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Chinese Export Subsidies Under the “Demonstration Bases-Common Service Platform” Program Terminated Thanks to U.S.-China Agreement

China Agrees to Dismantle Prohibited Export Subsidies After U.S. Challenge in WTO

Washington, D.C. – United States Trade Representative Michael Froman today announced that the United States and China have signed an agreement terminating the export subsidies China has provided through the “Demonstration Bases-Common Service Platform” Program. 

Following a dispute brought by the United States in the World Trade Organization (WTO), China has effectively terminated the challenged Program channeling export-contingent subsidies to Chinese enterprises across seven economic sectors, and dozens of sub-sectors, located in more than 179 industrial clusters.  China has terminated the “Common Service Platform” subsidies to “Demonstration Base” enterprises and will remove export-contingent criteria from the “Demonstration Bases”.  Termination of prohibited export subsidies under the “Demonstration Bases-Common Service Platform” Program will help level the playing field for American workers and businesses in the many affected sectors.

“Today we have signed an agreement with China to eliminate export subsidies that the United States challenged because they are prohibited under WTO rules. This is a win for Americans employed in seven diverse sectors that run the gamut from agriculture to textiles to medical products, who will benefit from a more level playing field on which to compete.  This agreement once again underscores that President Obama’s commitment to enforce our trade rights aggressively to secure real economic results for American workers, farmers, and businesses of all sizes and in every part of the country,” said U.S. Trade Representative Michael Froman. 

“As a result of USTR’s extensive efforts, this agreement addresses all elements of the massive and complex export subsidy program.   China has now issued and provided more than 130 directives, instructions, and notices to address U.S. concerns.  The transparency provisions of the agreement give us a solid basis to monitor closely and confirm whether the terms of the agreement are being met.”    

“This agreement shows our dedication to ensuring that American workers and businesses have the opportunity to compete fairly, supporting high-quality U.S. jobs and strengthening the middle class.  It also demonstrates the resolve with which we will enforce the high standards negotiated in the Trans-Pacific Partnership, whether on labor, environment, intellectual property rights or other commercial issues,” Ambassador Froman added.

“Today's announcement demonstrates that strong trade enforcement actions can effectively level the playing field for American businesses and workers,” said U.S. Rep. David Price (D-NC-04). “We must continue to be vigilant in monitoring China's unfair trade practices and in calling for WTO arbitration to end any violations of our international trade standards and agreements.”

“Trade is crucial for the agriculture industry in my California district,” said U.S. Rep. Sam Farr (D-CA-12). “Our growers play by the rules and we expect the same from our trade partners. This administration’s strong record of enforcing trade agreements and pushing for even higher standards in future deals ensures that everyone is playing on a level field.”

“Today’s announcement that China will end its unfair export subsidies program sends a strong and important message that the U.S. will hold our trading partners accountable and enforce the trade agreements we have in place. If other countries want to trade with us, they must play by the rules or face the consequences,” said U.S. Rep. Rick Larsen (D-WA-2). “I am pleased USTR followed through on this case and is pushing to make sure our workers get a fair shot. Leveling the playing field is exactly why we have the WTO and rules of the road for international trade.”

“This settlement helps level the playing field for American exports to China," said U.S. Rep. Henry Cuellar (D-TX-28). “Free trade is the backbone of a strong global economy, but it only works if everyone plays by the same rules. Making sure that China and all WTO members honor their agreements will encourage better market access through strong enforcement and accountability measures. This settlement demonstrates how our government needs to enforce the standards laid out in the Trans-Pacific Partnership and in all future trade agreements. We should count today's announcement as a victory for free trade.”

“China has illegally subsidized manufacturers and producers across seven economic sectors – several of which directly harm businesses and farms in Washington’s First District,” said U.S. Rep. Suzan DelBene (D-WA-3). “I’m outraged by the unfair practices China has employed to manipulate markets and I will continue to fight for policies that support U.S. workers. We need strong rules and enforcement to ensure a level-playing field for U.S. businesses competing in the global market, which is why this ruling is so important.”

“America’s ability to compete and prosper in a global marketplace depends upon strong, enforceable rules,” said U.S. Rep. Scott Peters (D-CA-52) “Businesses that play by the rules need to know the United States will not tolerate unfair trade practices. I applaud the work of Ambassador Froman and USTR to bring about this successful enforcement action for U.S. workers and businesses both small and large, including innovators in San Diego. When the United States leads on trade, we can better set and enforce the rules and create a more level playing field that allows America’s innovators to succeed.”

