By Max W. Sung
Export subsidies: On February 11 this year, the United States
Trade Representative (USTR) announced that the US has requested consultations
with the government of the People's Republic of China over certain measures
by which China provides subsidies contingent upon export performance
to enterprises in several industries.
The US considers the measures inconsistent with Articles 3.1(a) and
3.2 of the Subsidy and Countervailing Measures Agreement of the WTO.
In its dispute settlement request, the US states:
It appears that China provides export-contingent subsidies through
a program establishing "Foreign Trade Transformation and Upgrading Demonstration
Bases" and "Common Service Platforms." Demonstration Bases are industrial
clusters of enterprises in several industries, including textiles, agriculture,
medical products, light industry, special chemical engineering, new
materials, and hardware and building materials. Common Service Platforms
are service suppliers designated by China to provide services to enterprises
in Demonstration Bases. China designates an industrial cluster of enterprises
in a particular industry as a Demonstration Base and then provides export-contingent
subsidies to enterprises located in the Demonstration Base. These subsidies
include provision of discounted or free services through Common Service
Platforms or cash grants. In addition, it appears that China also provides
certain other export-contingent subsidies to its manufacturers, producers,
In its complaint the US estimates that China has given almost US$1 billion
over a three-year period to Common Service Platform suppliers that have
agreed to provide discounted or free services to Chinese companies,
including exporters located in the Demonstration Bases.
In response to the subsidy accusation, China's commerce ministry says
that China has consistently followed WTO rules, and policies in the
country's Demonstration Bases for exporters are in line with these rules.
In the meantime, Brazil, the European Union and Japan have notified
the Dispute Settlement Body of the WTO of their desire to be joined
in the consultations requested by the US. A WTO statement on March 26
said that the delegation of China has informed the DSB that it has accepted
the requests of Brazil, the European Union and Japan to join the consultations.
China had set up the first batch of 59 Demonstration bases in 2011 to
accelerate the upgrading of its foreign trade. At the bases, clusters
of closely related businesses are gathered together. The purpose of
establishing the bases, says a local commercial official at a Demonstration
Base in Shanxi province, was not to offer industries subsidies but only
to create concentrations of export firms focused on a particular industry.
In its WTO filing, the USTR has listed 179 Demonstration Bases in China
as areas of its concern. It has also reported that 14% of China's textile
exports in 2012 were accounted for 16 of approximately 40 Demonstration
Bases in the textiles sector. China reported a trade surplus of $60
billion in January 2015 compared with $31.86 billion the year before
- a whopping increase of 88% in one year. On year-on-year basis China's
exports to the US has been rising at an annual average of 48.3% while
its imports from the US, in comparison, have declined at an annual rate
of 20.5% Thus, US trade deficit with China has reportedly increased
23.9% to $342.6 billion last year.
India's export subsidies: Export subsidy for textile and apparel
products in India was expected to be phased out by January this year.
The calculation by the WTO Secretariat was based on India having crossed
the global share threshold of 3.25% for two consecutive years - 2006
and 2007. It was to phase out textile and apparel export subsidies within
the following eight years. Meanwhile, India's share of global textile
and apparel trade continued to grow reaching 4.66% by 2013. Thus, earlier
in March, some WTO member countries including the United States, the
European Union, Turkey and Japan have asked India to phase out export
subsidies on textiles and apparel.
The question now is whether or not India will yield to this request.
Indications so far are that this is not going to happen. India's minister
of state for commerce and industry Nirmala Sitharaman said recently
that the government has not taken any decision on phasing out of subsidies
as the new foreign trade policy is "still under consideration." D.K.
Nair, the secretary general of the Confederation of India Textile Industry
(CITI), was also quoted recently as saying that "if the government decides
to stop export subsidies completely in 2015 under international pressure,
the textile industry will face serious trouble." A review of the WTO
rule book has led some to believe that the phasing out of export subsidies
for textiles and apparel will not happen until January 2018.
European Union's option: A 1994 WTO agreement gives the EU legislative
power to impose anti-subsidy duties and tariffs as a remedial action
against subsidies that are considered unfair trade practice. That agreement
also defines subsidies as well as whether or not imports of subsidised
products are injurious to the EU industry, procedures for initiating
and conducting investigations, and rules on the implementation and duration
of countervailing measures. In 2011, the EU imposed its first anti-subsidy
duties on Chinese imports of high quality paper. After a 15-month investigation,
the EU noted that the Chinese government was significantly subsidising
its coated fine paper industry by giving cheap loans, allocating land
below market value and granting various tax incentives which are in
violation of WTO rules. Countervailing measures ranging from 4% to 12%
were imposed on imports of high quality paper from China. In addition
to anti-subsidy duties, the EU also set anti-dumping duties of 8-35.1%
on paper imports. Both anti-subsidy and anti-dumping duties were to
be imposed for five years with provision for extension. In response,
China's commerce ministry spokesman Yao Jian stated at the time that
the EU has violated the WTO rules by imposing both anti-subsidy and
anti-dumping trade remedies on the same goods.
It appears that some consider export subsidies as crucial to their local
industries and economic development while others regard them as undue
and unfair advantage in the competition for global trade. Steps to independently
evaluate and counteract export subsidies are being taken both within
and outside the WTO. It remains to be seen if they will prove to be