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China Ends Hidden, Discriminatory Tax Exemptions for Certain Chinese-Produced Aircraft

October 18, 2016

Obama Administration secures another trade enforcement victory for American aviation manufacturers and workers at the WTO

Washington, D.C. − The Obama Administration has secured another trade enforcement victory for American aviation manufacturers and workers.  United States Trade Representative Michael Froman today announced that the United States has confirmed that China has ended discriminatory tax exemptions that had benefited certain types of aircraft produced in China.  The United States challenged these tax exemptions at the World Trade Organization (WTO).  China’s policy exempted certain aircraft produced in China – generally those under 25 metric tons by weight, including general aviation, business jets, and regional aircraft –from a 17 percent value-added tax.  But it imposed those taxes on imported aircraft, including products manufactured in the United States. This impacted producers of American-made aircraft as well as American parts producers who provide components to foreign-made aircraft.

“This is another important victory for United States aerospace manufacturers, and the many thousands of American workers and families they employ. We are very pleased that China has rescinded these unfair, discriminatory tax exemptions,” said Ambassador Michael Froman. “This helps American workers and businesses in our vibrant aviation industry – from parts suppliers to manufacturers of small- and medium-sized aircraft. The Obama Administration is committed to ensuring that our trading partners, including China, play by the rules they have agreed to, so that American workers and manufacturers can compete on a level playing field, selling their world-class products in markets around the world.”  

The Obama Administration undertook its own investigation to uncover these discriminatory policies.  China did not publish these tax exemptions, nor the official documents that ended them at the time, as required by its WTO commitments. 

“While we are happy to announce this discrimination has ended, we remain deeply concerned about China’s lack of transparency on taxes affecting American products,” said Ambassador Froman. “Transparency is a core obligation in the international trading system. China should not impose discriminatory taxes or conceal them. Our proactive efforts in this case put a spotlight on this problem and prompted China to remove the secrecy that obscured this policy.” 

"The news that China has officially dismantled its discriminatory support for domestic manufacturers of small aircraft is a welcome development for American aerospace workers in Oregon and around the country," said U.S. Senator Ron Wyden, Ranking Member on the Senate Committee on Finance. "As this case highlights, not only has China continued to maintain illegal market distorting policies since it joined the WTO, its policies are too often hidden behind a wall of secrecy. That must stop." 

"Today's announcement is a huge victory for American aerospace workers and another example of how our nation wins when we rigorously enforce our trade agreements,” said U.S. Congressman Kevin Brady, Chairman of the House Ways and Means Committee. “Our aerospace industry employs nearly 500,000 people and accounts for more American jobs tied to exports than any other industry. China's discriminatory policy of imposing a 17 percent tax on our aircraft and aircraft parts, while exempting those produced in China, hurts American exports and is a clear violation of China's WTO commitments.”

“America is home to the greatest manufacturers and workforce in the world, and we know that when our businesses compete on a level playing field, they win,” U.S. Congressman Dave Reichert, Chairman of the Subcommittee on Trade. “Thank you to Ambassador Froman and his team for their commitment to enforcing the rules and standing up for the aerospace workers and businesses in my home state of Washington.  The elimination of China's discriminatory tax on imported aircraft is a significant victory for American businesses and workers. We must continue taking actions to hold our trading partners accountable and give our companies the chance to succeed."

"The United States has brought 14 trade enforcement actions against China since 2009, and every time our country has gone to bat we have won," said U.S. Congressman Rick Larsen, the ranking member on the House Subcommittee on Aviation. "Today's decision is a win for the tens of thousands of workers in my District whose jobs are directly tied to the aviation industry and international trade, and whose livelihoods are threatened when foreign entities artificially advantage one country over another."

"This is a vital win for American aircraft manufacturers and workers against China's discriminatory and unfair tax policy,” said U.S. Congressman Pat Tiberi. “It is extremely important that we continue to protect workers and stand up to countries like China that don't play by the rules, violate WTO law and distort the free flow of goods and services. I commend Ambassador Froman and look forward to continuing our work to ensure trade laws are strictly enforced."

"This is a win for aviation workers and businesses in Washington state and across the country," said U.S. Congressman Derek Kilmer. "American manufacturers put together the best planes in the world and can beat any competition so long as there is a level playing field. I'm glad China has committed to follow the same rules as the U.S. when it comes to buying and selling aircraft."

The Obama Administration’s Trade Enforcement Record

Today’s announcement continues the Administration’s strong record of enforcing U.S. rights under our trade agreements. Since 2009, the Administration has brought 23 enforcement actions (including this one) at the WTO, including 14 challenges against China. The United States has won every single one of those complaints that has been decided thus far. Since 2015, in addition to announcing five new WTO challenges, the Obama Administration has announced six enforcement wins on key matters, including:

Excessive European Subsidies for Aircraft – In September 2016, the WTO found in favor of the United States and concluded that the European Union (EU) continued to have conferred more than $17 billion in subsidized financing to Airbus, in contravention of the WTO’s 2011 decision. In fact, the compliance proceeding found that the EU had further breached WTO rules by granting nearly $5 billion in new subsidized financing for the A350 XWB aircraft – causing tens of billions of dollars in adverse effects to the U.S. industry. In total, the panel found that there have been nearly $22 billion in subsidized financing from the EU and Germany, France, the United Kingdom, and Spain, and continuing lost U.S. exports worth tens of billions of dollars.

India’s Discriminatory Solar Policy – In September 2016, the WTO Appellate Body 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 Appellate Body report affirmed a February 2016 WTO panel report finding 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.

China’s Export Subsidy Program – In April 2016, China signed a Memorandum of Understanding with the United States in which China agreed to take specific actions that would remove all the WTO-inconsistent elements of its “Demonstration Bases-Common Service Platform” export subsidy program. Those prohibited export subsidies were being given 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, thereby creating unfair competition for American workers and businesses.

China’s Duties on High-Tech Steel – 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.

India’s Ban on American Agricultural Products – 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.

Argentina’s Import Licensing Requirements – 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.

Additional Background on Today’s Announcement

On December 8, 2015, the United States launched WTO dispute settlement proceedings against China after uncovering evidence of multiple Chinese measures that discriminated in favor of certain domestically produced Chinese aircraft by exempting them from a 17 percent value added tax (VAT) applied to imported aircraft generally under 25 metric tons by weight.  The aircraft subject to the exemption appeared to range from general aviation aircraft, including propeller-driven general aviation aircraft and business jets, to certain agricultural aircraft, to regional jets such as China’s domestically produced ARJ21. The United States also challenged China’s failure to publish the measures.

The United States held WTO consultations with China on January 29, 2016.  In those consultations, the United States expressed its serious concerns with China’s failure to uphold its commitments, both by discriminating against certain imported aircraft and by its lack of transparency.  Following the consultations, the United States continued its investigation into the applicability of the tax policies at issue and has confirmed that those policies are no longer in effect.   See a copy of the relevant measures here

FACT SHEET: Read more about the Obama Administration’s trade enforcement record, here.