EU launches WTO action over Chinese mineral restrictions

The dispute surrounds Beijing's use of export subsidies and quotas to limit certain raw materials – such as phosphorous, coke, and magnesium – from leaving the country.

"China's restrictions on raw materials continue to distort competition and increase global prices, making conditions for our companies even more difficult in this economic climate," said the EU's trade chief, Catherine Ashton.

The EU decision to take formal action follows the same path as the US and Mexico, and comes after two years of urging China to lift the restrictions. In June, the bloc sought formal WTO consultations with China over the issue.

"I regret that the formal consultation process and significant EU engagement on this issue has not led to an amicable solution which would have been our preferred course of action," said Ms Ashton.

Brussels argues that the Chinese restrictions not only contravene current WTO rules but also break specific accession agreements signed by Beijing when it joined the multilateral trading organisation in 2001.

By limiting the outflow of raw materials – some of which cannot be found outside of China – Chinese companies enjoy an unfair cost advantage when competing against foreign firms, say EU officials.

The materials in question are widely used in the chemical, steel and non-ferrous metal industries and by their downstream clients.

Global race for minerals

China imposed the contentious restrictions two years ago at the height of the commodity boom, in a frantic bid to stop essential raw materials used by the nation's growing list of manufacturers from leaving the country.

But despite the condemnation they have attracted from other countries, the levies and quotas on the strategic materials have not had a great effect on limiting their export, say analysts.

As well as the scramble for materials at home, recent years have increasingly seen China compete with Europe and the US for key minerals in other continents around the world, especially in Latin America and Africa.

Already this year, the WTO has ruled against Chinese restrictions on the distribution of Western music and movies, and against the EU over subsidies for commercial aircraft sector.

But despite the frictions, trade between the EU and China has increased dramatically in recent years and now totals over €300 billion.

China is now the EU's second largest trading partner behind the US and the biggest source of EU imports. The EU argues that Chinese non-tariff trade barriers deny EU companies business opportunities worth at least €20 billion a year.