Bridges Weekly Trade News DigestVolume 16Number 31 • 19th September 2012

With US Election in the Background, Washington and Beijing Spar at WTO

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Trade tensions between Washington and Beijing flared up rapidly this week, as the two sides lodged WTO challenges against each other on Monday just weeks ahead of the US presidential election. In what represents the latest in a long-running series of disputes between the two trading giants, Washington launched proceedings over Chinese automobile and auto parts export subsidies, as Beijing filed its own complaint over US anti-dumping and countervailing measures on various Chinese exports.

Chinese export subsidies harm US automobile industry, says Obama

US President Barack Obama announced Washington’s decision at a presidential campaign rally in the automobile manufacturing state of Ohio, condemning the Chinese subsidies as a danger to US jobs. “These are subsidies that directly harm working men and women on assembly lines in Ohio and Michigan and across the Midwest,” Obama said. “We are going to stop it. It is not right, it is against the rules, and we will not let it stand.”

Between 2002 and 2011, the US consistently remained China’s largest export market for auto parts. According to US figures, the value of China’s exports of autos and auto parts increased during this period from $7.4 billion to $69.1 billion, with China rising from the world’s sixteenth largest auto and auto parts exporter to its fifth largest during the same time period.

Washington argues that this rapid expansion was aided by a complex system of unlawful export subsidies. Certain municipalities in China, US officials say, are designated as auto and auto parts “export bases” through which funds - such as grants, tax preferences, and interest rates - are provided by the Chinese authorities to support manufacturers.

Republicans in the US however, have quickly accused Obama of playing politics by using the trade action as a ploy to win votes in Midwestern swing states. In a statement, Republican presidential nominee Mitt Romney criticised the move, arguing that the damage had already been done. “Campaign-season trade cases may sound good on the stump, but it is too little, too late for American businesses and middle-class families.”

Indeed, WTO law prohibits retrospective remedies or damages. Thus, even if the US were to win the dispute, Beijing may only be asked to withdraw existing subsidies, but would not be asked to offset already-caused damage.

The Chinese government last night followed suit, issuing its own statement condemning the action. “In the midst of an election race, the United States chose to announce this move in Ohio, an automobile production area, showing that the US took this step against China out of considerations of electoral politics.” said the Chinese Ministry of Commerce (MOFCOM) in a statement, citing an unnamed official.

Allegedly unfair Chinese trade practices have become a political lightning rod in this current election cycle, as both presidential contenders continue to spar over who will be “tougher” on handling Beijing and “levelling the playing field” for US workers. While Romney has argued that his opponent has not taken a strong enough stance on the subject, particularly on Beijing’s currency practices, Obama contends that the White House has taken China to the WTO at twice the rate of the previous administration.

The China rhetoric has taken on added significance in recent weeks, as new poll numbers released by The New York Times and CBS on Friday indicate that Romney’s earlier edge against Obama on who would best restore the US economy and increase jobs is now disappearing. Political ads from both sides over the past few days have largely focused on the China issue, drawing notice from pundits and news media alike.

The White House has denied that the WTO case is politically motivated, pointing out that as many as seven other complaints against China have been brought to the Geneva-based trade arbiter during Obama’s term.

The most recent of this series of trade quarrels concerned a US complaint over anti-dumping and countervailing duties imposed by China on certain US-produced automobiles (see Bridges Weekly, 11 July 2012). Other spats have included a WTO complaint regarding China’s restrictions on exports of rare earths - with the EU and Japan filing identical complaints - and US Commerce Department investigations into allegations that Beijing is illegally subsidising its solar panel producers and dumping their products on the US market (see Bridges Weekly, 27 June 2012 and 23 May 2012, respectively).

China challenges US legislation on countervailing duties

Beijing, for its part, launched its own WTO case against Washington on Monday, challenging US anti-dumping and countervailing measures said to cover 24 types of products exported to the US market, worth US$7.2 billion. The exports concerned include paper, steel, tyres, magnets, chemicals, kitchen appliances, wood flooring, and wind towers, according to a WTO statement; the full consultation request was not publicly available at the time Bridges went to press.

More important than the individual measures targeted by the consultation request, however, is the attack on the underlying US legislation which all the challenged US trade remedy investigations have been based upon. In a statement, the Chinese Ministry of Commerce (MOFCOM) explained that Beijing’s complaint targeted legislation passed by the US Congress back in March which preserved the Commerce Department’s authority to impose countervailing duties on subsidised goods from non-market economies (NMEs), such as China and Vietnam. (See Bridges Weekly, 7 March 2012) The law had become necessary after the US Court of Appeals for the Federal Circuit had denied Commerce the ability to impose countervailing duties against NMEs.

The new law retroactively allows for the imposition of such anti-subsidy duties on products from NMEs, despite this original ruling in favour of China. A remanded case against this second law is currently pending in the US Court of International Trade.

In the WTO case, China objects to this legislative process. “This practice puts Chinese enterprises in an uncertain legal environment, in violation of the relevant rules of the WTO transparency and due process,” ministry spokesman Shen Danyang said.

Underlying the challenge to the US measures is the long-running dispute over Washington’s continued classification of China as a non-market economy and the resulting higher anti-dumping and countervailing duties.  (See Bridges Weekly, 25 July 2012)

China has also long complained that US rules have led to “double remedies” being applied by Washington, with both anti-dumping and countervailing duties being charged on the same product over essentially a single violation. In March 2011 the WTO Appellate Body handed an unexpected victory to China, harshly criticising the US practice of double remedies.

Should the parties in both complaints be unable to reach a resolution after 60 days of talks, the respective complainants will have the right to ask that a WTO panel be established to hear their individual cases.

ICTSD reporting; “U.S. launches auto case against China, Beijing fires back,” REUTERS, 17 September 2012; “China says U.S. auto trade complaint driven by election race,” REUTERS, 18 September 2012; “Poll Finds Obama is Erasing Romney’s Edge on Economy,” NEW YORK TIMES, 14 September 2012.

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