Environmental Protection, China and International Trade

Greening the WTO Ban on Chinese Export Duties

Fengan Jiang

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000404784
• Edition: 1
• Topic: Derecho
• Subtopic: Teoría y práctica del derecho

This book argues for a balanced approach to 'greening' the World Trade Organization (WTO) ban on China's export duties without opening the floodgates to protectionism.

As a result of the China—Raw Materials and China—Rare Earths decisions, China is largely prohibited from using export duties to address environmental problems, including those associated with climate change. This is despite a number of climate studies having suggested that Chinese export duties could be useful for reducing carbon leakage, an issue of international concern. This book puts the case for a more balanced approach. It shows that a harsh ban on China's export duties constrains its policy space to protect the environment, particularly in the context of climate change. The work presents feasibility tests for various legal solutions that have been discussed for adjusting the ban, and it accordingly proposes a more feasible approach that would allow China to help protect the environment without advancing protectionism. The proposed legal option provides a less protectionist alternative to export duties, namely 'export duties plus': export duties in combination with supplementary restrictions on Chinese consumption. This analysis also yields insights regarding ways to correct WTO precedents, which suggests a moderate alternative response to an important issue behind the Appellate Body crisis.

The book will be a valuable resource for academics, researchers and policymakers in the areas of International Trade Law, Environmental Law and China.

1 Introduction

DOI: 10.4324/9781003162339-1

Global warming, according to an alarming report recently released by the Intergovernmental Panel on Climate Change (IPCC), is accelerating more rapidly than scientists had previously anticipated.¹ In order to limit its impact, countries need to take ‘rapid, far-reaching and unprecedented’ actions.² As the largest emitter and exporter of carbon dioxide emissions,³ China is thus aiming to become carbon neutral before 2060.⁴ It, however, may not legally use one potential measure to curb the export of carbon emissions, namely duties on carbon-intensive exports.⁵ Owing to the China—Raw Materials and China—Rare Earths decisions,⁶ China is generally prohibited from using export duties, regardless of their aims and effects.⁷ China lacked convincing environmental justification in those cases, to be sure, but a general ban on China’s export duties could raise environmental concerns in the future especially in the context of climate change. A number of climate studies, including the well-known Stern Review on the economics of climate change,⁸ its follow-up article,⁹ and a World Bank research paper,¹⁰ have suggested that Chinese export duties could be useful for reducing carbon leakage, an issue also worrying the West.¹¹ Considering the potential negative environmental impact of this jurisprudence, there is a need to consider ‘greening’ the World Trade Organization (WTO) ban on China’s export duties.

1 UN, ‘Statement by the Secretary-General on the IPCC Special Report Global Warming of 1.5°C’, 8 October 2018, available at https://www.un.org/sg/en/content/sg/statement/2018-10-08/statement-secretary-general-ipcc-special-report-global-warming-15-%C2%BAc (visited on 14 November 2018).

2 IPCC, ‘Summary for Policymakers of IPCC Special Report on Global Warming of 1.5°C approved by governments’, 8 October 2018, https://www.ipcc.ch/2018/10/08/summary-for-policymakers-of-ipcc-special-report-on-global-warming-of-1-5c-approved-by-governments/ (visited on 08 November 2020).

3 China’s export-related emissions constituted 7% of total global carbon emissions in 2011, which is larger than the overall emissions produced by the third or fourth largest emitters in the world, namely India (6%) and Russia (5%) in 2015. Union of Concerned Scientists, ‘Each Country’s Share of CO2 Emissions’, 11 October 2018, https://www.ucsusa.org/global-warming/science-and-impacts/science/each-countrys-share-of-co2.html#.XAvmyCh97IV (visited on 22 November 2018).

4 Smriti Mallapaty, ‘How China Could be Carbon Neutral by Mid-century’, Nature, 19 October 2020, https://www.nature.com/articles/d41586-020-02927-9 (visited on 14 November 2020).

5 China described export duties as a type of instrument to ‘effectively control greenhouse gas emissions’. For further information, see UNFCCC, ‘Second National Communication on Climate Change of the People’s Republic of China’, October 2004, at 15, http://unfccc.int/resource/docs/natc/chnnc1exsum.pdf (visited on 1 January 2019).

6 For further discussion, see Chapter 3.

7 Apart from those on 84 products that fall within the maximum levels provided in Annex 6 of China’s Accession Protocol. For further information, see Chapter 2.

8 Nicholas Stern, The Economics of Climate Change: The Stern Review (Cambridge, 2007), at 552.

9 Lorraine Hamid, Nicholas Stern and Chris Taylor, ‘Reflections on the Stern Review (2): A Growing International Opportunity to Move Strongly on Climate Change’, 8(1) World Economics (2007), at 176.

10 Brian R. Copeland, ‘International Trade and Green Growth’, No. 6235 World Bank Policy Research Working Paper (2012).

11 For instance, as part of her European Green Deal, the President of the European Commission has proposed a ‘Carbon Border Tax’ aiming at avoiding carbon leakage and ensuring a level playing field for European companies. Ursula von der Leyen, ‘A Union that Strives For More: My Agenda for Europe’, 16 July 2019, at 5, https://ec.europa.eu/commission/sites/beta-political/files/political-guidelines-next-commission_en.pdf (visited on 1 August 2019).

