Daily Archives: July 5, 2011 @ 11:19 pm (Tuesday)

WTO- China Curbs on Raw Material Exports Illegal

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So the WTO controls how a nation prices its exports?

WTO Rules China Curbs on Raw Material Exports Illegal

July 5 (Reuters) — China broke international law when it curbed exports of coveted raw materials, the World Trade Organization ruled Tuesday, in a landmark case threatening Beijing’s defense for similar export brakes on rare earths.

A WTO legal panel dismissed China’s claim that its system of export duties and quotas on raw materials — used in the production of steel, electronics and medicines served to protect its environment and scarce resources.

China struck a defiant note in response to the ruling, which it is expected to appeal.

The WTO said in a statement, “The panel found that China’s export duties were inconsistent with the commitments that China had agreed to in its protocol of accession.”

“The panel also found that export quotas imposed by China on some of the raw materials were inconsistent with WTO rules,” it added.

The ruling hands a victory to the United States, the EU and Mexico, which took China to the WTO in 2009 saying export restrictions on raw materials including coke, bauxite and magnesium discriminated against foreign manufacturers and give an unfair advantage to domestic producers.

It coincides with growing anxiety among markets and policymakers about a trend among resource-rich countries to rein in exports of commodities — from wheat to iron ore — as supplies fall behind global demand.

The WTO issued an unusually stark warning about such export policies last month, saying they risked creating serious shortages.

The case is of particular importance to the EU, whose raw materials purchases from abroad make up 10 percent of its total imports, and which are used in production and manufacturing processes it says employ 30 million Europeans.

‘Significant Victory’

More important than the potential for providing easier access to the eight raw materials in question, the ruling sets a potential precedent in favor of the free circulation of raw materials, particularly of rare earth minerals used to make high-tech goods. China produces 97 percent of the world’s supplies of the crucial industrial inputs, and has begun cutting exports to the dismay of importers.

The United States and EU’s top trade negotiators as well as industry groups said the ruling should serve to pressure China and other states into dropping such restrictions.

U.S. Trade Representative Ron Kirk hailed the “significant victory” on Tuesday, but warned that “China’s extensive use of export restraints for protectionist economic gain is deeply troubling.”

EU Trade Commissioner Karel De Gucht called for a negotiated peace with Beijing to avoid a full-fledged trade war, and vowed to address the issue during a visit to Beijing next week.

But he insisted the EU, United States and Mexico could still opt for legal action if China failed to cooperate.

“What is important about this judgement is that it sets the rules for the future and that it will become an important element in discussions with every country” that restricts raw material exports, De Gucht told Reuters before addressing EU lawmakers in Strasbourg, France.

“What I hope is that we can come to a solution through discussions so we don’t have to litigate anymore,” he said.

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Saudi crude pricing

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Setting price and letting quantity adjust:

Daily Oil Note: OSPs a Critical Piece in the Supply Puzzle


A key source of market uncertainty is how much oil Saudi Arabia will produce and export over the next few months. We see reports that Saudi Aramco recently offered additional cargoes to term buyers, but reportedly many declined because pricing was unattractive versus alternatives. Tanker bookings also do not point to a substantial ramp up in Middle East liftings in coming weeks. In fact, they are running well behind the pace in June.

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Japan’s Noda: Need To Curb Spending From Sept If Bond Bill Not Enacted

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Monkey see, monkey do…

Noda: Need To Curb Spending From Sept If Bond Bill Not Enacted

July 4 (Dow Jones) — Japan’s finance minister Tuesday urged opposition parties to quickly approve a key bond issuance bill, saying the government would have to curb spending as early as September with the economy still struggling to recover from the March 11 disaster.

Finance Minister Yoshihiko Noda’s plea comes as the opposition continues to block the passage of a bill that would enable the government to issue new debt to fund roughly 40% of the spending in the annual budget for the current fiscal year, started April.

“If the deficit-financing bond issuance bill isn’t passed, we would start having trouble smoothly implementing the budget in September or later, and would have to make an agonizing decision to curb spending,” Noda said at a news conference after a regular Cabinet meeting.

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China Extends Crackdown on Off-Balance-Sheet Loans

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Cutbacks now will further slow things:

China Extends Crackdown on Off-Balance-Sheet Loans

July 4 (Reuters) — China’s bank regulator has cracked down on off-balance-sheet lending by the country’s banks, sources told Reuters on Monday, its latest step to prevent over-zealous and risky lending from hurting its financial system.

China Banking Regulatory Commission (CBRC) has ordered banks to check all their deals in discounted commercial bills after discovering misconduct among some banks, two sources said.

Chinese banks have in the past year taken to off-balance-sheet lending, or keeping loans outside balance sheets after authorities clamped down on bank loans as part of their fight against inflation.

Last week the regulator tightened control on sales of wealth management products to ward off potential risks, and the regulator had earlier told banks to include all their loans extended via trust investment programs into their account books.

Discounted bills, an important source of financing for firms with no access to formal bank loans, accounted for about 2.5 percent of the 49.5 trillion yuan ($7.7 trillion) of total outstanding loans at the end of March, according to data from the Chinese central bank.

The regulator’s latest move comes after discovering that some rural credit cooperatives and banks in the central Henan province were issuing loans through discounted commercial bills and keeping them outside their loan books.

Under China’s banking laws, banks’ deals in discounted commercial bills should be reflected on their balance sheets.

Banks have been asked to investigate all deals linked to discounted commercial bills and submit their findings by Monday, sources said.

Under the review, banks were ordered to verify that bills issued were based on real transactions, and were ordered to track how extended credit was spent, they added.

Banks were also instructed to stop discounting bills that they issued to get funds for property and stock investments.

Analysts welcomed the move towards stringent regulation, which would also boost transparency.

“There is some concern that some borrowers were using these discounted bills as collateral for further borrowing,” said Mike Werner, a China banking analyst with Sanford Bernstein.

“So the idea that the CBRC is going to increase diligence covering this area of the market is not surprising.”

The regulator said bank branches found with serious misconduct would be barred from the discounted commercial bill market entirely, the sources added.

CBRC was not immediately available for comment when contacted by Reuters.

As China tightens policy and rein in lending to tame 34-month high inflation of 5.5 percent, many companies are struggling to get loans.

For these firms, discounted commercial bills are an important source of financing. They let companies bring bills or drafts to banks and request for money to be disbursed before they mature.

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