US Files WTO Case Against China

U.S. Trade Representative Michael B. Froman announced last week that the Obama administration is filing a case at the World Trade Organization against a Chinese government program known as the National Auto and Auto Parts Export Base, the New York Times reported.

The USTR alleged that through this program, China provides free and discounted services over “common service platforms” as well as cash grants and other incentives to enterprises that meet export performance criteria not just in the automotive sector but in many other industries.

A U.S. investigation found that 179 of these bases received nearly $1 billion in subsidies from 2010 to 2012. Each of the program’s 179 demonstration bases is composed of enterprises from one of these seven important sectors: textiles, apparel and footwear; advanced materials and metals (including specialty steel, titanium and aluminum products); light industry; specialty chemicals; medical products; hardware and building materials; and agriculture.

The Office of the USTR alleges that the program, which China maintains, violates World Trade Organization rules that expressly prohibit all WTO-member governments to subsidize their exports.

Froman asserted that the case against China will play a role in the Obama’s administration’s effort to prepare the way for U.S. congressional approval of the Trans-Pacific Partnership (TPP).

The TPP is an agreement that will cover not only remaining tariffs and duties, but also such issues as foreign investment rights, intellectual property and financial services. Although the TPP will bring together 12 countries in the Americas and Asia-Pacific — the United States, Canada, Mexico, Chile, Peru, Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam — China will not be a signatory, at least in its initial phase.

Some supporters of the TPP view it as an attempt to exclude China, the world’s largest trading nation, from strengthening its position even further in the Asia-Pacific region.

A 60-day period will follow that will allow both the U.S. and China a window to resolve the dispute. If left unresolved, the U.S. can pursue the formation of a dispute settlement panel to decide whether China is breaking WTO rules. The panel’s decision will have to come within nine months of its creation.

If found it was violating trade agreements, China would face penalties from the WTO and would potentially have to compensate the U.S.