the WTO Agreement, for example an export duty, the export licensing regime that
implements and administers the export duty is also permissible in principle.
III. THE IMPORTANT PRINCIPLE OF INTERN ATIONAL LAW OF MEMBERS' PERMANENT
SOVEREIGNTY OVER THE NATURAL RESOURCES WITHIN THEIR TERRITORIES IS TO BE
TAKEN INTO ACCOUNT WHEN INTERPRETING THE WTO AGREEMENTS
3. The principle of permanent sovereignty over natural resources ("PSNR") forms an essential
part of the analysis of whether certain measures are justified or not due to the principle's
overarching nature as a fundamental principle of international law that emanates from state
sovereignty, the very basis on which the international legal system is built. PSNR is consistent with
the commitment of Members to strive for "the opti mal use of the world's resources in accordance
with the objective of sustainable development", as set out in the Preamble to the WTO Agreement,
which must add "colour, texture and shading" to interpretations of WTO provisions.
4 Acceding to
the WTO is of course "a quintessential example of the exercise of sovereignty" 5 but when
interpreting Members' obligations in respect of measures concerning natural resources, treaty
interpreters should genuinely take the principle of PSNR into account, recognizing "the challenge of
using and managing resources in a sustainable manner that ensures the protection and
conservation of the environment while promoting economic development."6

1 Like the present disputes, the claims of the complainants in China – Raw Materials were only based on
Paragraph 11.3 of China's Accession Protocol. In China – Raw Materials, the panel noted China's agreement
that it had foregone its general right under the GATT to impose export duties by virtue of the additional
accession obligation. (Panel Reports, China – Raw Materials, para. 7.155) Moreover, the Appellate Body and
the panel in China – Raw Materials found that there is nothing in either the GATT or any other WTO agreement
that prohibits Members from maintaining export duties: See Appellate Body Reports, China – Raw Materials,
para. 293; and Panel Reports, China – Raw Materials, paras. 7.160 and 7.907.
2 Appellate Body Reports, China – Raw Materials, para. 320.
3 Panel Reports, China – Raw Materials, para. 7.917. Saudi Arabia acknowledges that the Appellate Body
declared moot and of no legal effect the panel's findings in respect of claims concerning China's export
licensing requirements for a procedural reason. (Appellate Body Reports, China – Raw Materials, para. 235)
4 Appellate Body Report, US – Shrimp, para. 153.
5 Panel Reports, China – Raw Materials, para. 7.382.
6 Panel Reports, China – Raw Materials, para. 7.375.
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4. In order to conclude that the sovereign righ t over a Member's natural resources is expressly
and intentionally limited by the text, the relevant WTO provision must be sufficiently
unambiguous.
5. In this respect, Saudi Arabia recalls that the WTO agreements impose on its sovereign
Members only those limited, expressly formulated and accepted obligations in respect of policies
relating to their natural resources. In fact, it is noteworthy that the WTO agreements do not
discipline Members' use or exploitation of their natural resources. Members retain the right to
determine whether, when and how to exploit their natu ral resources. It is only once a resource is
harvested or exploited that it can be traded as a product. Saudi Arabia thus agrees with the view
of the panel in China – Raw Materials, that a policy of restricting extraction is "more in line with a
policy to achieve conservation than one confined to restricting exports."
7
IV. EXPORT MEASURES THAT ARE PRIMARILY AIMED AT CONSERVATION AND ARE
IMPOSED IN AN EVEN-HANDED MANNER AND JOINTLY WITH DOMESTIC RESTRICTIONS
MAY BE JUSTIFIED UNDER GATT ARTICLE XX(G)
6. Article XX(g) of the GATT permits measures that (i) relate to the conservation of exhaustible
natural resources provided that they are (ii) appl ied in an even-handed manner and (iii) meet the
strict requirements of Article XX's chapeau. With respect to the first requirement, an examination
of the "general structure and design"
8 of the measure must show that there exists a close and
genuine relationship of means and ends between "the measure at stake and the legitimate policy
of conserving exhaustible natural resources". 9 Measures that are "primarily aimed at" 10 the
conservation of exhaustible natural resources have been found to have a sufficiently "close and
genuine relationship of ends and means" 11 to meet this requirement. 12 The second requirement—
that conservation-related measures be made effective in conjunction with domestic restrictions—is
a test of general even-handedness.
