TRADE: Play by the Rules, Washington Tells China

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Feb 2 2007 (IPS) - The United States said Friday it is taking China before the World Trade Organisation to complain about Beijing’s use of “illegal subsidies”.

The United States said Friday it is taking China before the World Trade Organisation (WTO) to complain about Beijing’s use of “illegal subsidies”.

U.S. Trade Representative Susan Schwab told reporters at a press conference on Friday that talks with China over the issue have failed and that Washington was left with no option but to request WTO consultations to eliminate those subsidies.

“The case is important because we are seeking to level the playing field to allow U.S. manufacturers to compete fairly with Chinese firms,” Schwab said.

Washington alleges that China is fixing its tax laws and using other means to promote its own exports and to discriminate against imports of U.S. manufactured goods.

The subsidy programmes provide incentives for companies in China to purchase domestic equipment and accessories, instead of buying from U.S. exporters, the USTR office says.

“China’s subsidies can particularly distort trade conditions for small and medium-sized American enterprises (SMEs) and their workers,” she added.

Washington argues that a range of domestically produced goods in the United States, from steel to paper to computers, are denied an opportunity to compete in the Chinese market and in third country markets where they are forced to vie with highly subsidised Chinese imports.

The alleged Chinese subsidies cover sectors like steel, wood products and information technology, among others.

The Chinese embassy did not respond to IPS requests for comment on Friday.

A fact sheet distributed by the USTR office said that among the tactics China uses to give its companies an edge over U.S. competitors were tariff exemptions, discounted lending rates and income tax reductions and refunds available to China-based companies that meet certain export performance benchmarks.

These benefits lured many firms, especially from neighbouring Asian nations which moved their final assembly operations to China since its accession to the WTO.

The subsidies being challenged by Washington purportedly go to foreign companies that invest in China and which meet those criteria. U.S. officials say those companies accounted for nearly 60 percent of China’s exports of manufactured goods in 2005.

The U.S. itself has been widely criticised by developing countries for paying billions of dollars in agricultural subsidies to U.S. farmers, which have the effect of depressing local markets for farm products.

In 2005, for example, a WTO dispute panel found that 3.2 billion dollars in annual cotton subsidies and 1.6 billion dollars in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules.

But Washington has nevertheless taken the offensive against China, albeit in a different sector – manufactured goods and services.

“China needs to be held fully accountable as a mature member of the international trading system – for the benefit of US companies and workers, the global trading system, and for its own sake,” Schwab said in her remarks to the media.

The complaint comes only a day after a number of U.S. lawmakers publicly lamented that the United States was not filing enough complaints about China before the WTO. The lawmakers said they were alarmed by the large, and growing, trade deficit between the two nations.

In 2005, China exported 243 billion dollars worth of goods to the U.S. – six times the amount that the U.S. exported to China – leaving the U.S. with a deficit of 202 billion dollars in 2005, the largest deficit with any country.

In 2006, the U.S.-China trade deficit is expected to exceed 230 billion dollars.

“One reason for this glaring trade imbalance is China’s continued non-compliance with its WTO obligations and our failure to challenge this non-compliance,” Sen. Carl Levin said before the U.S.-China Economic and Security Review Commission hearing on relations between the two countries on Thursday.

The same day, the USTR and the Commerce Department presented the “2007 Subsidies Enforcement Report” which documents U.S. efforts to monitor foreign government subsidy practices worldwide.

The report said: “China has been unwilling to commit to the immediate withdrawal of the prohibited subsidies in question.”

It also spoke of an explosive growth of China’s steel production.

U.S. business groups quickly sided with the USTR, and said they wanted to see more transparency in China’s subsidies policies.

“China must play by the rules,” said Myron Brilliant, vice president for Asia at the U.S. Chamber of Commerce in a statement.

Since China was coached by Washington into joining the WTO, U.S. exports to China have been growing robustly.

U.S. exports grew at an average annual rate of almost 23 percent in the last five years, and were on pace to grow 33 percent for 2006 but business leaders say they can do far better if the alleged Chinese subsidies were dealt with.

“This case expands the administration’s efforts to address China’s distortions of trade, along with pressure to obtain greater Chinese actions to control product counterfeiting and copyright piracy, pushing for currency appreciation and acting in other areas where China needs to do more to live up to its WTO obligations,” said National Association of Manufacturers (NAM) President John Engler.

The United States has previously brought the only two disputes in the WTO against China, and the U.S. and China settled a third dispute on the eve of a planned U.S. WTO filing.

The first case was filed in March 2004 and it involved value-added tax rebates that discriminated against imported semiconductors.

The two sides were able to resolve that dispute during the consultation phase.

In March 2006, Washington joined forces with Canada and the European Union to challenge Chinese rules that impose local content requirements in the auto sector.