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United States Launches Challenge to Extensive Chinese Export Subsidy Program

Chinese Program Unfairly Benefits Seven Industries, Including Textiles, Agriculture, Chemicals, and Advanced Materials and Metals

Washington, D.C. – United States Trade Representative Michael Froman announced today that the United States has pursued dispute settlement consultations with the Government of China at the World Trade Organization (WTO) concerning China’s “Demonstration Bases-Common Service Platform” export subsidy program.  Under this questionable program, China seems to provide prohibited export subsidies through “Common Service Platforms” to manufacturers and producers across seven economic sectors and dozens of sub-sectors located in more than one hundred and fifty industrial clusters throughout China known as “Demonstration Bases.”  This unfair Chinese program is harmful to American workers and American businesses of all sizes.

“President Obama has made vigorous enforcement a touchstone of his trade agenda,” said Ambassador Froman. “Under the President’s leadership, USTR will continue working tirelessly to ensure that China and all WTO Members play by the rules so we can grow solid, middle-class jobs here in America.  American workers, farmers, manufacturers, and businesses rank among the most productive and innovative in the world, and where there is a level playing field they can compete and win.  This Administration is dedicated to ensuring that they get all the economic opportunities we’ve negotiated under our trade agreements.”

“I am convinced that American workers and industry can compete with anyone in the world when given an even playing field and clear set of rules,” said U.S. Rep. David Price (NC-04). “That is why today’s action against China is important to American industry, particularly the textile industry, which has suffered from a lack of enforcement of international standards. While the WTO’s rules are limited in scope, they do provide an important framework for our international economic relationships, and it is imperative that the USTR enforce them."      

“China’s actions are damaging our international marketplace, undercutting American businesses, and hurting workers in communities across our country,” said U.S. Rep. Mike Thompson (CA-5). “This case is about making sure the playing field is level and that China operates under the same fair and basic set of rules that American businesses and workers must abide by.”

“Unfairly subsidized shrimp imports threaten the historic Gulf shrimp industry that supports thousands of Louisiana families,” said U.S. Rep. Charles Boustany (LA-03). “I'll continue working with the Office of the U.S. Trade Representative to protect these jobs that are vital part of Louisiana’s economy and culture.”

“China needs to engage in ‘above the board’ trading practices with the United States to increase market access for their products and ours,” said U.S. Rep. Jim Costa (CA-16). “The Chinese market represents the third largest trading partner for California agriculture at roughly $1.4 billion. The export subsidies sponsored by the Chinese government for fruits, vegetables, and poultry will have a significant effect on California’s trade. That is why this challenge brought by the USTR is so important.”

“China has illegally subsidized manufacturers and producers across seven economic sectors – several of which directly harm businesses and farms in my District,” said U.S. Rep. Suzan DelBene (WA-01). “I’m grateful that Ambassador Froman is stepping in to help protect these industries not just in my state but for the whole county. We need strong rules to govern our trade policy, but equally important is the ability to enforce these rules.”

"Washington State is the most trade dependent in the nation, which means our workers are counting on us to make sure they are competing on an even field,” said U.S. Rep. Derek Kilmer (WA-06). “We have to be vigilant and make sure that trade rules are enforced so that other countries are held to the same high standards that we hold ourselves to."

“I am encouraged by this action to protect American companies and workers that are playing by international rules,” said U.S. Rep. Scott Peters (CA-52). “Medical device companies in San Diego, where they employ nearly 11,000 workers, and across the United States should have fair opportunity to compete. As we work to expand global markets to American-made products, vigilant enforcement of the rules will only become more important.”

Pursuant to the Demonstration Bases-Common Service Platform program, China provides free and discounted services through “Common Service Platforms as well as cash grants and other incentives to enterprises that meet export performance criteria and are located in 179 Demonstration Bases throughout China.  Each of these Demonstration Bases is comprised of enterprises from one of seven sectors:  (1) textiles, apparel and footwear; (2) advanced materials and metals (including specialty steel, titanium and aluminum products); (3) light industry; (4) specialty chemicals; (5) medical products; (6) hardware and building materials; and (7) agriculture.  China maintains and operates this extensive program through over 150 central government and sub-central government measures throughout China. 

Today’s action continues this Administration’s vigorous enforcement efforts to hold its trading partners to their WTO obligations. In 2014 alone, the United States achieved these significant victories:

  • In June, the WTO found that China breached WTO rules by imposing unjustified extra duties on American cars and SUVs.  In 2013, an estimated $5.1 billion of U.S. auto exports were covered by those duties.
     
  • In August, the WTO found that China breached WTO rules by imposing duties and quotas on exports of rare earths, tungsten, and molybdenum.  Those export restraints promote China’s own industry and discriminate against U.S. companies using those materials, which are key inputs by critical American manufacturing sectors, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum, and chemicals. 
     
  • Also in August, a WTO panel agreed with the United States that Argentina’s import licensing requirement and other import restrictions breach international trade rules.  The Argentine measures unfairly restrict the importation of U.S. goods into Argentina and potentially affect billions of dollars in U.S. exports each year.  Key U.S. exports to Argentina include energy products, electronics and machinery, aerospace and parts, pharmaceuticals, precision instruments and medical devices, miscellaneous chemicals, motor vehicles and vehicle parts, and agricultural products.  The panel’s decision was affirmed and Argentina’s claims were rejected on appeal in January 2015.
     
  • In October, a WTO panel found in favor of the United States in a dispute challenging India’s ban on various U.S. agricultural products – such as poultry meat, eggs, and live pigs – allegedly to protect against avian influenza.   The panel agreed with the United States that India’s ban breached numerous international trade rules, including because it was imposed without sufficient scientific evidence.

Background:

The United States previously brought a WTO challenge to what appear to be prohibited export subsidies that China provides for auto and auto parts manufacturers pursuant to China’s “National Auto and Auto Parts Export Base” program.  After requesting consultations with China on those subsidies in an effort to resolve its concerns, USTR further developed information and concern that China had created the Demonstration Bases program to provide prohibited export subsidies to many other industries.

China appears to be providing export subsidies under the Demonstration Bases-Common Service Platform program.  Export subsidies provide an unfair advantage to a vast array of Chinese exporters and are expressly prohibited under WTO rules.  Due to China’s lack of transparency, it is difficult to assess the exact extent of the subsidies provided to enterprises in each of the 179 Demonstration Bases in China.  The total value of the subsidies provided per base appears to vary depending on the industry, size, and location of the base, but there is evidence that certain Demonstration Base enterprises have received at least $635,000 worth of benefits annually.  In addition, China has given almost $1 billion over a three-year period to Common Service Platform suppliers that agree to provide discounted or free services to Chinese companies, including exporters located in the Demonstration Bases, according to publicly available documents.

Exports from Demonstration Bases comprise a significant portion of China’s global exports.  For example, in 2012 sixteen of the approximately 40 Demonstration Bases in the textiles sector accounted for 14 percent of China’s textile exports and six of the ten Demonstration Bases specializing in seafood production accounted for 20 percent of China’s seafood exports.

This dispute was developed by the Monitoring and Enforcement unit of USTR’s Office of General Counsel, together with the Office of China Affairs, Office of WTO and Multilateral Affairs, Special Textiles Negotiators’ Office, Office of Agricultural Affairs, and Interagency Trade Enforcement Center (ITEC), created by the Administration to provide enhanced investigative and analytical resources. 

Consultations are the first step in the WTO dispute settlement process.  If the United States and China are not able to reach a mutually agreed solution through consultations, the United States may request the establishment of a WTO dispute settlement panel.

To view a copy of the consultation request letter, please click here.