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United States Wins End to China’s “Famous Brand” Subsidies after Challenge at WTO; Agreement Levels Playing Field for American Workers in Every Manufacturing Sector

Washington, DC - U.S. Trade Representative Ron Kirk today announced an agreement between the United States and China confirming China's termination of many dozens of subsidies that had been supporting the export of "famous brands" of Chinese merchandise and other Chinese products of all kinds around the world. These subsidies were the subject of a World Trade Organization (WTO) dispute initiated by the United States, because export subsidies are illegal under WTO rules. The termination of the subsidies will level the playing field for American workers in a wide range of manufacturing and export sectors, including household electronic appliances, textiles and apparel, light manufacturing industries, agricultural and food products, metal and chemical products, medicines, and health products.

"I am very pleased that today we have signed an agreement with China confirming full elimination of the numerous subsidies we identified as prohibited under WTO rules. This agreement demonstrates President Obama's commitment to ensuring that American workers, farmers, ranchers, manufacturers, and producers get a fair chance to compete for business around the world, to sell more goods to global consumers, and to bring jobs and other benefits of our trade agreements back home," said Ambassador Kirk. "This outcome represents a victory for the full spectrum of U.S. manufacturers and their workers, given the reach of these Chinese industrial policy initiatives. We are pleased that the WTO dispute settlement mechanism has worked as intended, enabling the parties to reach an appropriate resolution," Ambassador Kirk added.

The agreement is designed to resolve U.S. concerns raised in a WTO case the United States initiated in December of last year. In that case, the United States had challenged a Chinese industrial policy that generated a vast number of central, provincial and local government subsidies promoting increased worldwide recognition and sales of famous brands of Chinese merchandise in apparent contravention of WTO rules. The challenged subsidies were tied to exports, giving an unfair competitive advantage to Chinese products and denying U.S. manufacturers the chance to compete fairly with them in the United States and in third country markets.

BACKGROUND

The United States and Mexico initiated the dispute over China's Famous Brands initiatives at the WTO by requesting consultations with China on December 19, 2008. Guatemala requested consultations with China on the same measures on January 19, 2009. The consultations requests addressed three central government initiatives promoting famous Chinese brands of merchandise, and numerous sub-central government measures implementing these initiatives. At the central government level, China established the "Famous Export Brand" initiative, the "China World Top Brand" initiative, and the "China Name Brand Products" initiative. 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" or "China Name Brand Product." Enterprises with these designations were entitled to various government preferences, including, it appeared, financial support tied to exports.

The consultations requests also addressed several independent sub-central government subsidy programs that appeared to benefit Chinese exports regardless of whether they were famous brands. Certain of the measures were targeted at a more defined set of export sectors (or to a single sector), including the high-technology, electromechanical, textiles, and agricultural sectors.

All of the challenged initiatives appeared to qualify as export subsidies, because they are 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. China's agricultural schedule does not permit any export subsidies.

China's lone subsidies notification to the WTO, submitted 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 ultimately identified more than 90 separate official measures, issued and applied by various levels of government in China, providing what appeared to be WTO-inconsistent financial support.

Following consultations in Geneva in February 2009, the United States, Guatemala, and Mexico worked intensely and cooperatively with China to reach a pragmatic solution to the dispute without resort to lengthy panel proceedings at the WTO. Under the agreement, China confirms that it has taken steps either to eliminate the measures of concern or to modify them to remove any provisions related to export-contingent brand designations and financial benefits.