Seeing Through America’s Anti-Subsidy Measures Toward China

U.S. anti-subsidy measures directed towards China have become the new focus in trade friction between China and the United States. The policies stand in violation of numerous fair trade regulations, and have damaged the trading interests of Chinese firms. On May 25, the Ministry of Commerce raised an appeal with the WTO regarding the wrongful practices used by the U.S. in anti-subsidy cases brought against China.

The unfair nature of the cases is the focal point of conflict between the two nations. The U.S. has chosen to ignore China’s enormous accomplishments in decades-long reforms towards a market economy, and insisted on treating China as having a non-market economy, as well as opening anti-subsidy actions against China. Furthermore, in its anti-subsidy investigations, the U.S. has not ascertained subsidy amounts based on real subsidies provided to firms by the Chinese government, but has reapplied the “substitute country” method from its anti-dumping investigations. The method constitutes searching for a market economy outside of China to use as an external benchmark for “normal prices” within the Chinese market, then using the amount that China’s domestic prices fall short of the external benchmark to determine the scope of alleged subsidies. The truth of the matter is that disparities in market price exist for products in every country, a fact which is also the basis for international trade and the theory of comparative advantage. For Chinese businesses, however, these differences are being unreasonably treated as [proof of] subsidies. The U.S. is taking anti-subsidy measures against China without a basis under international law and against precedence in U.S. law, and at the same time is using the “substitute country” method to select a high external benchmark and artificially inflate the extent of subsidization for Chinese products, resulting in a ruling unfair to Chinese businesses.

Another unfair aspect of the case, which is also a core component of China’s appeal, is the issue of determining what constitutes a “public body.” The U.S. is clinging to the notion that there lacks a separation between the government and businesses in China, disregarding that China’s state-owned enterprises have already ended state control since implementing reforms for a market economy, and are financially and operationally independent. The United States further insists on maintaining that as long as the government owns a majority stake in a corporation, sales of the state-owned enterprise must be subsidized by the government. In many cases, the U.S. has determined state-owned enterprises to be public bodies controlled by the government despite insufficient evidence to support those claims, rulings which have been overturned by the WTO Appellate Body in the past. Despite this, the U.S. has continued on its misguided course by expanding the interpretation of “public bodies,” with the result that greater numbers of Chinese exports have fallen under the scope of U.S. anti-subsidy policies, and more Chinese businesses have had their efforts to enter the U.S. market rendered practically futile.

The high levels of the duties imposed through both U.S. anti-dumping and anti-subsidy measures have also been the subject of widespread criticism, as there exist problems with double taxation. In the rulings of both anti-dumping and anti-subsidy cases, the U.S. has consistently taken into consideration the Chinese government’s role in the market and the possible existence of subsidies, and has often placed relatively high anti-dumping taxes on Chinese businesses. However, in its anti-subsidy investigations, the U.S. has continued on to measure the amount of government subsidies to businesses, levying further anti-subsidy taxes. This actually means that the same issue is doubly taxed, which runs completely counter to the spirit of fair trade advocated within the WTO Subsidies and Countervailing Measures Agreement, and is doubly discriminatory against Chinese businesses.

The U.S. is implementing trade protectionism under the name of free trade; this is clearly the classic protectionist stratagem of abusing of trade relief measures.