The recently filed World Trade Organization (“WTO”) case concerning Chinese rare earth materials is symbolic of China’s place in the international economic order.  Leaving aside the very critical products at issue in the case, the case will speak to the question of whether China will be treated as an equal partner, subject to no more and no less of the obligations applied to the other economic super powers.   As such this case helps us understand at a deeper level the position of China in the international economic order, independent of the very visible and ubiquitous shows of Chinese economic power and wealth.

China produces over 95% of the world’s demand for a series of minerals critical to many modern products, including iPods and hybrid cars.  While they can be found outside China, it will take many years before non-Chinese production is able to satisfy non-Chinese industrial demands.  The Rare Earth Minerals case concerns Chinese regulations that have the effect of  restricting the exports of those minerals.  In that case the EU, America and Japan claim that China’s restrictions amount to a violation of its obligations under the WTO.  China, however, claims that its actions are the result of two important policies: Chinese efforts to preserve long term supplies of those minerals and increased environmental regulation of the potentially harmful mining practices associated with rare earth mineral extraction practices.   

The Rare Earth Minerals case is symbolic in many ways.  As an initial matter, it is the first WTO case pitting the united front of  Europe, Japan and the United States against China – a clear symbol of China’s position. While the success of the 2008 Beijing Olympic games and other such events have been touted as symbols of China’s “arrival”, as businesses have always known, the true sign of success is when the other major competitors joins forces against you – as is the case in this WTO case. The Rare Earth Minerals case shows that China has well and truly “arrived” as an economic superpower.

The case is also symbolic of China’s treatment within the international economic order.  Despite the fact that China is now clearly a world economic superpower, the Rare Earth Minerals highlights one of the lingering problems related to China – its unequal treatment.  For sure, China is different to the other economic superpowers, but then each of them is radically different from the other.  Comparisons between Japan, the EU and United States, as well as the rising economic superpowers of India, Brazil show each to be unique.  Yet, in such international economic bodies as the WTO, China is subject to different rules.  China has not yet been permitted to move to its next phase of being just another economic superpower.

China’s path to becoming an economic superpower has followed four distinct phases.  Recognition of these phases, and particularly that China is at the beginning of a new phase is critical for our understanding of how best to work with China in the global economic order, including with respect to this recent dispute over rare earth minerals.  The  first of China’s four phases consists of the pre-Deng Xio Ping period of isolation or adherence to the Soviet model of interaction with the non-soviet economic order (inaccurately characterized as the West’s economic order), during which the World trading system operating through the GATT was simply irrelevant to China.  That period ended with the rise of Deng Xiaoping and the end of China’s economic isolation. The second period was of gradual engagement, culminating in the successful conclusion of China’s WTO accession agreements followed by WTO membership in 2001. The third and fourth periods are the ones of most relevance today, though for sure the vestiges of those earlier phases remain in the background, exerting subtle influences at times. The third period consists of the first ten or so years of WTO membership, as China implemented its concessions and operated under the strict accession agreements.  The fourth, and possibly the current phase is one where China has become a complete and equal member of the WTO, gradually moving out of the shadow of its accession agreements.  It is at the transition from the third to this last phase that the Rare Earth Minerals case will play out in the WTO’s dispute settlement system. 

The Rare Earth Minerals case was filed within weeks of the conclusion of another and possibly very relevant China WTO case, the Raw Earth Materials case, reflecting the third phase of China’s participation in the international economic order.  In relevant part, that case was largely decided under those strict accession agreements that characterize that third phase.  In January in that case the WTO’s Appellate Body (“AB”) found certain Chinese export restrictions on specific raw materials to be violative of China’s obligations under its accession agreements. While the background to the development of those accession agreements was complex and protracted, they reflected the strong bargaining position of the WTO members each of whom could have unilaterally denied giving China the benefits of WTO membership unless China agreed to those then unique and onerous concessions. China’s loss was the result of an interpretation by the AB that the WTO’s general exceptions provision that permits states to depart from their obligations was not applicable to the relevant part of China’s accession agreements.

Regardless of the correctness of the legal analysis, it could be said that China was not permitted to employ the same rights as other members of the WTO.   The Raw Materials case thus falls squarely into the third phase.  The question is then raised as to whether the Rare Earth Minerals case will be resolved in a similar fashion. Symbolically, until the case is resolved, China cannot fully enter the fourth phase -  of being an equal partner in the international economic order, despite clearly having arrived as an economic superpower.  And  - if the case is resolved in similar fashion to the Raw Materials case, reasserting China’s second class position within the WTO, once again regardless of the correctness of the legal analysis, then the international economic order will be faced with jurisprudence clearly out of touch with the realities of the international economic order. Such a result will fail to resolve the underlying issue in the Rare Earth Minerals case even as it ill serves the international economic order.