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China To End Subsidies Challenged by the United States in WTO Dispute

November 29, 2007



WASHINGTON, D.C. – U.S. Trade Representative Susan C.
Schwab today announced that China has agreed to terminate subsidies that the
United States alleged were illegal under World Trade Organization (WTO)

"I am very pleased that today we have ben able to sign an agreement with China that
should lead to full elimination of these prohibited subsidies.  This
outcome represents a victory for U.S. manufacturers and their
workers.  The agreement also demonstrates that two great trading nations
can work together to settle disputes to their mutual benefit,” said Ambassador

“Earlier this year, when China had not removed these market-distorting
subsidies after we repeatedly voiced our concerns about them, the
States took action.  This outcome shows
that President Bush’s policy of serious dialogue and resolute enforcement is
delivering real results.  While many challenges still remain, today’s news
is concrete and welcome.”    

The Memorandum of Understanding (MOU) is designed to
settle a WTO case the United
States and Mexico initiated in February of this
year.   The United States had alleged that China was maintaining
several subsidy programs prohibited under WTO rules and that these programs were
 providing significant benefits across the spectrum of industrial sectors
in China − including steel, wood products, information technology, and many
others.   Mexico also filed as a

Most of the challenged subsidies were tied to exports,
giving an unfair competitive advantage to Chinese products and denying
U.S. manufacturers the chance
to compete fairly with them in the United States and in third country
markets.  The remaining subsidies, known as “import substitution”
subsidies, encouraged companies in China to purchase Chinese-made goods
instead of imports.  These subsidies were designed to give Chinese-made
goods a significant edge in the China market over high-quality, fairly priced
goods from the United
States and other countries.

Under the MOU, China has committed to complete a series of steps
by January 1, 2008 to ensure that the WTO-prohibited subsidies cited in the
U.S. complaint have been permanently
eliminated, and that they will not be re-introduced in the future.  U.S.
companies and workers will benefit from the removal of China’s trade-distorting
subsidies much sooner than would have been possible if the United States had
litigated this case to its conclusion.  At the same time, if for any reason
China does not meet its MOU
commitments, the United
States has the right to re-start WTO


The United
States initiated the dispute over China's prohibited subsidies at the WTO by
requesting consultations with China on February 2, 2007. 
Mexico requested
consultations with China on the same measures on
February 26, 2007.  Following two rounds of consultations, in March and
June of this year, the United
States requested in July that the WTO establish
a dispute settlement panel to hear its claims.  The WTO established a panel
in late August. 

Most of the subsidies we challenged are tax breaks
benefiting foreign-invested enterprises, which are any firms with even a small
amount of foreign investment, and were made available in every manufacturing

According to a February 2006 Trade Policy Review report
prepared by the WTO Secretariat, 58 percent of exports of manufactured goods
from China came from FIEs in 2005, and
that figure is growing. 

Because these tax breaks are automatically available to
the eligible enterprises, it would appear that a large amount of
China’s exports have been benefiting
from these pervasive subsidies.

This is the fifth dispute that the United States has brought against
China at the WTO. 
  The first one, brought in 2004, challenged China’s discriminatory tax treatment of imported
semiconductors and, like the prohibited subsidies case, was resolved through a
settlement where China removed the offending
measures.  The other three cases are currently pending before the

The United
States, together with Canada and the European Union, requested a panel
in September 2006 to examine China's regulations imposing local
content requirements in the auto sector through discriminatory charges on
imported auto parts.  WTO panel proceedings in that dispute are

The United
States also requested a panel in August 2007 to examine
deficiencies in China’s legal regime for protecting
and enforcing copyrights and trademarks on a wide range of products.  The
WTO established a panel in September and panel proceedings are in

In October 2007, the United
States requested the WTO to establish a dispute settlement
panel in a case challenging China’s restrictions on the
importation and distribution of products of copyright-intensive industries such
as theatrical films, DVDs, music, books and journals.  A panel was
established for this dispute on November 27, 2007.

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