To The Victor Go The Spoils

Not sure one could say victory yet

By GINA CHON

BAGHDAD — Next week, Iraqi officials plan a welcome-back party for Big Oil.

The government intends to auction off oil contracts to foreign companies for the first time since Iraq nationalized its oil industry more than three decades ago. If all goes according to plan in the first round, foreign oil companies will move in to help Iraq revive production at six developed fields that have suffered from years of war and neglect.

But Iraq’s fractious politics have complicated the process. Some lawmakers and oil officials have called for a delay of the auction. The man behind the plan, Oil Minister Hussain al-Shahristani, appeared before parliament on Tuesday, where some lawmakers questioned the legality of the proposed contracts and what they called favorable terms for the foreign companies. But the auction appears to have sufficient political support to go ahead on schedule, and Mr. Shahristani and other government officials vowed to plow ahead.

Mr. Shahristani’s oil deals are crucial to this war-torn country’s economy. Iraq is thought to have one of the world’s largest supplies of crude oil, with 115 billion barrels in proven reserves. But foreign know-how is key to its plans to boost oil output to four million barrels a day within four to five years, from 2.4 million barrels currently.

Despite security risks, Western oil companies are clamoring to get in. Iraq is still relatively unexplored, offering big companies a potentially easy-to-tap source of growth. Some are touting Iraq as the most important opening of petroleum fields since the discovery in 2000 of the giant Kashagan field in the Caspian Sea.

Some 120 companies expressed interest in bidding for the contracts at the June 29 and 30 auction, according to the oil ministry. Thirty-five companies qualified to bid, including Exxon Mobil Corp., Royal Dutch Shell PLC, Italy’s Eni SpA, Russia’s Lukoil and China Petroleum & Chemical Corp., or Sinopec. The six oil fields at stake are believed to hold reserves of more than 43 billion barrels. Foreigners won’t get the most prized piece of the action — ownership stakes in the reserves — but will be paid fees for ramping up output.

Just over 20 of Iraq’s roughly 80 known oil fields have been fully or partially developed, and most of its production comes from just three giants, North and South Rumaila and Kirkuk. Because lots of the black gold is considered relatively easy to extract, oil experts estimate that exploration and development in Iraq costs $1.50 to $2.25 a barrel, compared with about $5 in Malaysia or $20 in Canada.

“We’re talking about a huge volume of crude flowing through their system for the companies who win the bids,” says Samuel Ciszuk, IHS Global Insight’s Middle East Energy analyst. “On the other side, Iraq desperately needs technology, and these companies can bring it.”

But Mr. Shahristani, architect of the plan, is under attack from many quarters. Falling oil prices have triggered a budget crisis, and he is being blamed for not boosting oil production enough to make up the difference. Lawmakers and some oil officials, meanwhile, say the auction will give too much access to Iraq’s oil resources to foreigners. Mr. Shahristani also has been called to appear before parliament for questioning about alleged corruption and mismanagement at the ministry.

“He should not continue,” says Jabber Khalifa al-Jabber, secretary of the parliament’s powerful Oil and Gas Committee. “Let someone who is qualified do the job….I can’t name one accomplishment.”

Prime Minister Nouri al-Maliki’s spokesman, appearing earlier this month with the oil minister, voiced confidence in him and reaffirmed that the auction would take place as scheduled.

In a recent interview, Mr. Shahristani, a slight man of 66, says he has done nothing wrong, and that the lawmakers critical of him have a political agenda. He says he looks forward to answering questions from parliament about corruption and mismanagement.

“I’m not a political animal, and I don’t enjoy politics,” he says. “The only reason I’ve accepted and continue with my responsibility is to protect the Iraqi wealth from unclean hands.”

Deals in Iraq often are reached over cups of tea late at night, but Mr. Shahristani doesn’t like schmoozing. In a capital built on patronage, he has denied plum jobs to longtime friends. He’s earned a reputation as a stickler for rules, including cumbersome purchasing regulations that other oil officials blame for slowing down Iraqi oil development. He has refused even small gifts, such as neckties, from visiting oil executives, he says.

In his three years as oil minister, Mr. Shahristani has emerged as a key lieutenant to Mr. Maliki. After violence started to ebb in Iraq in 2008, Messrs. Maliki and Shahristani and a handful of other former Iraqi exiles have pushed an ambitious set of economic reforms.