13 Where restrictions imposed on foreign and domestic goods
are applied or operate jointly 14—in other words when they "work together" 15—they satisfy this
requirement.16
7. Finally, the important function of Article XX's chapeau mandates an examination of the way
in which the conservation measure is applied. 17 The important function of the Article XX's chapeau
is well-established. 18 Where the conservation-related measure is applied in a manner that
constitutes "a means of arbitrary or unjustifiable discrimination" or "a disguised restriction on
international trade", it will be WTO-inconsistent.
V. A MEMBER'S ACCESSION DOCUMENTS REFLECT A DELICATE BALANCE OF BOTH
RIGHTS AND OBLIGATIONS
8. Matters addressed in the accession documents of a Member must be examined in the light of
the specific commitments made in the Working Party Report ("WPR") and the Protocol of
Accession.
19 These accession documents are "integral parts of the WTO Agreement" 20 and WTO

7 Panel Reports, China – Raw Materials, para. 7.428.
8 Appellate Body Report, US – Shrimp, para. 137.
9 Appellate Body Report, US – Shrimp, para. 135.
10 Appellate Body Report, US – Gasoline, p. 18.
11 Appellate Body Report, US – Shrimp, para. 136. See also Appellate Body Reports, China – Raw
Materials, para. 355.
12 See also Appellate Body Report, US – Shrimp, paras. 141-142.
13 The Appellate Body so found when it reversed that panel's interpretation of the phrase "made
effective in conjunction with", which required that "in addition" to being applied jointly with domestic
restrictions, "the purpose of [the] export restrictions must be to ensure the effectiveness of [] domestic
restrictions". (Panel Reports, China – Raw Materials, para. 7.397 (referring to GATT Panel Report, Canada –
Herring and Salmon, para. 4.6)) See Appellate Body Reports, China – Raw Materials, paras. 356–358.
14 Appellate Body Report, US – Gasoline, p. 20.
15 Appellate Body Reports, China – Raw Materials, para. 356.
16 Appellate Body Reports, China – Raw Materials, para. 357.
17 See, e.g., Appellate Body Report, US – Gasoline, pp. 22 and 25; Appellate Body Report, Brazil –
Retreaded Tyres, para. 215.
18 See, e.g., Appellate Body Report, US – Gasoline, pp. 22 and 25; Appellate Body Report, Brazil –
Retreaded Tyres, para. 215.
19 See, e.g., Panel Reports, China – Raw Materials, para. 7.144; and Appellate Body Reports, China –
Raw Materials, paras. 293–299, n. 576.
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Members can therefore initiate WTO dispute settl ement proceedings on the basis of a claim of
violation of a Member's accession documents. 21 The commitments made in these documents
create both rights and obligations of the acce ding Member in its trade relations with other
Members of the WTO and their provisions may base claims at dispute settlement. It is not only an
acceding Member that undertakes obligations (sometimes "WTO-plus") in order gain entry to the
WTO. The existing membership also accepts to respect an array of rights bestowed upon the
acceding Member by virtue of this "accession package" in recognition of the fact that a new
Member's accession also benefits the whole membership. It is important that this common
intention of the membership is given effect.

20 Panel Reports, China – Raw Materials, para. 7.113.
21 Panel Reports, China – Raw Materials, para. 7.114, referring to the reports in China – Auto Parts,
adopted on 15 December 2008 and in China – Publications and Audiovisual Products, adopted on 19 January
2010 where both panels and Appellate Body assessed claims based on China's Accession Protocol.
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ANNEX C-11
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF TURKEY
Export Duties
1. In Turkey's view, the key legal question in th e present dispute in regard to export duties is
whether China is entitled to have recourse to Article XX of the GATT 1994, in the event where
the Panel finds that the export duties on rare earths, tungsten and molybdenum are
inconsistent with its commitments enclosed in Paragraph 11.3 of China's Accession Protocol.
2. This Paragraph allows China not to "eliminate all taxes and charges applied to exports" on the
condition that one of the terms set forth in the same Paragraph is satisfied. Therefore if "such
taxes or charges are" specifically provided for in Annex 6 of China's Accession Protocol"; or (ii)
such taxes and charges are "applied in conformity with the provisions of Article VIII of the
GATT 1994"
1, then China will be considered to be in conformity with the commitments of the
Accession Protocol.
3. Apart from these explicit referrals in Paragraph 11.3 of China's Accession Protocol, Turkey
believes that China can not be excused from a potential violation of Paragraph 11.3 of China's
Accession Protocol by recourse to other provisions of the GATT 1994, including Article XX.
4. Turkey finally would like to refer to the Appellate Body's statement in " China - Raw Materials"
that, "as China's obligation to eliminate export duties arises exclusively from China's Accession
Protocol and not from GATT 1994, had there been common intention to provide access to
GATT Article XX, language to that effect would have been included in Paragraph 11.3 or
elsewhere in China's accession Protocol.
