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China Blocks US/Mexican WTO Panel Request

by Mary Swire, Tax-News.com, Hong Kong

26 July 2007


At a first hearing before the World Trade Organization's Dispute Settlement Body on Tuesday, China blocked US and Mexican requests for a panel to be set up to investigate tax exemptions and refunds that the countries say violate China's WTO obligations.

The US brought its complaint last February, saying that China operates export subsidy programs which provide incentives for foreign investors in China and their Chinese partners to export to the United States and other markets.

The United States Trade Representative said that the subsidies offer significant benefits and are available for all products made in China, including, for example, steel, wood, paper, and other manufactured products. The companies targeted for many of these subsidies, i.e., companies with some foreign participation, accounted for nearly 60% of China’s exports of manufactured goods in 2005, according to a WTO report. Other subsidy programs at issue provide incentives for companies in China to purchase domestic equipment and accessories, instead of buying from US exporters.

The Office of the US Trade Representative argues that: "By subsidizing Chinese exports to the United States and denying US exporters a fair opportunity to compete in China, these subsidy programs unfairly impact US manufacturers and their workers. Elimination of the subsidies will help level the playing field for US-based manufacturers and, in particular, for America’s small and medium-sized businesses across a range of industries."

"The subsidies being challenged also are inconsistent with clearly stated Chinese policies seeking to rebalance China’s economy with greater emphasis on domestic consumption-led growth rather than export-led growth, and to promote the efficiency of China’s domestic manufacturers."

WTO procedures allow countries to turn down a first request for a panel, to make time for consultations, but a panel will be set up automatically at the next meeting of the Dispute Settlement Body on 31st August if the complaint is maintained. The United States and Mexico agreed on Tuesday to merge the complaints into one dispute to be handled by a single panel.

China said it would prefer to resolve the complaints through continuing negotiation rather than WTO arbitration, and believed that its tax laws were fully consistent with WTO subsidy rules.

US Trade Representative Susan C. Schwab says she recognizes that China has taken significant steps to open its market and reform its trade practices since becoming a Member of the WTO, but that: “ . . . where China has failed to meet its commitments, we will use the full array of tools available to secure compliance. Our decision to bring this case to the WTO comes after our efforts at dialogue failed.”


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