Western oil companies were kicked out of Iraq in 1972, part of a wave of Mideast petroleum nationalization. Oil production hit at least three million barrels a day before Iraq invaded Kuwait in 1990, then fell sharply to about 300,000 barrels after economic sanctions and trade embargoes were imposed. Production rebounded to about 2.5 million barrels before the U.S. invasion in 2003.

Iraqi lawmakers have squabbled for years over a draft petroleum law that would set a legal framework for foreign companies to start drilling again. Tired of waiting, Mr. Shahristani in 2008 unilaterally invited oil companies to bid on contracts. Because global companies are reluctant to explore undeveloped fields in Iraq without an oil law, Mr. Shahristani has focused on getting foreign help pumping from existing fields. “We have done what we can with our national resources, and now we need outside help,” he says.

He says the contracts don’t need approval from parliament, although he insisted that they fit the conditions outlined in the draft oil law, which is now being redrafted in the cabinet. Some of the terms, he says, are particularly beneficial to Iraq: Winners of the auction must fork over hundreds of millions of dollars of cash in upfront loans to the government, to be paid back over several years.

Mr. Shahristani, who grew up in Karbala in a prominent, religious family, is a nuclear scientist by training. After studying in Moscow and spending time in London, he earned masters and doctorate degrees in nuclear chemistry at the University of Toronto. In 1978, he became chief adviser to the Iraqi Atomic Energy Commission.

Saddam Hussein had consolidated power and become president. According to Mr. Shahristani and others, he wanted a nuclear weapon. In a face-to-face meeting with Mr. Hussein, Mr. Shahristani reminded him that Iraq had signed a nonproliferation treaty and was bound by it. Mr. Hussein told him to concentrate on science and leave politics to him, according to Mr. Shahristani and two other scientists at the meeting.

A few days later, in December 1979, security officials took him to Iraq’s Internal Security facilities, where he was tortured for three weeks, he says. Mr. Shahristani says his torturers offered him palaces and riches if he would reconsider his refusal to work on nuclear weapons. He declined and was put into solitary confinement, where he remained for 10 years, he says. “But I never lost my will, I never lost my faith,” he says.

In 1990, he was released from solitary confinement. A year later, the U.S. bombardment of Baghdad during the first Gulf War sowed chaos at the prison. Another inmate stole some intelligence-corps uniforms and arranged for a getaway car.

One evening, Mr. Shahristani and two others managed to evade guards, duck into a storage room and put on the stolen uniforms. After hiding for several hours, they snuck past some visiting intelligence officers playing cards and hustled out the prison gate.

They met up with their families and snuck across the border into Iran. For the next few years, Mr. Shahristani helped Iraqi dissidents and refugees. In 1995, he and his wife, a Canadian, set up the Iraqi Refugee Aid Council. He became an outspoken critic of Mr. Hussein’s regime and of nuclear proliferation.

After U.S. troops poured into Baghdad in April 2003, he returned. He was identified by American officials as a top contender for the prime minister’s job. He declined the position because it wasn’t an elected one, he says, instead becoming deputy speaker of Iraq’s parliament.

Around that time, Mohammed Baqir, a family friend who had helped Mr. Shahristani escape from prison, asked for his help in finding government jobs for relatives. Mr. Shahristani refused. “Shahristani’s problem is he is too straight and clean,” Mr. Baqir says. “As a politician, you need to be flexible.”

After a new government led by Mr. Maliki was formed in 2006, the prime minister named him oil minister. His new ministry, like other government agencies at the time, was overrun by militia members, and corruption was rampant, according to Mr. Shahristani and other current and former oil officials.

Over the next two years, hundreds of ministry employees were murdered or kidnapped. By the end of 2007, many top technocrats had fled the country, and various political parties had filled the ministry with patronage employees, according to Mr. Shahristani and the other officials.

Mr. Shahristani fired 250 members of the ministry’s security staff thought to be militia members, and replaced top security officials with people he trusted. He turned over evidence of wrongdoing to the ministry’s inspector general, and fired or transferred those suspected of malfeasance.

“Before, there was lots of interference in the ministry from political blocs, but he got rid of all that,” says Abdul Mahdy al-Ameedi, head of the ministry’s contracts department.

