"China has export restrictions on raw materials that are questionable, according to the WTO," a source familiar with the case said on Tuesday. "So that will be taken seriously when the EU considers China's restrictions on rare earths too."
The EU's executive Commission last year started screening the legality of plans by China to cut back exports of rare earths, which are minerals crucial to production of high-tech goods from fibreoptic cables to smartphones and electric cars.
China, whose mines supply 97 percent of the world's rare earths, says export reductions aim to protect the environment and scarce resources -- an argument that would comply with world trade rules enforced by the WTO.
But trade sources say a confidential, preliminary report by the WTO found flaws in similar reasoning used by China in an ongoing legal fight to defend its export restrictions on raw materials such as bauxite and magnesium, used to produce steel, aluminium and chemical products.
The EU, United States and Mexico sued China at the WTO in 2009, complaining that limiting exports of these raw materials through quotas and red tape discriminated against foreign manufacturers and gave Chinese producers an unfair advantage.
The WTO -- which rarely comments on current disputes -- has publicly questioned whether Chinese curbs on exports of some raw materials to conserve resources meet the stated goals or merely favour Chinese manufacturers.
Its preliminary report, which has been handed to the parties to the raw materials dispute, is confidential until publication in April. Both sides can then appeal. If China loses it will have to make amendments to export controls to avoid penalties.
The United States said last month there was a possibility of a U.S. challenge on Chinese rare earth exports at the WTO. (Reuters)