This chapter begins with an introduction of the major research question, namely whether generally prohibiting China from using export duties limits its capacity to protect the environment, and, if so, what are the solutions to provide China with policy space without opening the floodgates to protectionism. The analysis of this question is closely related to three key issues concerning the use of export duties in this way, which are discussed in turn. It concludes with a brief discussion of the structure of the book.

1.1 Should WTO law allow China to use export duties to address trade-related environmental concerns and, if so, what form should these duties take?

Following the high-profile China—Raw Materials and China—Rare Earths cases, the United States (US) and the European Union (EU) in July 2016 brought a third case, China—Raw Materials II. This case again calls into question China’s export duties on certain raw materials.¹² As in the earlier two cases, the products subject to export duties in China—Raw Materials II are key components of such high-value products as automotive parts, electronics, and chemicals. In responding to the third set of charges brought by the US and EU, China has argued that its export duties are justified as part of an environmental policy designed to tackle trade-related pollution under Article XX of the General Agreement on Tariffs and Trade 1994 (GATT).¹³ The Appellate Body (AB) already ruled in the first two cases, however, that China cannot invoke GATT Article XX to justify violations of its export duty commitments. The pressing question here, therefore, is whether WTO law should allow China to invoke the environmental exceptions enumerated in Article XX if China’s export duties truly serve environmental purposes.

12 This case is possibly on inactive status. The DSB agreed to establish a panel on 8 November 2016, but the panellists have not yet been chosen after more than two years.

13 Ministry of Commerce of People’s Republic of China, ‘Official from the Department of Law and Treaty Comments on EU Appealing to the WTO against China’s Export Management Measures on its Raw Materials’, 21 July 2016, http://english.mofcom.gov.cn/article/newsrelease/policyreleasing/201607/20160701365930.shtml (visited on 1 January 2019).

To be fair, following the China—Raw Materials and China—Rare Earths decisions, China can still impose export duties on 84 products to protect the environment.¹⁴ This policy space is, however, extremely restricted because the 84 products are identified by 8-digit Harmonised System (HS) numbers and product descriptions. These products¹⁵ only constitute a tiny part (1.51%) of the approximately 5,300 article/product descriptions in the 6-digit code system in total.¹⁶ In other words, China is prohibited from imposing export duties on approximately 98.49% products, regardless of their aims and effects.

After the China—Raw Materials and China—Rare Earths decisions, many scholars sympathised with China, especially given that most WTO members remain free to impose duties on exports for any purpose.¹⁷ None of them, however, has sufficiently challenged the widely held perception that export duties are not meant to be used for environmental purposes, and China’s environmental justification is a mere pretext for an industrial policy designed to limit the access of international companies to vital natural resources in China.¹⁸ Based on this perception, even though China’s right to invoke the public policy exception was denied, ‘a public policy problem does not really seem to exist’.¹⁹ In this context, the outcry over unfairness to deny China’s right to invoke the WTO environmental exceptions has been criticised for being rather ‘superficial’.²⁰

The above negative perception is understandable because export duties have not served traditionally as an instrument in the service of environmental protection. Furthermore, in China—Raw Materials and China—Rare Earths China lacked convincing environmental justification. In order to minimise China’s chances of circumventing WTO rules, the complaining governments thus chose to deny its right to invoke Article XX.²¹

14 Paragraph 11.3 of China's Protocol of Accession allows China to impose export duties on 84 products that fall within the maximum levels provided in Annex 6 of that protocol. For further information, see Chapter 2.

15 80 products at the 6-digit HS level.

16 UN International Trade Statistics Knowledgebase, ‘Harmonized Commodity Description and Coding Systems (HS)’, https://unstats.un.org/unsd/tradekb/Knowledgebase/50018/Harmonized-Commodity-Description-and-Coding-Systems-HS (visited on 22 November 2020).

17 For further discussion on the reception of the WTO ban on China’s export duties, see Chapter 3.

18 Lothar Ehring, ‘Nature and Status of WTO Accession Commitments: “WTO-Plus” Obligations and Their Relationship to Other Parts of the WTO Agreement’, in Marise Cremona, Peter Hilpold, Nikos Lavranos, Stefan Staiger Schneider and Andreas R. Ziegler (eds), Reflections on the Constitutionalisation of International Economic Law (Brill, 2013), at 361.

19 Ibid., at 361.

20 Ibid., at 359. For further information, see Chapter 3.

21 Marco Bronckers and Keith E. Maskus, ‘China–Raw Materials: A Controversial Step Towards Evenhanded Exploitation of Natural Resources’, 13(2) World Trade Review (2014), at 402.

It is, however, one thing to pro...

Table of contents

• Cover
• Half Title
• series Page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of illustrations
• Acknowledgements
• List of Abbreviations
• 1. Introduction
• PART I     Setting the scene: The background and reception of the WTO ban on Chinese export duties
• PATRT II     Preliminary analysis: Would a harsh prohibition on Chinese export duties constrain China’s capacity to protect the environment?
• PART III     Final analysis: Is there a way for China to use export duties legally in order to achieve environmental goals under WTO law?
• Index