The purge stirred resentment. Some employees claimed they were wrongly targeted. Others accused Mr. Shahristani of being too by-the-book. He cracked down on absenteeism and introduced a card-scan check-in system. He scaled back bonuses.

But boosting oil production significantly proved difficult. Insurgents were attacking pipelines and refineries. Without a legal framework in place, foreign companies were reluctant to come to Iraq. The oil law stalled in parliament.

An impatient government in the semiautonomous Kurdish north decided to move without Baghdad. In September 2007, Kurdish officials signed a deal with Texas-based Hunt Oil Co.

Mr. Shahristani criticized the deal, saying it had no legal standing. The Kurdish government accused him of moving too slowly, and pressed ahead with its deal.

A Western official in Baghdad who has dealt with Mr. Shahristani says he and others advising the government agreed that Mr. Shahristani was moving too slowly. Oil prices were sky-high, and foreign oil executives were eager to get into Iraq. The country needed a “wheeler-dealer type,” this official says.

Recently, he dropped his longtime opposition and allowed the Kurdish government to begin exporting oil. He yielded after the Kurds agreed to have Baghdad’s central government receive payments for the exports.

In this month’s auction, in addition to the six existing oil fields, Western firms are competing to develop two natural-gas fields. All these deals are so-called technical-service contracts. Essentially, Iraq will pay companies a fee for boosting output. The contracts will last 20 years.

Oil executives would prefer “production sharing” agreements, which give companies a share of oil profits, and typically allow them to book new reserves — an important indicator for oil-company investors. They are nonetheless eager to get the service contracts being auctioned, which are seen as a way for companies to get their feet in the door in Iraq.

Mr. Shahristani says the companies that offer the lowest costs and most profit for Iraq will win. If the auction succeeds, the winners are expected to begin work in November.

The Oil Ministry is also planning a second round of bidding, slated to cover oil fields that have been explored but not fully developed. Nine of the 38 companies that applied to participate have been chosen as bidders. Those contracts will be awarded at the end of this year.

Mr. Shahristani’s term ends when a new government is formed after parliamentary elections early next year. He plans to return to the Iraqi National Academy of Science, which he established in 2003. “I am not a politician,” he says.

Dashing hopes for a quick recovery

By Jason Clenfield

June 24 (Bloomberg) — Japan’s export slump accelerated in May, casting doubt on the economy’s growth prospects as it struggles to emerge from the worst postwar recession.

Shipments abroad dropped 40.9 percent from a year earlier, more than April’s 39.1 percent decline, the Finance Ministry said today in Tokyo. The median estimate of economists surveyed was for a 39.3 percent decrease. From a month earlier, exports fell 0.3 percent, the first deterioration since February.

Declines in shipments to Asia deepened for the first time since January, damping hopes that demand from the region will spur a recovery in the world’s second-largest economy. China’s 4 trillion yuan ($585 billion) in stimulus measures haven’t been enough to offset sales declines in the U.S. and Europe for companies such as Hitachi Construction Machinery Co.

“Final demand just isn’t picking up and it’s still hard to expect a very strong economic recovery,” said Azusa Kato, an economist at BNP Paribas in Tokyo. Kato said the economy will “barely expand” in 2010 once the effect of Japan’s own economic stimulus measures fades.

The yen traded at 95.27 per dollar at 10:46 a.m. from 95.25 before the report. Japan’s currency rose as high as 94.88 yesterday, the strongest since June 1, eroding exporters’ profits earned abroad. The Topix stock index fell 0.2 percent.

Cars, Chips

Steel, autos and semiconductors led the export slump. Shipments to China, Japan’s biggest trading partner, fell 29.7 percent, more than April’s 25.9 percent. Exports to Asia slid 35.5 percent from 33.4 percent a month earlier.

Hitachi Construction said this month that sales in China haven’t improved as much as the company had anticipated. The world market for digging equipment will contract by more than a third in the first half of the business year and rebound only 6 percent in the second half, according to company President Michijiro Kikawa.

Exports to the U.S. fell 45.4 percent in May after dropping 46.3 percent in April, the ministry said. Shipments to Europe slid 45.4 percent from 45.3 percent.

Toyota Motor Corp. said yesterday the outlook for car sales in the U.S. remains uncertain. The U.S. economy is forecast to shrink at an annual 2 percent pace in the current quarter and grow 0.5 percent in the next three months.

