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China to Dismantle Prohibited Export Subsidies After WTO Dispute

Friday, April 15, 2016
Sandler, Travis & Rosenberg Trade Report

The U.S. and China signed April 14 an agreement eliminating China’s export-contingent subsidies to Chinese enterprises across seven economic sectors and dozens of sub-sectors in more than 179 industrial clusters. U.S. Trade Representative Mike Froman said this agreement “addresses all elements of the massive and complex export subsidy program” and that China has “issued and provided more than 130 directives, instructions, and notices to address U.S. concerns.”

In February 2015 the U.S. brought a World Trade Organization case against what it said were export-contingent subsidies provided by the Chinese government through a program establishing “foreign trade transformation and upgrading demonstration bases” and “common service platforms.” Each demonstration base is an industrial cluster of enterprises in one of seven 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. Common service platforms are service suppliers designated by China to provide services to enterprises in demonstration bases. The U.S. alleged that these services included export-contingent subsidies, such as discounted or free services or the provision of grants, that violate the express prohibition on export subsidies in WTO rules.

According to USTR, China has now agreed to withdraw central government funding for CSPs, terminate the preferential service agreements between sub-central governments and CSP providers that had been the sources of free or discounted services provided to demonstration base enterprises, prohibit CSP providers from continuing to provide free or discounted services to enterprises in export-contingent demonstration bases, terminate sub-central government export-contingent cash grant measures, eliminate any export-contingent criteria from the demonstration base designation process, and re-evaluate demonstration bases without the use of export-contingent criteria.

USTR cited the agreement as the latest evidence of the Obama administration’s “strong record of enforcing U.S. rights under our trade agreements,” a point officials have been emphasizing as part of their effort to build support for the Trans-Pacific Partnership.

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