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China, US Exchange Trade Dispute Blows

by Mike Godfrey,, Washington

19 September 2012

Trade friction between China and the United States has worsened with the Obama Administration requesting dispute settlement consultations with the Chinese government at the World Trade Organization (WTO) concerning China’s auto and auto parts subsidy programme, and China requesting consultations on the US imposition of both countervailing duties (CVDs) and antidumping duties (ADs) on its exports.

The US alleges that China provides extensive subsidies to auto and auto parts producers located in designated regions, known as ‘export bases’. It is said that China’s apparent programme of export subsidies is prohibited under WTO rules, because they provide an unfair advantage to Chinese manufacturers, who are in competition with producers located in the US and other countries.

The “export bases” use central and local government funds to provide a variety of export-contingent subsidies to auto and auto parts exporters such as grants, tax preferences and interest rate subsidies. Based on publicly available documents, it is believed that “export bases” made at least USD1bn in subsidies available to auto and auto-parts exporters in China from 2009 to 2011.

“The Obama Administration is committed to protecting the rights of nearly 800,000 American workers in our USD350bn auto and auto parts manufacturing sector,” said the US Trade Representative (USTR) Ron Kirk. “We insist upon having a level playing field on which our world-class manufacturers can compete.”

“Export subsidies are prohibited under WTO rules because they are unfair and severely distort international trade,” he added. “China expressly agreed to eliminate all export subsidies when it joined the WTO in 2001. China benefits from international trade rules and must in turn live up to its international obligations.”

Separately, the US has requested that the WTO establish a dispute settlement panel to address China’s imposition of ADs and CVDs on more than USD3bn in exports of American-produced automobiles. The US and China have tried to resolve the matter following the US request for formal dispute settlement consultations in June, but the consultations did not succeed.

The Office of the USTR itself pointed out the long list of recent enforcement actions the US government has taken against China at the WTO – from the challenging of China’s local-content subsidies to its wind power equipment manufacturers and the imposition of ADs on imports of solar cells from China, to three separate WTO disputes initiated between 2009 and 2011 regarding duties imposed by China on US automobiles, steel products and US poultry products.

Earlier this year, the US also successfully concluded a challenge to China’s export restraints on key industrial raw materials and, in March, launched a dispute against China’s export restraints on rare earths.

On the other hand, the Chinese Ministry of Commerce (MOC) has reignited the on-going dispute over the application of both ADs and CVDs at the same time by the US over all 24 of its products which it is said to subsidize. Thereby, China has officially requested formal WTO consultations over almost USD7.2bn of its annual exports into the US market.

In March 2011, the WTO Appellate Body had already found that the imposition by the US of double remedies, that is, the offsetting of the same subsidization twice by the concurrent imposition of ADs and CVDs, and, indeed, the application of CVDs against a ‘non-market economy’ such as China, was inconsistent with WTO obligations.

According to the MOC, and despite the passing by the US Congress in March this year of a bill to try and legitimize its stance, the US has still not resolved those issues. China has therefore expressed concern over the injury caused to its industries, and said that the US has continued to act in a manner inconsistent with WTO rules. China has also warned against a global tendency towards trade protectionism, led by the US.

TAGS: tax | business | law | anti-dumping | China | enforcement | manufacturing | trade disputes | United States | import duty | trade

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