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United States Files WTO Case Against China Over Illegal Support for Chinese "Famous Brands"

WASHINGTON, D.C. − U.S. Trade Representative Susan C. Schwab announced today that the United States has requested World Trade Organization (WTO) dispute settlement consultations with the People’s Republic of China regarding China’s “Famous Brands” programs.  These programs appear designed to promote the development of global Chinese brand names and to increase sales of Chinese- branded merchandise around the world.  The United States is concerned not only because these programs appear to incorporate export subsidies (which are generally prohibited by applicable WTO rules), but also because of the protectionist industrial policy apparently underlying these programs. 

“We were disturbed to find that China still appears to be using WTO-illegal measures to promote its exports, ranging from textiles and refrigerators to beer and peanuts.  We are going to the WTO today because we are determined to use all resources available to fight industrial policies that aim to unfairly promote Chinese branded products at the expense of American workers, farmers, ranchers, manufacturers and intellectual property owners,” said Ambassador Schwab. 

USTR worked closely with the Commerce Department to uncover and analyze the dozens of Chinese programs at both the central and local government level.  Secretary of Commerce Carlos Gutierrez stated, “While dialogue is always our preferred option, we have always stated our willingness to use WTO rules and our own laws to ensure that our workers and businesses are not subject to unfair practices.  This is one of these instances.  We will continue to use all of the tools at our disposal to ensure that China plays by the rules.”

The United States has discovered that China, as part of its industrial policy aimed at promoting the sale of Chinese products abroad and encouraging worldwide recognition of Chinese brand names, apparently provides numerous subsidies at multiple levels of government.  The subsidies appear to include cash grant rewards for exporting, preferential loans for exporters, research and development funding to develop new products for export, and payments to lower the cost of export credit insurance.  The designated Chinese brands represent a wide range of sectors, including household electronic appliances, textiles and apparel, a range of light manufacturing industries, agricultural and food products, metal and chemical products, medicines, and health products.  These subsidies apply across the economy and therefore may unfairly alter the competitive landscape around the world for any industry competing with these Chinese products.  The United States also has found other apparent export subsidies for Chinese products in particular sectors of the Chinese economy, available whether or not the products are famous brands.  These sectors include textiles, agricultural products and products with high-technology content. 

Such industrial policies promoting Chinese exports to the United States and other countries unfairly disadvantage U.S. manufacturers, farmers, ranchers and workers.  China’s policies favoring domestic brands also raise questions regarding China’s commitment to providing a level playing field for foreign owners of important intellectual property rights, namely the trademark rights of U.S. brand owners.   Elimination of the unfair and what appear to be WTO inconsistent aspects of the famous brands programs, as well as the sector-specific export subsidies, will help restore a level playing field for U.S. products sold in the United States and in markets throughout the world. 

Mexico has also requested formal WTO consultations with China on this matter today.

Background

The U.S. consultation request addresses two central government famous Chinese brand programs, and numerous sub-central government measures implementing these programs.  At the central government level, China established the “Famous Export Brand” program and the “China World Top Brand” program.  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.”  Enterprises with these designations are entitled to various government preferences, including, it appears, financial support tied to exports. The U.S. consultation request also addresses several independent sub-central government subsidy programs that appear to benefit Chinese exports regardless of whether they are famous brands.

All of the challenged subsidy programs appear to qualify as export subsidies, because they seem to be 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, and China’s schedule does not permit any export subsidies.  In addition, GATT Article III requires China to accord non-discriminatory treatment to products of other WTO Members.  It does not generally permit the provision of benefits only to domestic products but not to like imported products.

China’s annually required subsidies notification to the WTO 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 has now identified more than 70 separate official measures, issued and applied by various levels of government in China, providing what appears to be WTO-inconsistent financial support.   

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.

 

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