U.S. - China Issues

12 March 2007

Challenged by Trade Partners, China Ends Export Credit Subsidy

China held accountable for meeting WTO obligations, U.S. official says

Washington -- China has terminated its central bank program that allowed a select group of large exporters to take advantage of discounted loans unavailable to many other companies.

The United States and several other countries had challenged the program as a prohibited export subsidy and requested World Trade Organization (WTO) dispute settlement consultations. The loan program was among nine Chinese activities the United States has identified as possible violations of WTO rules.

China’s decision to stop its subsidized export loan program was made public March 8.

“This is a welcome move by China,” said U.S. Trade Representative Susan C. Schwab. “We hope that the termination of these discounted loans signals China’s willingness to withdraw other subsidy programs identified in our recent WTO action that harm U.S. companies and workers."

Some of the supports identified by the United States appear to offer benefits to foreign investors and their Chinese partners to export to the United States and other markets. Others encourage import substitution by providing incentives for companies in China to purchase domestically produced goods.

The United States requested WTO dispute settlement consultations February 2. Japan, Australia, the European Union and Mexico asked to participate in the talks as additional parties; Mexico filed its own consultation request February 26. (See related article.)

It is the third time the United States has turned to the WTO for enforcement of China’s trading obligations. In March 2004, it challenged China’s value-added tax rebates, which it said discriminated against imported semiconductors. The two sides resolved the dispute in the consultation phase. (See related article.)

In 2006, the United States, the European Union and Canada challenged Chinese taxes on imported auto parts. The parties agreed to establish a panel to adjudicate the matter. (See related article.)

Another dispute concerning Chinese duties on a U.S. paper product was resolved in January without WTO involvement after the United States had informed China about its intention to file for WTO consultations.

Consultations are the first stage in the WTO dispute-resolving process.

The issue of trade subsidies and other forms of the Chinese government’s involvement in commercial activity was a critical one during the negotiations leading to China’s WTO accession in December 2001. China committed itself to follow WTO regulations and refrain from prohibited export subsidies and import substitution programs.

The U.S. trade representative’s office, however, says China has continued to use subsidies to support Chinese industry. (See related article.)

In testimony February 15 before the House Ways and Means Committee's Subcommittee on Trade, Deputy U.S. Trade Representative Karan K. Bhatia said U.S.-China relations are entering a new phase in which China “will be held fully accountable for its WTO obligations as a mature trading partner and will be expected to play a greater role in strengthening the global trading system.”

He said subsidies and intellectual property rights protection remain the main concerns in U.S.-China trade relations, but also mentioned positive developments over the last 12 months. Bhatia said U.S. exports to China climbed by 32 percent, and several major transactions have helped to further open the Chinese market to U.S. companies. For example, he cited the fact that Citibank and others acquired a stake in Guangdong Development Bank, and the Westinghouse Electric Corporation won a $5 billion to $8 billion nuclear power contract in China.

The full text of Bhatia’s prepared testimony is available on the committee’s Web site.

For more information on U.S. policy, see USA and the WTO and The United States and China.

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)