The US government’s case against China for allegedly violating international trade law in its support of its wind sector focuses on the one allegation that’s easiest to pursue because it appears to be a blatant violation of trade rules, experts said.
US Trade Representative (USTR) Ron Kirk last month announced the US has requested consultations with China under the World Trade Organization’s (WTO) dispute settlement provisions, regarding China’s special fund for wind power manufacturing. Under the program, China apparently provides subsidies prohibited under WTO rules because the grants seem contingent on Chinese manufacturers using parts and components made in China.
The size of the individual grants range between $6.7 million and $22.5 million. USTR estimates that grants provided under this programme since 2008 could total several hundred million dollars.
“Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules,” Kirk said. “These subsidies effectively operate as a barrier to US exports to China.”
Under WTO rules, the US does not have to demonstrate that these types of subsidies are damaging the US clean energy sector, but only needs to prove that the subsidies exist, said Walter Spak, a partner and head of the international trade group of law firm White & Case.
“These kinds of subsidies are an easier target in that regard,” he said.
In October, the USTR launched an investigation into China’s support of its clean energy sector under Section 301 of the 1974 Trade Act, in response to a petition filed by the union United Steelworkers (USW). The petition accused the Chinese government of violating WTO rules, such as restricting access to critical materials, discriminating against foreign firms and goods, and establishing trade-distorting domestic subsidies.
The USTR has not been able to verify or build on claims regarding the other practices and policies covered in the USW petition, but Kirk’s office was able to make progress on some of the other allegations through its bilateral engagement with China.
In mid-December, China agreed to modify its criteria by no longer requiring foreign enterprises to have prior experience supplying equipment to large-scale wind projects in China, in response to a USW complaint that the requirement discriminated against US firms.
China also informed the US that two additional subsidy programmes identified by the USW have been terminated.
The USTR will continue to investigate the remaining USW allegations even though no formal action is being taken under the Section 301 statute. If the USTR develops sufficient evidence to support the allegations, it will pursue enforcement of US rights at the WTO independent of Section 301, Kirk said.
“My impression was the Obama administration pursued the one charge most likely to be found to violate WTO-rules and isn’t likely to bring dispute settlement proceedings on other issues for the time being,” said Jake Colvin, vice-president for global trade issues and climate change policy at the Washington, DC-based National Foreign Trade Council. “Some of the issues in the petition have already gone away, and the administration did a good job getting China to commit to reform other policies through bilateral diplomacy, which is an often-overlooked aspect of trade relations.”
By. Gloria Gonzalez