· WTO Confirms Chinese Protectionism. According to the office of the US Trade Representative (USTR), the World Trade Organization (WTO) confirmed the US claim finding that China’s use of raw materials export restraints are in violation of China’s WTO obligations – primarily via quotas and taxes on exports of a variety of steelmaking and other raw materials. China now has the right to appeal the decision to the WTO’s Appellate Body.
· Raw Material Hoarding a Global Problem. Export restraints – what we’ve called raw materials hoarding – create significant global pricing miscues, as certain regions – not only the Chinese – restrict the export of raw materials essentially subsidizing the downstream users of these products. The ruling is important as China’s export restraints artificially reduce the cost of raw materials in China and increase global prices of these products giving Chinese manufacturers a subsidy. There are other implications of these subsidies; Chinese steelmakers overuse coke in their steelmaking – as an advantage – versus other regions, because coke is a cheap reductant in China – because the government makes it so.
· Reverse Protectionism Favors Higher Cost Producers. While the first-order effects of this resource-hoarding impacts these particular raw material costs, the second order impacts are far more profound. By subsidizing lower-than-market raw materials for the high-cost steel, aluminum and chemical processing industries, the Chinese are also effectively inflating the cost of non-controlled raw materials that impact the rest of the globe. Lower-than-market coke prices, for instance, allow high cost Chinese mills, who must reach to the open market to buy iron ore, to allocate greater resources to purchases of other raw materials. So the price-distorting impact of these subsidies reaches well beyond the particular commodities involved.