US Launches Open Challenge to China “Free Services” to Exporters at WTO

150 Clusters Across Seven Sectors under Attack

The US has filed a formal WTO complaint against an “extensive” Chinese export subsidy programme for companies across seven industry sectors, including textiles, medical products, and agriculture. The new case is the latest in a long history of disputes between the economic giants at the global trade body.

Pursuant to the Demonstration Bases-Common Service Platform program, China provides free and discounted services through “Common Service Platforms as well as cash grants and other incentives to enterprises that meet export performance criteria and are located in 179 Demonstration Bases throughout China. Each of these Demonstration Bases is comprised of enterprises from one of seven sectors: (1) textiles, apparel and footwear; (2) advanced materials and metals (including specialty steel, titanium and aluminum products); (3) light industry; (4) specialty chemicals; (5) medical products; (6) hardware and building materials; and (7) agriculture. China maintains and operates this extensive program through over 150 central government and sub-central government measures throughout China.

China appears to be providing export subsidies under the Demonstration Bases-Common Service Platform program. Export subsidies provide an unfair advantage to a vast array of Chinese exporters and are expressly prohibited under WTO rules. Due to China’s lack of transparency, it is difficult to assess the exact extent of the subsidies provided to enterprises in each of the 179 Demonstration Bases in China. The total value of the subsidies provided per base appears to vary depending on the industry, size, and location of the base, but there is evidence that certain Demonstration Base enterprises have received at least $635,000 worth of benefits annually. In addition, China has given almost $1 billion over a three-year period to Common Service Platform suppliers that agree to provide discounted or free services to Chinese companies, including exporters located in the Demonstration Bases, according to publicly available documents.

Exports from Demonstration Bases comprise a significant portion of China’s global exports. For example, in 2012 sixteen of the approximately 40 Demonstration Bases in the textiles sector accounted for 14 percent of China’s textile exports and six of the ten Demonstration Bases specializing in seafood production accounted for 20 percent of China’s seafood exports.

WTO disputes are far from new for Washington and Beijing, who have 24 past cases between them. Of these, the US has filed 15 cases against China, while the Asian economic powerhouse has lodged nine against its North American trading partner.

The US complaint drew support from several American lawmakers from states such as Washington, Louisiana, and California, who issued statements that generally highlighted the importance of trade enforcement, particularly with regards to China.

The dispute comes at a time when trade has gained renewed prominence on the Washington agenda, as US negotiators race to conclude negotiations for a Trans-Pacific Partnership (TPP) Agreement with 11 other countries. The deal does not currently include China, with some analysts suggesting that the effort appears geared at matching Beijing’s growing influence in the region.