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United States Files WTO Case Against China Over Illegal Support for Chinese “Famous Brands”

12/18/2008

WASHINGTON, D.C. − U.S. Trade Representative Susan C.
Schwab announced today that the United States has requested World Trade
Organization (WTO) dispute settlement consultations with the People’s Republic
of China regarding China’s “Famous Brands” programs.  These programs appear
designed to promote the development of global Chinese brand names and to
increase sales of Chinese- branded merchandise around the world.  The
United
States is concerned not only because these
programs appear to incorporate export subsidies (which are generally prohibited
by applicable WTO rules), but also because of the protectionist industrial
policy apparently underlying these programs. 


“We were disturbed to find that China still
appears to be using WTO-illegal measures to promote its exports, ranging from
textiles and refrigerators to beer and peanuts.  We are going to the WTO
today because we are determined to use all resources available to fight
industrial policies that aim to unfairly promote Chinese branded products at the
expense of American workers, farmers, ranchers, manufacturers and intellectual
property owners,” said Ambassador Schwab. 


USTR worked closely with the Commerce Department to
uncover and analyze the dozens of Chinese programs at both the central and local
government level.  Secretary of Commerce Carlos Gutierrez stated, “While
dialogue is always our preferred option, we have always stated our willingness
to use WTO rules and our own laws to ensure that our workers and businesses are
not subject to unfair practices.  This is one of these instances.  We
will continue to use all of the tools at our disposal to ensure that
China plays by the
rules.”


The United States has discovered that China, as part of
its industrial policy aimed at promoting the sale of Chinese products abroad and
encouraging worldwide recognition of Chinese brand names, apparently provides
numerous subsidies at multiple levels of government.  The subsidies appear
to include cash grant rewards for exporting, preferential loans for exporters,
research and development funding to develop new products for export, and
payments to lower the cost of export credit insurance.  The designated
Chinese brands represent a wide range of sectors, including household electronic
appliances, textiles and apparel, a range of light manufacturing industries,
agricultural and food products, metal and chemical products, medicines, and
health products.  These subsidies apply across the economy and therefore
may unfairly alter the competitive landscape around the world for any industry
competing with these Chinese products.  The United States
also has found other apparent export subsidies for Chinese products in
particular sectors of the Chinese economy, available whether or not the products
are famous brands.  These sectors include textiles, agricultural products
and products with high-technology content. 


Such industrial policies promoting Chinese exports to the
United States and other
countries unfairly disadvantage U.S. manufacturers, farmers, ranchers
and workers.  China’s
policies favoring domestic brands also raise questions regarding
China’s commitment to
providing a level playing field for foreign owners of important intellectual
property rights, namely the trademark rights of U.S. brand
owners.   Elimination of the unfair and what appear to be WTO
inconsistent aspects of the famous brands programs, as well as the
sector-specific export subsidies, will help restore a level playing field for
U.S. products sold in the
United
States and in markets throughout the
world. 


Mexico
has also requested formal WTO consultations with China on this
matter today.


Background


The U.S. consultation request addresses
two central government famous Chinese brand programs, and numerous sub-central
government measures implementing these programs.  At the central government
level, China established the “Famous Export
Brand” program and the “China World Top Brand” program.  These measures set
out criteria for an enterprise to receive a designation by the Ministry of
Commerce (MOFCOM) as a “Famous Export Brand” or a designation by the
Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) as a
“China World Top Brand.”  Enterprises with these designations are entitled
to various government preferences, including, it appears, financial support tied
to exports. The U.S. consultation request also
addresses several independent sub-central government subsidy programs that
appear to benefit Chinese exports regardless of whether they are famous
brands.

All of the challenged subsidy programs appear to qualify
as export subsidies, because they seem to be granted on the condition that the
recipients meet certain export performance criteria.   Export
subsidies on all products are generally prohibited under the WTO Agreement on
Subsidies and Countervailing Measures.  With respect to agricultural
products, the WTO Agreement on Agriculture prohibits export subsidies beyond
those set out in a WTO Member’s agricultural schedule, and China’s schedule
does not permit any export subsidies.  In addition, GATT Article III
requires China to accord non-discriminatory
treatment to products of other WTO Members.  It does not generally permit
the provision of benefits only to domestic products but not to like imported
products.


China’s annually required subsidies
notification to the WTO in April 2006 did not identify any of the measures at
issue in this case and, in fact, did not provide any information at all about
subsidy programs maintained by sub-central levels of government.  As a
result, the famous brand and other product subsidies at issue in this case had
to be uncovered through significant investigatory work by the U.S. Government,
working with U.S. industry.  The
United States has now
identified more than 70 separate official measures, issued and applied by
various levels of government in China, providing what appears to be
WTO-inconsistent financial support.   


Consultations are the first step in a WTO dispute. 
Under WTO rules, parties that do not resolve a matter through consultations
within 60 days may request the establishment of a WTO dispute settlement
panel.


 


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