15 September 2014

Emerging jurisprudence in export restraint measures in trade

by Lakshmi Neelakantan

Export restraints generally refer to measures imposed by an exporting country on the export of certain goods which may take the form of export quotas, duties, and licensing or minimum price requirements. As compared to the frequently discussed topics of import controls under WTO law, like customs duties, import quotas, anti-dumping, subsidies and safeguard measures, export restraints and duties have received very little discussion in the past. This may be attributed to the fact that when the GATT 1947 was negotiated, negotiators were preoccupied with mercantilism in relation to import controls, such as high import tariffs, and thus did not foresee that export restrictions would become a prominent trade issue in the future [see end note1].

But this is not the situation today. Export restraints of goods have become extremely important, considering the emergence of developing nations like Brazil, India and China, the growing population of developing countries and climate change considerations, all of which have highlighted the issue of scarcity of natural resources. The issue of export restraints has also come to the forefront with two China-related disputes which were decided by the WTO Dispute Settlement Body recently. China – Raw Materials and China – Rare Earths both highlighted the growing significance of export controls of as a trade measure.


Legal framework applicable to export restraints

i)  Export Duties: Article II:1(a)

Pursuant to Articles II:1(a) and II:1(b)  of GATT 1994, a Member is not allowed to impose customs duties on imports of a product above the maximum level it has agreed upon. With regard to export duties, however, Article II:1(b) specifically mentions “importation”, and therefore does not prohibit or regulate export duties.

However, it is generally agreed that Article II:1(a) of GATT 1994 applies to export duties as well as import duties [see end note 2], and is worded in the following manner:

“1. (a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.”

From the above, it can be concluded that Article II:1(a) of GATT 1994 extends the operation of MFN Treatment principle to export duties as well.

ii)  Export Quotas: Articles XI and XX

Export quotas, on the other hand, are generally prohibited by Article XI of GATT 1994 subject to certain exceptions. Article XI: 2 (a) and (b) of the GATT permit Members to restrict export in order to prevent and mitigate critical shortage of foods and other essential resources and to apply technical standards respectively.

Members are also allowed to take recourse to the general exceptions contained in Article XX to GATT 1994, which allows WTO Members to adopt measures including, but not limited to, the following:

 i.            Article XX(b) - measures necessary to protect life and health of humans, animals and plants;
ii.            Article XX(d) - measures to enforce domestic laws and regulations which are not inconsistent with the GATT;        iii.           Article XX(f) - measures to protect national treasures and articles of archaeological value;
iv.           Article XX(g) - measures relating to the conservation of exhaustible natural resources;
v.            Article XX(h) - measures to implement obligations provided in international commodity agreements;

The above are in the nature of defences which may also be used to defend an export restraint measure, provided it satisfies the conditions present in Article XX of GATT 1994.


Disputes relating to export restraints

While the number of disputes involving export restraints is generally lesser as compared to import controls, China – Raw Materials and China – Rare Earths have highlighted certain key trends in the interpretation and application of the provisions relating to export restraints. The key findings are summarized below:

i)  China – Raw Materials

This dispute dealt with China's use of certain export restraints, consisting of export duties, export quotas, export licensing and minimum export price requirements, on the exportation of certain forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc (“raw materials”) [see end note 3]. It is to be noted that para 11.3 of China’s Accession Protocol (“Accession Protocol”) contains specific obligations with respect to export duties and provides the following:

“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.”

The Panel held that, with the exception of yellow phosphorous, none of the raw materials were provided in Annex 6 (Products subject to Export Duty) of the Accession Protocol and therefore China had acted inconsistently with its obligations under para 11.3 of the Accession Protocol. With regard to yellow phosphorous, the Panel found that China had removed the “special” export duty rate as of 1 July 2009, before the date of the Panel’s establishment and did not rule on the same [see end note4]. The Panel also held that nothing in para 11.3 of the Accession Protocol allowed China to take recourse to the general exceptions contained in Article XX of GATT 1994. Both these recommendations of the Panel were upheld by the Appellate Body [see end note 5].

With regard to export quotas introduced by China on Refractory-Grade Bauxite, the Appellate Body upheld the finding of the Panel and observed that China had not introduced the export quota as a measure that was “temporarily applied”, within the meaning of Article XI:2(a) of the GATT 1994, to either prevent or relieve a “critical shortage”, and deemed the measure inconsistent with WTO obligations [see end note 6].

ii)  China – Rare Earths

Here, the measure at issue consisted of export duties on 58 rare earth products, 15 tungsten  products, and 9 molybdenum products; export quotas related to 75 rare earth products, 14 tungsten products, and 9 molybdenum products; and the application of these measures by China. In this dispute, China did not appeal the ruling that its export restraints were inconsistent with para 11.3 of the Accession Protocol, but contended that the Article XX defences were indeed available to it to under para 11.3 of the Accession Protocol, an issue that had previously been settled in China – Raw Materials by the Appellate Body.

China argued on the basis of the Marrakesh Agreement Establishing the World Trade Organization (“Marrakesh Agreement”) and para 1.2 of the Accession Protocol. China contended that the above provisions must be interpreted in a such a way that the legal effect of para 1.2 is to make the Accession Protocol, an 'integral part' of the Marrakesh Agreement, and the individual provisions thereof are also integral parts of Multilateral Trade Agreements annexed to the Marrakesh Agreement. By arguing this, China hoped to avail the defences present in Article XX of GATT 1994 to para 11.3 of its Accession Protocol [see end note 7].

However, the Appellate Body upheld the finding of the Panel and held that a reading of para 1.2 of the Accession Protocol and Article XII:1 of the Marrakesh Agreement did not support the understanding that a specific provision in the Accession Protocol is an integral part of the Marrakesh Agreement or one of the Multilateral Trade Agreements to which it intrinsically relates [see end note 8]. The Appellate Body also upheld the Panel’s analysis of China’s defence under Article XX(g) of GATT 1994, and dismissed the same.



From the above rulings, it is clear that the jurisprudence relating to export restraints is still developing into a settled body of law. However, the Appellate Body has definitively clarified that defences available under Article XX of GATT 1994 cannot be invoked in situations where China’s Accession Protocol is involved. Of course, the question of whether export restraints can be justified under Article XX by countries without an accession protocol, or whose accession protocol is worded differently, can only be answered on a case-by-case basis. However, China – Raw Materials and China – Rare Earths, have kick-started the jurisprudence pertaining to export restraints, and future disputes can refine and clarify the law in this area.

[The author is an Associate, International Trade Team, Lakshmikumaran & Sridharan, New Delhi]

End Notes:

  1. Mitsuo Matsushita, Export Control of Natural Resources:  WTO Panel Ruling on the Chinese Export Restrictions of Natural Resources, Trade, Law & Development, Vol III. No. 2, p. 270 (2011).
  2. Peter Van den Bossche and Werner Zdouc, The Law and Policy of the World Trade Organization, CUP Third Edition, p. 480 (2013) (hereinafter referred to as “Van den Bossche and Zdouc”).
  3. Panel Report, China – Raw Materials, paras 2.1 – 2.2.
  4. Ibid., para 7.71.
  5. Appellate Body Report, China – Raw Materials, para 307.
  6. Ibid., para 344.
  7. Appellate Body Report, China – Rare Earths, para 5.1.
  8. Ibid., para 5.73.


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