Today’s action continues the Administration’s strong record of enforcing U.S. rights under our trade agreements.  Since 2009, the Administration has brought 20 enforcement actions at the WTO, and won every single one decided thus far.  Since 2015, USTR has announced the following enforcement victories:

  • In February 2016, a WTO panel found in favor of the United States in a dispute challenging India’s “localization” rules discriminating against imported solar cells and modules under India’s National Solar Mission.  The WTO panel agreed with the United States that India’s domestic content requirements discriminate against U.S. solar cells and modules by requiring solar power developers to use Indian-manufactured cells and modules, in breach of international trade rules.
     
  • In July 2015, the United States prevailed in a WTO challenge to China’s compliance actions following WTO findings in 2012 that China’s duties on high-tech steel were inconsistent with WTO rules.  Those WTO-inconsistent duties contributed to over $250 million in annual export losses for American steel exporters.  The U.S. compliance challenge was the first time any WTO Member had initiated a WTO proceeding to challenge a claim by China that it had complied with adverse WTO findings.
     
  • In June 2015, the WTO 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 WTO agreed with the United States that India’s ban breached numerous international trade rules, including because it was imposed without sufficient scientific evidence and was not based on international standards, which confirm that importing U.S. products is safe.
     
  • In January 2015, the WTO found that Argentina’s import licensing requirements and other import restrictions breach international trade rules.  These restrictions potentially affect billions of dollars in U.S. exports each year, including exports of energy products, electronics and machinery, aerospace equipment, pharmaceuticals, precision instruments, medical devices, motor vehicle parts, and agricultural products.

BACKGROUND

The United States initiated the dispute over China’s Demonstration Bases-Common Service Platform program by requesting consultations with China at the WTO in February 2015.  Each of these Demonstration Bases was 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 maintained and operated this extensive program through over 150 central government and sub-central government measures throughout China.  These measures provided subsidies to the Demonstration Bases in the form of cash grants and free or discounted services for these Demonstration Base enterprises.  Export-contingent subsidies, such as those provided by China under this program, created an unfair advantage for a vast array of Chinese exporters and are expressly prohibited under WTO rules. 

Following consultations in Geneva in March and April 2015, the United States requested and obtained establishment of a WTO panel in April 2015.  Nonetheless, the parties continued to discuss how China could address the U.S. concerns that China’s program provides export subsidies prohibited under WTO rules. 

Under the agreement, China confirms that it has taken and will take steps to eliminate or modify the challenged measures and terminate the prohibited export subsidies.  Specifically, China has agreed to (1) withdraw central government funding for Common Service Platforms; (2) terminate the preferential service agreements (PSAs) between sub-central governments and CSP providers, which had been the sources of free or discounted services provided to Demonstration Base enterprises; (3) prohibit CSP providers from continuing to provide free or discounted services to enterprises in export-contingent Demonstration Bases; (4) terminate sub-central government export-contingent cash grant measures; (5) eliminate any export-contingent criteria from the Demonstration Bases designation process; and (6) re-evaluate Demonstration Bases without the use of export-contingent criteria.

See a copy of the MOU here, a Fact Sheet regarding the MOU here, and a table regarding the status of the challenged measures here

THE OBAMA ADMINISTRATION’S TRADE ENFORCEMENT RECORD

The Obama Administration has undertaken the most ambitious upgrade of trade enforcement in the history of modern U.S. trade policy, building a far more capable enforcement system.   The result has been a record of quality enforcement victories that are helping to level the playing field for American workers, businesses and farmers.

  • Since President Obama was inaugurated in 2009, the United States has filed 20 enforcement complaints at the World Trade Organization (WTO) –more than any other WTO Member. The United States has won every single one of those disputes that has been decided by the WTO so far.
     
  • The Obama Administration has brought 11 trade enforcement challenges against China, three against India, and several other complaints against a series of major economies including Indonesia, Argentina, the Philippines, and the European Union.  To ensure the greatest economic benefits for American workers and exporters, the Obama Administration has used our trade enforcement actions to emphasize opening these large, strategic markets to which the United States exports a diverse array of products and services.
     
  • The Obama Administration has also broken new ground on the enforcement of labor rights, including the first-ever case under a trade agreement to seek the enforcement of worker rights.  That case challenges Guatemala’s failure to enforce its labor laws.
     
  • Beyond formal disputes, the Obama Administration has also opened markets for American workers, farmers and businesses by taking tough stands to resolve unwarranted trade barriers with trading partners. For example, in the last two years alone, we have negotiated agreements that expand beef exports to Mexico and pork exports to Malaysia. We also successfully engaged with the Philippines – including through the Special 301 process – to enhance protection of intellectual property rights. These and similar actions have helped expand exports and level the playing field for American goods and services.