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China Scraps Export Rebates On Grains

by Mary Swire,, Hong Kong

24 December 2007

The Chinese government last week abolished existing 13% export tax rebates on wheat, corn, soybean and their processed flours, in another attempt to counter rising food prices, and reflecting a good harvest.

Food prices rose by 18.2% in the year to November. The government has been selling from its reserves of grain products in order to dampen price growth, and has been a net exporter of such products, although not on a scale to affect world markets.

World prices for grains have been surging this year, with US wheat futures rising to more than $10 a bushel for the first time last week. But China is self-sufficient, and State reserves have increased to record levels despite Government sales. "The harvest this year plus the rich reserves can fully meet the demands of the domestic market," said Zeng Liying, vice-president of the State Grain Administration.

China's non-agricultural export rebates have been under attack by the United States. In September the World Trade Organisation formed a panel to investigate complaints 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 argues 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.

"We are concerned about a series of measures maintained by China that appear to constitute subsidies prohibited under WTO rules," US trade lawyer Juan Millan told the WTO's dispute body, according to the Associated Press. "China offers tax refunds, reductions, and exemptions that appear to be contingent on a firm's use of domestic over imported products or on a firm's export performance."

The Office of the US Trade Representative says 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 USTR has stated.

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