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TWN
Info Service on UN Sustainable Development (Nov22/05) Geneva, 25 Nov (D. Ravi Kanth) — China has directly accused the United States at the World Trade Organization of adopting many “discriminatory” and “distortive” subsidy policies that “blatantly violate the WTO rules”, suggesting that “underlying the US approach is the kind of Cold War mentality, featuring zero-sum game, picking sides and building entrenched camps.” At a meeting of the WTO’s Council for Trade in Goods (CTG) on 24 November, China laid bare the unilateral “discriminatory” measures contained in the US Inflation Reduction Act (IRA) of 2022 and the CHIPS Act of 2022. Voicing the strongest criticism yet of “US unilateral policies”, China said that “fighting trade wars and technology wars, artificially “building walls” and forcing “decoupling” completely violates the principles of market economy and disrupt international trade, which is good to none but even worse to oneself.” China said that it “opposes the politicization and weaponization of economic, trade, [and] scientific exchanges” by the US. It called on the US “to correct the above-mentioned practices that violate the WTO rules and the basic norms of international law, and jointly maintain the stability of the semiconductor global supply chain.” In some rather strong remarks, China said that the US “not only imposed export controls on China unilaterally without any basis in multilateral export control regimes but also compelled other members to follow suit.” “It is like, the US not just violates the WTO rules on its own, but also bullies other members to violate the WTO rules, at the cost of their legitimate interests, for the purpose of the so-called “US national security”.” Further, said China, “what the US does, with the so-called “Foreign Direct Product Rules”, is essentially to dictate its approach to dictate export control on China on other WTO members, trespassing the sovereign rights of the members concerned.” US “DISCRIMINATORY” & “DISTORTIVE” SUBSIDY POLICIES At the CTG meeting, China provided an account of the “most problematic provisions” in the IRA, especially issues of a potential violation of the WTO rules, as well as the “distortive nature of such discriminatory subsidy policies.” China’s rather lengthy statement highlighted “USD 369 billion US subsidies for the production of clean products and the investment in qualified facilities.” China said the IRA contains nine types of tax credits which include “domestic content requirements.” According to China, the nine types of tax credits contained in the IRA are:
China argued that the Clean Vehicle Credit “is contingent upon three local content requirements”, such as “(1) an overarching requirement that the final assembly of such new clean vehicle occurs within North America; (2) with respect to the critical mineral credit, specified percentages of the vehicle battery’s critical minerals need to be extracted or processed in the US, or originating from a US free trade agreement (FTA) partner, or being recycled in North America; and (3) with respect to the battery component credit, specified percentages of the battery’s components need to be manufactured or assembled in North America.” China said that the IRA apparently “would prohibit the application of the above tax credits where a vehicle’s battery contains any critical minerals sourced from China, or if any components contained in the battery were manufactured or assembled in China.” Elaborating further on the controversial tax credits contained in the IRA, China said “the second set of examples include the following 4 credits which share similar domestic content requirements, i.e. the Credit for Electricity Produced from Certain Renewable Resources, the Clean Electricity Production Credit, the Energy Tax Credit, and the Clean Electricity Investment Credit.” According to China, the products and facilities covered include “power generating facilities using wind, solar, geothermal, biomass, municipal waste or hydropower; clean electricity produced at a qualified facility and such qualified facilities.” China pointed out that the “bonus tax credit is contingent upon three local content requirements: (1) any steel, iron, or manufactured product, which is a component of such facility, was produced in the United States; in the case of steel or iron, the above-mentioned; (2) requirement is applied in a manner consistent with “Buy America Requirements”, that is, all steel and iron manufacturing processes take place in the United States, except metallurgical processes involving refinement of steel additives; and (3) in case of the manufactured products, they shall be deemed to have been produced in the United States, if a certain threshold of domestic content is satisfied, calculated as the percent of the total costs of all such manufactured products.” In the third example of “Advanced Manufacturing Production Credit”, China said “the products covered include a wide range of manufactured products and critical minerals, such as solar energy component, wind energy component, certain power inverter, qualifying battery component, and applicable critical minerals.” According to China, “the tax credits would apply with respect to each eligible component that is produced within the United States and sold by the taxpayer to an unrelated person.” CHIPS ACT Commenting on the US CHIPS Act of 2022, which provides for “semiconductor investment, production and R&D subsidies with a total amount as much as 78 billion USD”, China said the Act is replete with subsidies. Citing the Paris-based Organization for Economic Cooperation and Development (OECD) figures, China said the “21 largest semiconductor firms were granted over 50 billion USD during the period 2014-2018.” It argued that “the new US subsidies dwarf that number, by over 50%. In addition to the subsidies, the CHIPS Act of 2022 explicitly requires a covered entity to disengage certain business activities with China in order to get the benefits under the program, i.e., the so-called “guardrails”.” Consequently, said China, the Act “will establish a process of mandatory notification of planned relevant transactions in China, and agency review of such transactions, with potential remedies and mitigations.” Aside from issues such as the “applicable scope of such mechanism, and the depth of government interventions into business operations, and the transparency and predictability of the administrative actions,” China noted that the US on 22 October issued “sweeping new export control measures on China.” The US measures, said Beijing, “are designed to limit the development and production in China of advanced node semiconductors; semiconductor production equipment; advanced computing items; and supercomputers.” According to China, “the new rules impose not only traditional controls on the export of listed commodities, software, and technology, but also broad and vague controls on activities of US corporations and individual US persons; exports of unlisted items for specific end uses; and shipments from outside the US (including from China) of non-US-origin items produced with certain US technology, software, or equipment.” In short, China said the new US measures push “the US unilateralism to the extreme on the following grounds: * First, they have no basis under multilateral export control regimes; * Second, they are targeted only at China; * Third, they apply to essentially commercial items; and * Fourth, individuals and enterprises in other members are compelled to follow the US, against their own will and at the cost of their legitimate interests.” Criticizing the US “Modern American Industrial Strategy”, China said “the combined policy measures represent an about-face of the US’ longstanding posture regarding industrial subsidies and export control, and will likely lead to significant distortions and disruptions to the global semiconductor supply chain.” “From G20, to APEC, no economy, including the US, is in support of such disruptions and decoupling,” China said, suggesting that the G20 leaders committed in Bali “to reinforce international trade and investment cooperation to address supply chain issues and avoid trade disruptions.” “In Bangkok,” said China, “the APEC leaders reaffirmed the commitment to keep markets open and to address supply chain disruptions.” “However, there seems to be a discrepancy between what the US preaches and what it practices,” China said, emphasizing that “the US policies will deal a severe blow to the global semiconductor supply chains, to the rule-based multilateral trading regimes and the general principles of international law, and to the growth prospects of the global economy.” At the time of writing, it remains unclear whether the US responded to China’s strong criticisms of Washington’s IRA and the CHIPS Act at the CTG meeting. Earlier, at a meeting of the WTO’s Committee on Subsidies and Countervailing Measures on 25 October, the US alleged that China rarely even publishes the legal measures that establish and implement its subsidy programs in the Chinese Ministry of Commerce (MOFCOM) gazette, as it’s obligated to do under its 2001 WTO accession protocol. The US said when one member is not adhering to its transparency obligations, it undermines the entire rules-based trading system because there is no way of determining whether the obligations agreed upon are being followed and no means of enforcing them, if they are not, said a trade official, on a background basis. On the IRA, the US justified its subsidy program on grounds of fighting climate change, while on the CHIPS Act, it maintained that “the contemplated support is consistent with WTO rules; imposing limitations that reflect national security concerns on which entities can receive government support is not discriminatory.” +
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