Production May Wane

The Bank of Japan and the government both said last week that the recession is moderating because companies are increasing production to replenish stockpiles. That rebound in output may wane in the absence of a pickup in exports.

“It’s been widely considered that falling inventories overseas have been supporting Japan’s exports,” said Kato at BNP Paribas. “Even if exports improve in June, they would be around 80 percent of their peak, making it difficult for the economy to expand.”

Central bank Governor Masaaki Shirakawa said this month he’s “cautious” about the prospects for a sustained recovery. Analysts surveyed by Bloomberg predict Japan will resume growing in the three months to June 30 after last quarter’s record annualized 14.2 percent contraction. They said growth will peak at 2 percent next quarter and grind to a halt in 2010.

Imports slid 42.4 percent from a year earlier, and the trade surplus narrowed 12.1 percent to 299.8 billion yen ($3.1 billion), the Finance Ministry said.

“With the world economy in recession it’s a tough story for Japan,” said Jan Lambregts, head of financial markets research at Rabobank International in Hong Kong. “The U.S., the euro zone, the rest of Asia have to recover, and then Japan can benefit.”

A mixed bag of sorts

By Shani Raja

June 24 (Bloomberg) — Asian stocks fluctuated as gains among technology and energy shares overshadowed declines by finance companies.

Hynix Semiconductor Inc. gained 2.2 percent on optimism industry demand may pick up after Oracle Corp., the world’s second-largest software maker, reported profit that beat analyst estimates. Showa Shell Sekiyu KK, a Japanese refiner and solar- equipment maker, jumped 7.5 percent on plans to build solar power plants in Saudi Arabia. Mizuho Financial Group Inc., Japan’s third-largest bank by market value, fell 1.3 percent after saying it will sell preferred securities to boost capital.

The MSCI Asia Pacific Index was little changed at 99.65 as of 10:55 a.m. in Tokyo. The gauge retreated by the most since May 14 yesterday as a World Bank forecast for a deeper global recession triggered a decline in commodities. Stocks in the index traded at 22.83 times estimated earnings yesterday, the lowest level since May 26, according to Bloomberg data.

“We’re going through a period of reflection,” said Matt Riordan, who helps manage about $3.2 billion at Paradice Investment Management in Sydney. “People are trying to work out whether you’re likely to see the recovery continue, or whether things just got ahead of themselves.”

Japan’s Nikkei 225 Stock Average lost 0.2 percent as a government report showed the country’s exports sank at a faster pace in May. Australia’s S&P/ASX 200 Index retreated 0.5 percent, while New Zealand’s NZX 50 Index dropped 0.6 percent.

Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The gauge added 0.2 percent yesterday, paced by commodity- related shares on surges in oil and copper prices. The Dow Jones Industrial Average slipped 0.2 percent, dragged down by Boeing Co. after the aircraft maker postponed the first flight of its 787 Dreamliner.

Interesting observations

While contrarians are screaming “hyperinflation!”, the money supply is actually shrinking. This is because most money today comes into existence as bank loans, and lending has shrunk substantially. That means the Fed needs to “monetize” debt just to fill the breach.

On June 3, 2009, Federal Reserve Chairman Ben Bernanke assured Congress, “The Federal Reserve will not monetize the debt.” Bill Bonner, writing in The Daily Reckoning, said it had a ring to it, like President Nixon’s “I am not a crook” and President Clinton’s “I did not have sex with that woman.” Monetizing the debt is precisely what the Fed will do, says Bonner, because it has no other choice. The Chinese are growing reluctant to lend, the taxpayers are tapped out, and the deficit is at unprecedented levels. “Even good people do bad things when they get in a jam. The Feds are already in pretty deep . . . and they’re going a lot deeper.”

But Mr. Bernanke denied it. “Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation,” he said.

Both alternatives will be vigorously opposed, leaving Congress in the same deadlock California has been in for the last year. That makes the monetization option at least worth a look. What is wrong with it? Bill Bonner calls it “larceny on the grandest scale. Rather than honestly repaying what it has borrowed, a government merely prints up extra currency and uses it to pay its loans. The debt is ‘monetized’ . . . transformed into an increase in the money supply, thereby lowering the purchasing power of everybody’s savings.”

