anticipated for some time but is very interesting nonetheless. It is yet another entry in a series of steel-related actions by the US against China on the import front. Previous actions include those over tires and steel pipe. While China took the US to the WTO and recently lost its appeal over tariffs applied to its tires, this new action involves the US taking China to the WTO instead of unilaterally applying tariffs against Chinese steel products. On the export front, the US did take China to the WTO as well but that was over the PRC applying duties to American flat-rolled electrical steel.
From the USTR press blurb:
U.S. Trade Representative Ron Kirk announced today that the United States has requested consultations with the People’s Republic of China under the dispute settlement provisions of the World Trade Organization (WTO) concerning a program known as the Special Fund for Wind Power Manufacturing. Under this program, China appears to provide subsidies that are prohibited under WTO rules because the grants awarded under the program seem to be contingent on Chinese wind power equipment manufacturers using parts and components made in China rather than foreign-made parts and components.
“Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules,” said Ambassador Kirk. “These subsidies effectively operate as a barrier to U.S. exports to China. Opening markets by removing barriers to our exports is a core element of the President’s trade strategy. Our decision today, along with the two other WTO cases that we recently filed against China, underscores our commitment to ensuring a level playing field with China for American workers and businesses.”
USTR is also including in its consultations request transparency-related claims, which address China’s failure to comply with its obligation to notify the subsidies at issue under the WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement) and China’s failure to translate the underlying measure into one or more of the official languages of the WTO.
The size of individual grants currently available under the Special Fund for Wind Power Manufacturing ranges between $6.7 million and $22.5 million, and the recipients of these grants – Chinese manufacturers of wind turbines and Chinese manufacturers of parts and components for wind turbines – can receive multiple grants as the size of the wind turbine models increases. USTR estimates that grants provided under this program since 2008 could total several hundred million dollars.
Today’s action arises out of an investigation USTR initiated in response to a petition filed by the United Steelworkers (USW) under section 301 of the Trade Act of 1974, as amended. That investigation was initiated on October 15, 2010, and addressed allegations relating to a variety of Chinese practices affecting trade and investment in the green technology sector, including not only prohibited subsides but also export restraints, discrimination against foreign companies and imported goods, technology transfer requirements, and domestic subsidies causing serious prejudice to U.S. interests.
USTR was able to make progress on some of these other areas of concern during the course of the section 301 investigation through its bilateral engagement with China.
The USW raised a number of concerns regarding discrimination faced by U.S. firms seeking to supply equipment to large-scale wind power projects in China. At the December 14-15 meetings of the U.S.-China Joint Commission on Commerce and Trade (JCCT), USTR was able to address one highly problematic Chinese policy measure negatively affecting U.S. firms in China’s wind sector. Going forward, China agreed to modify its criteria for approval of new wind power projects by no longer requiring foreign enterprises to have prior experience supplying equipment to large-scale wind power projects in China and instead will recognize their prior experience outside China. Through the JCCT, China also reconfirmed its 2009 JCCT commitment that it had eliminated other discriminatory provisions related to local content requirements in the wind manufacturing sector.
During the course of the section 301 investigation, the United States was also able to obtain China’s clarification that two additional subsidy programs identified by the USW in its petition, the Export Research and Development Fund program and the Ride the Wind program, had been fully terminated. These programs appeared to have provided prohibited export subsidies and prohibited import substitution subsidies. Along with the case being filed today, these steps effectively address a substantial portion of the claims in the USW’s petition.
With respect to the remaining USW allegations, Ambassador Kirk stated that USTR will continue to investigate them even though no formal action is being taken under the section 301 statute. “We will continue to work closely with the USW and other stakeholders in the months ahead on the remaining allegations. If we are able to develop sufficient evidence to support those allegations and they can be effectively addressed through WTO litigation, we will pursue the enforcement of our rights at the WTO independently of section 301,” said Ambassador Kirk.
On October 15, 2010, USTR initiated an investigation under section 302(a) of the Trade Act of 1974, as amended, with respect to acts, policies, and practices of the People’s Republic of China affecting trade and investment in the green technology sector. USTR initiated the investigation in response to a petition filed on September 9, 2010 by the USW. USTR delayed requesting WTO consultations pursuant to Section 303(b) of the Trade Act of 1974, as amended, which provides that USTR, after conferring with the petitioner, may delay for up to 90 days any request for consultations. Today’s announcement to request consultations on the Special Fund for Wind Power Manufacturing concludes the pre-consultation phase of USTR’s investigation under section 302(a) of the Trade Act of 1974, as amended.
The SCM Agreement differentiates between prohibited and actionable subsidies. Article 3.1(b) of the SCM prohibits subsidies conditioned on the use of domestic over imported goods – known as import substitution subsidies – because they are recognized to be especially trade distorting. The Special Fund for Wind Power Manufacturing appears to fall within the prohibition of Article 3.1(b). In contrast, actionable subsidies are permissible under the SCM unless they cause adverse effects or injury to the interests of another Member.
The two other WTO cases referenced by Ambassador Kirk were brought against China on September 15, 2010. In one case, the United States is claiming that China acted inconsistently with various substantive and procedural obligations under the applicable WTO rules when it imposed antidumping duties and countervailing duties on imports of grain oriented flat-rolled electrical steel from the United States. In the other case, the United States is challenging China’s restrictions on foreign suppliers of electronic payment services, like the major U.S. credit card companies.
Consultations are the first step in the WTO dispute settlement process. Parties are encouraged to arrive at a mutually agreed solution through consultations. If the matter is not resolved through consultations, the United States may request the establishment of a WTO dispute settlement panel.