2"
5. Turkey's view in regard to the Panels qu estion of what the outcome of there being no
reference to GATT Article I is that, Paragraph 11.3 of China's Accession Protocol and GATT
Article I impose different kind of obligations. While Paragraph 11.3 of China's Accession
Protocol obliges China, to "eliminate all taxes and charges applied to exports unless specifically
provided for in Annex 6 of this Protocol or applied in conformity with the provisions of
Article VIII of the GATT 1994", GATT Article I oblig es all WTO Members (including China) to
apply all duties and charges on exports and imports on an MFN basis. However in order to
discuss the issue of MFN principle, at first a WTO Member should have a right or at least be
permitted to apply the duty or charge. Turkey believes this is a matter that needs to be
discussed under Paragraph 11.3 of China's Accession Protocol in the case of export duties
applied by China. If such an analysis establishes that China is permitted to apply export duties,
than the MFN violation claim (if any) has to be assessed under Article I of the GATT 1994.
Therefore, Turkey considers that there is no need to make a specific reference to Article I of
the GATT which stipulates a different kind of obligation.
Export Quotas
6. From the first written submissions of the Parties, Turkey understands that there is no
disagreement between the Parties as to the existence of the export quotas applied by China on
rare earths, tungsten and molybdenum.
7. The plain wording of Article XI:1 of the GATT 1994 explicitly prohibits Members from instituting
or maintaining restrictions made effective through a quota on the exportation of any product.
On the other hand, Paragraphs 162 and 165 of the Working Party Report confirm China's
obligations stemming from the WTO Agreements in regard to export restrictions. On the other
hand, they also enable China to justify its export restrictions under the provisions of

1 Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials,
WT/DS394/AB/R , WT/DS395/AB/R, WT/DS398/AB/R, adopted 22 February 2012 (China – Raw Materials,
para. 279
2 Appellate Body Report, China – Raw Materials, para. 293
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GATT 1994, which Turkey believes to include the ge neral exceptions provided in Article XX of
this agreement.
8. In this regard, what establishes the legal ques tion of this dispute in regard to the export
quotas is whether Article XX(g) of the GATT 1994 can or cannot be used as an excuse to
derogate from the obligations stipulated in the aforementioned provisions and on what
conditions this would be possible.
9. Turkey is of the view that the negotiating hi story of Article XX(g) of the GATT 1994 sheds light
on understanding the aim of the negotiators.
10. Regarding the interpretation of Article XX of the GATT 1994, as it is well settled by WTO
jurisprudence, a measure can be justified by Article XX; i) if it falls under one or another of the
particular exceptions listed from paragraphs (a) to (j) under Article XX; and ii) if it satisfies the
requirements imposed by the chapeau of Article XX.3
11. In regard to the order of analysis, in US – Shrimp , the Appellate Body confirmed the Panel's
decision that the determination as to whether the measure is applied in conformity with the
chapeau of Article XX should be conducted after the consistency of the measure with
paragraph (g) of Article XX is determined.4
12. In the present dispute at hand, Turkey believe s that the subjects (rare earths, tungsten and
molybdenum) of China's export restriction measures are exhaustible natural resources within
the scope of Article XX (g) of the GATT 1994. However, in Turkey's view, the Panel should give
special attention to examining the relationship between the general structure and design of the
measures at issue, and the policy goals sought by China, i.e. the conservation of those
resources and identifying whether the export restrictions are made effective in conjunction
with restrictions on domestic production or consumption. In this regard, in order to justify a
measure under the paragraph (g) the restrictive measures should be applied even-handedly
5.
The even-handedness requirement necessitates a Member taking conservation-related export
measures to also restrict domestic production or consumption. In Turkey's view, although this
requirement does not seek for identical treatment, it does require the result of the measure to
have a non-bias effect.
13. If the Panel finds that the restrictions to the exportations imposed by China fall within
Article XX (g) of the GATT 1994, it should continue by analyzing to determine whether those
restrictions comply with the chapeau of Article XX of the GATT 1994.
14. The Appellate Body in US-Shrimp established three standards to determine compliance to the
chapeau of Article XX. These are; seeking whet her there is i) an arbitrary discrimination
between countries where the same conditions prevail; ii) unjustifiable discrimination between
countries where the same conditions prevail; and iii) a disguised restriction on international
trade.
15. Turkey asks the Panel to carefully evaluate these three standards in its legal assessment.