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Schwab Welcomes Mexico's Support in China Subsidies Action

WASHINGTON D.C. – U.S. Trade Representative Susan C. Schwab welcomed the announcement Feb. 26 by the Government of Mexico that it has requested WTO dispute settlement consultations with China on prohibited subsidies and thereby is joining the United States in challenging China’s provision of certain subsidies that appear to be inconsistent with its WTO commitments.

“We are pleased that Mexico has decided to join the United States in challenging China’s use of what we believe are prohibited export and import-substitution subsidies,” said Ambassador Schwab.  “We also welcome recent requests by Japan, Australia and the European Union to participate in the U.S. consultations as third parties.  It is important that the international community work cooperatively to encourage China to comply with its international obligations.  We will continue to work with these and other trading partners to that end.”

Background:

On February 2, 2007, the United States requested World Trade Organization (WTO) dispute settlement consultations with the People’s Republic of China (China) regarding its provision of subsidies that appear to be prohibited by WTO rules.

China applies a series of measures that, by allowing for refunds, reductions, or exemptions from taxes and other payments owed to the government, appear designed to subsidize exports of manufactured goods or to support the purchase of domestic over imported equipment and certain other manufacturing inputs.  These measures appear to be contrary to a number of WTO rules, including the explicit prohibitions against export subsidies and import substitution subsidies set forth in the WTO Agreement on Subsidies and Countervailing Measures. 

Given the extensive involvement of the Chinese government in commercial activity in China, disciplines on subsidies were a critical issue in the negotiations leading to China’s December 2001 accession to the WTO.  The importance of this issue is reflected in China’s express commitments in its accession protocol to abide by WTO prohibitions on the granting of export and import substitution subsidies.  The Chinese government, however, has continued to use a number of industrial policy tools − including these kinds of subsidies − to support Chinese industry.

The United States has repeatedly raised its concerns about these subsidies in discussions with relevant Chinese officials.  Nevertheless, China has taken no steps to withdraw these measures. 

Consultations are the first step in a WTO dispute.  Under WTO rules, parties that do not resolve a matter through consultations within 60 days may request the establishment of a WTO dispute settlement panel. 

USTR issued its Top-to-Bottom review of U.S.-China trade policy on February 14, 2006, in a report entitled, “U.S. - China Trade Relations: Entering a New Phase of Greater Accountability and Enforcement.”  For further details regarding the Administration's subsidy monitoring and enforcement activities in 2006, see the joint USTR and Department of Commerce report entitled, “Subsidies Enforcement Annual Report to the Congress.”  These reports can be found at www.ustr.gov.  The Department of Commerce is responsible for enforcing the domestic countervailing duty law of the United States and assisting the Office of the United States Trade Representative in addressing subsidy in multilateral fora such as the WTO.