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US Takes China Before WTO Over Prohibited Subsidies

by Glen Shapiro,, New York

06 February 2007

US Trade Representative Susan C. Schwab announced on Friday that the United States has requested World Trade Organization (WTO) dispute settlement consultations with the People’s Republic of China, regarding its provision of subsidies that appear to be prohibited by WTO rules.

“We are committed to challenging China’s WTO-inconsistent practices that harm American workers and businesses,” announced Ambassador Schwab, continuing:

“China’s use of market-distorting subsidies creates an uneven playing field and subverts China’s own efforts to foster consumption-led growth.”

“We recognize that China has taken significant steps to open its market and reform its trade practices since becoming a Member of the WTO, and both countries are benefiting from a deeper and stronger trade relationship,” she added.

“However, 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.”

Several of the subsidy programs at issue appear to grant export subsidies, which provide incentives for foreign investors in China and their Chinese partners to export to the United States and other markets.

These 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 argued last week 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."

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