So say the pundits, but in the past year the Fed has “monetized” over a trillion dollars worth of debt, yet the money supply is not expanding. As investment adviser Mark Sunshine observed in a June 12 blog:

“[W]hile media talking heads were ranting about how the Fed was running their printing presses overtime to push up money supply, the facts were very different. M1 has actually declined since the middle of December, 2008. During the same six month period M2 has only risen by a little less than 3%.”

The Fed is no longer reporting M3, the largest measure of the money supply, but according to Sunshine:

“[W]e know that broader measures of money supply, like M3, haven’t materially risen in 2009.

M3 followers can get a very rough idea of what M3 would have been, if it were published, by looking at the Federal Reserve quarterly Flow of Funds Accounts of the United States which was distributed yesterday. As it turns out, total net borrowing of the United States (private and public) dropped approximately $255 billion in the first quarter and other indicators of M3 fell or are about flat (on a net basis). . . . [T]his data supports [the] theory that the fall in private borrowing is more than offsetting the rise in government borrowing and therefore, at least for the time being, financing the deficit isn’t a problem.”

All of this flap about the Fed driving the economy into hyperinflation because it is creating money on its books reflects a fundamental misconception about how our money and banking system actually works. In monetizing the government’s debt, the Fed is just doing what banks do every day. All money is created by banks on their books, as many authorities have attested. The Fed is just stepping in where the commercial banking system has failed. Except for coins, which are issued by the government and compose only about one ten-thousandth of the money supply (M3), our money today is nothing but bank credit (or debt); and we’re now laboring under a credit freeze, which means banks aren’t creating nearly as many loans as they used to. In February, the Bank for International Settlements published research showing that European banks could not settle their debts because of a $2 trillion shortage of U.S. dollars. Proposals for alternative reserve currencies followed. And in March, Blackstone Group CEO Stephen Schwarzman reported that up to 45% of the world’s wealth has been destroyed by the credit crisis. The missing “wealth” cannot be restored without putting the missing “money” back into the system, and that means getting the credit engine going again.

Congress, the Treasury and the Federal Reserve have therefore been throwing money at the banks, trying to build up the banks’ capital so they can make enough loans to refuel the economy. At a capital requirement of 8%, $8 in capital can be leveraged into $100 in loans. But lending remains far below earlier levels, and it’s not because the banks are refusing to lend. The banks insist that they are making as many loans as they’re allowed to make with their existing deposit and capital bases. The real bottleneck is with the “shadow lenders” – those investors who, until late 2007, bought massive amounts of bank loans bundled up as “securities,” taking those loans off the banks’ books, making room for yet more loans to be originated out of the banks’ capital and deposit bases. In a Washington Times article titled “Banks Still Standing Amid Credit Rubble,” Patrice Hill wrote:

“Before last fall’s financial crisis, banks provided only $8 trillion of the roughly $25 trillion in loans outstanding in the United States, while traditional bond markets provided another $7 trillion, according to the Federal Reserve. The largest share of the borrowed funds – $10 trillion – came from securitized loan markets that barely existed two decades ago. . . .

“Many legislators in Congress complain that banks aren’t lending, and cite that as an excuse to vote against further bank bailout funds. . . . But Mr. Regalia [chief economist at the U.S. Chamber of Commerce] said these critics are wrong. ‘Banks are lending more, but 70 percent of the system isn’t there anymore,’ he said.”

Seventy percent of the system isn’t there anymore because the traditional bond markets and securitized loan markets have dried up. Writes Hill:

“Congress’ demand that banks fill in for collapsed securities markets poses a dilemma for the banks, not only because most do not have the capacity to ramp up to such large-scale lending quickly. The securitized loan markets provided an essential part of the machinery that enabled banks to lend in the first place. By selling most of their portfolios of mortgages, business and consumer loans to investors, banks in the past freed up money to make new loans. . . .

“The market for pooled subprime loans, known as collateralized debt obligations (CDOs), collapsed at the end of 2007 and, by most accounts, will never come back. Because of the surging defaults on subprime and other exotic mortgages, investors have shied away from buying the loans, forcing banks and Wall Street firms to hold them on their books and take the losses.”

The retreat of the shadow lenders has created a credit freeze globally; and when credit shrinks, the money supply shrinks with it. That means there is insufficient money to buy goods, so workers get laid off and factories get shut down, perpetuating a vicious spiral of economic collapse and depression. To reverse that cycle, credit needs to be restored; and when the banks can’t do it, the Fed needs to step in and start “monetizing” debt.

