Business / Technology

HONG KONG — The appeals panel of the World Trade Organization ruled Monday that China must dismantle its system of export taxes and quotas for nine widely used industrial materials.

The legal setback for Beijing could set a precedent for the West to challenge China's export restrictions on other natural resources, including rare-earth metals crucial to many modern technologies, trade experts said.

In the closely watched case, the trade organization's Appellate Body, its highest tribunal, ruled that China distorted international trade through dozens of export policies it maintains for bauxite, zinc, yellow phosphorus and six other minerals.

The Appellate Body, reviewing an earlier decision by a WTO panel that settles disputes, said the panel went too far in defining why more than three dozen Chinese policies violated free-trade rules. But the appeals group said Monday the overall effect of China's export restrictions harms international trade and that the policies must be scrapped.

The United States, the European Union and Mexico filed the case against China in 2009.

"This is a major win for the United States," said James Bacchus, a former chairman and longtime member of the Appellate Body, now a trade attorney in the Washington office of the law firm Greenberg Traurig.

Beijing has a strong record of adhering to adverse WTO decisions, recognizing it needs the access to foreign markets that the trade organization provides.

China's Commerce Ministry said on its website that it regretted the ruling but appeared to indicate it would accept it, saying that it would act in accordance with WTO rules to "achieve sustainable development."

Ron Kirk, the U.S. trade representative, said in a statement that the ruling was "a tremendous victory" for the United States. "Today's decision," he said, "ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field."

The case has been one of the most widely watched trade disputes in years because of the precedents it could set for even more crucial natural resources.

Those will almost certainly include China's export quotas on rare-earth metals, for which Chinese policies appear to have raised similar legal concerns.

Rare earths, however, were not part of this trade case. Besides bauxite, zinc and yellow phosphorus, the other industrial minerals are coke, fluorspar, magnesium, manganese, silicon carbide and silicon metal.

China is the largest or among the largest producers of each of these. The U.S., European Union and Mexico accused it of using export taxes and quotas to force international chemical companies and other businesses to move their factories to China to tap these resources.

Those sorts of forced migrations are the reason international trade rules bar export quotas in many cases.

Many non-Chinese companies already have been setting up factories in China, for example, to gain access to the crucial rare-earth metals used in a wide range of modern technologies, since China began clamping down on those exports in recent years.

China produces more than 90 percent of the world's rare earths, which are used in products including computers, cellphones, hybrid cars and wind turbines.

In defense of those rare-earth quotas, China had cited a decades-old legal exception to the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT).

That exception let countries levy export taxes and restrict exports if the limits were aimed at conserving a scarce natural resource or protecting the environment.

But when China joined the WTO in 2001, it agreed to dismantle virtually all export restrictions, including on industrial raw materials. That agreement superseded the GATT provisions, the appeals group ruled Monday.

China's agreement to join the WTO also bars it from imposing export restrictions on rare earths. Yet China has done so anyway for the past five years.

While Appellate Body rulings do not form legally binding precedents under international trade law, Bacchus said it was unlikely that the trade organization would let China use the environmental argument on rare earths after disallowing the same argument for industrial raw materials.

Indeed, an EU trade official signaled that Europe might apply Monday's ruling to pressure China to lift its export restrictions on rare-earth metals.

"China now must comply by removing these export restrictions swiftly,," said Karel De Gucht, the European Union's trade commissioner.