China's curbs on exports of some raw materials to conserve resources may not meet the stated goals while giving Chinese manufacturers an unfair advantage, the World Trade Organisation said today.
The remarks, in a report prepared for China's two-yearly trade policy review, constituted a rare comment by the WTO's secretariat on a current dispute between members.
China's restrictions on raw materials sales have been challenged by the United States, European Union and Mexico, and the WTO set up a panel in December to rule on the complaints.
The WTO noted that China has continued to open its markets since joining the global trade body in 2001, and its average tariff is now only 9.5 per cent against 9.7 per cent in 2007.
But it said export barriers have not fallen as fast as import barriers.
China uses restrictions such as prohibitions, licensing, quotas, taxes and partial tax rebates to manage certain exports in order to conserve resources and energy, it said.
The report questioned whether this approach was economically effective, and noted that such restraints tend to reduce export volumes of the targeted products, diverting supplies to the domestic market and depressing their domestic prices.
"Export restraints... may implicitly assist domestic downstream processing of the products concerned," it said.
In other words, by cutting off exports of some raw materials, China makes them more expensive for foreign manufacturers who use them while making them cheaper for its own domestic processing industry, which is thus able to sell its finished goods abroad more cheaply than foreign competitors can.
WTO officials are normally reluctant to comment on issues that are subject to litigation for fear of influencing the outcome, and the report steered a discreet path around other disputes involving China.
For instance it refrained from any recommendation on China's currency, whose level concerns the United States and some other trading partners. It noted that when the International Monetary fund had last examined it, some IMF directors had agreed that the yuan was substantially undervalued, while the central bank wants to keep the rate basically stable.
The report was prepared on April 26th but only released today for the start of the three-day review of trade policies at the world's biggest exporter and second-biggest importer.
China was making greater use of trade actions such as duties on unfairly priced imports, while itself remaining the most frequent target of such anti-dumping measures, it said.
Since 2008 China has been involved in 4 disputes as a complainant and 11 as a defendant, it said.
The WTO said heavy reliance on manufacturing had resulted in over-investment and excess capacity in some industries which became obvious when external demand fell, leading to a 16 per cent fall in exports in 2009. Chinese exports have rebounded this year.
This over-investment was partly due to the absence of a proper capital market, monetary policy that is not fully based on market instruments, and government guidance in allocating resources, it said.
A better balance between external and domestic demand to drive growth, and further liberalisation of import and export policies would strengthen China's ability to work with other countries to manage trade and economic imbalances, it said.
Reuters