So why don’t Fed officials just say that is what they are up to and put our minds at ease? Probably because they can’t without exposing the whole banking game. The curtain would be thrown back and we the people would know that our money system is sleight of hand. The banks never had all that money they supposedly lent to us. We’ve been paying interest for something they created out of thin air! Indeed, their credit money is less substantial than air, which at least has some molecules bouncing around in it. Bank credit exists only in cyberspace.

Ben Bernanke’s predecessor Alan Greenspan was sometimes compared to the Wizard of Oz, the little man who hid behind a curtain pulling levers and twisting dials, maintaining the smoke and mirrors illusion that an all-powerful force was keeping things under control. Early in his term, Chairman Bernanke was criticized for revealing too much. “If you’re going to play the Wizard,” said one TV commentator, “you have to stay behind the curtain.” The Chairman has evidently learned his lesson and is now playing the role, wrapping his moves in that veil of mystery expected of the man considered the world’s most powerful banker, the Wizard who moves markets with his words.

The problem with the Wizard playing his cards close to the chest is that investors don’t know how to play theirs. The Chinese have grown so concerned about the soundness of their dollar investments that the head of China’s second-largest bank recently said the U.S. government should start issuing bonds in China’s currency, the yuan. What do we want with yuan? We need dollars; and we would be better off getting them from our own central bank than borrowing them from foreign rivals. We could then spend them on projects aimed at internal domestic development – as the Chinese themselves have been doing – and get the wheels of production turning again.

If Ben Bernanke stands by his word and refuses to monetize the federal debt, Congress should consider issuing the money itself, as the U.S. Constitution provides. The “full faith and credit of the United States” is an asset of the United States, and it should properly be issued and lent by the United States rather than by unaccountable private banks and shadow lenders. The true path to economic recovery – the path from an economy strangled in debt to one blooming in prosperity – is to reclaim money and credit as public resources, transforming money from private master to public servant.

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.

Quad cast

HAHAHA I will not buy your paper…not

U.S. Trade Representative Ron Kirk is expected to launch a WTO case against China on Tuesday when he holds what his office called a major news conference regarding U.S.-China trade.

China Trade
Reed Saxon / AP

Kirk’s office gave no details in announcing the 9:15 a.m. local time session with reporters. But industry sources said they expected the United States and the European Union would both announce a World Trade Organization case against China over its export restrictions on raw materials.

The expected action by the United States and the EU follows their failure to persuade China to reduce its export tariffs and raise quotas on materials such as zinc, tin, tungsten and yellow phosphorous.

The first step, which industry sources expect to be announced on Tuesday, would be for Brussels and Washington to formally request consultations with Beijing. If these talks fail, the next step would be to request that a WTO panel hear the complaint, a step that can take years.

“If the U.S. and the EU do indeed file a WTO case against China on raw material export restrictions, we welcome this action,” said Tom Gibson, president of the American Iron and Steel Institute.

“U.S. and NAFTA steel producers have long believed that this government of China policy is a WTO violation and that it is benefiting Chinese manufacturers artificially while disadvantaging manufacturers everywhere else,” he said.

Western governments say resource-hungry China has continued to restrict exports of raw materials used in steel, semiconductors, aircraft and other products despite Beijing’s pledge to eliminate taxes and charges on exports when it joined the WTO in 2001.

They say these quotas and taxes hurt European and U.S. companies while giving Chinese companies an unfair advantage. The export curbs drive down China’s domestic raw materials costs at the expense of producers elsewhere in the world.

But taking action at the WTO is expected to further damage already brittle trade relations with China.

The materials expected to be covered by the case include yellow phosphorous, antimony, bauxite, coke, fluorspar, indium, magnesium carbonate, molybdenum, rare earths, silicon, talc, tin, tungsten and zinc.

In a move that may have been an attempt to forestall U.S. and European action, Beijing said on Monday it was cutting export taxes on a range of materials, including some used to make steel.

It said that effective from July 1, export taxes for indium and molybdenum would be cut to 5 percent from 15 percent and the 5 percent export tax on sulfuric acid would be scrapped.

Taxes on some steel products and certain tungsten products will also be cut to 5 percent from 10 percent.