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China Ends Tax Exemptions Discriminating Against Imported Aircraft

Thursday, October 20, 2016
Sandler, Travis & Rosenberg Trade Report

The Office of the U.S. Trade Representative announced Oct. 18 that China has ended discriminatory tax exemptions affecting aircraft after a U.S. challenge at the World Trade Organization. USTR Mike Froman said the U.S. welcomes this development but noted that this case highlights “China’s lack of transparency on taxes affecting American products.”

A USTR press release states that in December 2015 the U.S. launched WTO dispute settlement proceedings against China after uncovering evidence of multiple Chinese measures that exempted certain domestically produced Chinese aircraft from a 17 percent value-added tax applied to imported aircraft generally under 25 metric tons by weight. The aircraft subject to the exemption appeared to include general aviation aircraft (including propeller-driven aircraft and business jets), certain agricultural aircraft, and regional jets such as China’s ARJ21. The U.S. argued that these measures breached WTO rules prohibiting discriminatory taxation on the basis of national origin. The U.S. also accused China of trying to hide these measures by failing to publish them, in violation of the transparency commitments China made when it joined the WTO.

USTR notes that bilateral consultations were held in January 2016 and that in the course of its investigation following those talks the U.S. determined that the policies at issue are no longer in effect. This change should benefit producers of U.S.-made aircraft as well as U.S. parts producers that provide components to foreign-made aircraft.

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