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TWN
Info Service on WTO and Trade Issues (Oct22/15) Geneva, 26 Oct (D. Ravi Kanth) — China has apparently shown “the mirror” to the United States at the World Trade Organization over the alleged violations of the WTO rules committed by Washington through its total of $447 billion worth of subsidies being provided under the so-called CHIPS Act of 2022 and the Inflation Reduction Act (IRA) of 2022, said people, who asked not to be quoted. At a meeting of the WTO’s Committee on Subsidies and Countervailing Measures (SCM) on 25 October, China said it has no problem if WTO members seek to adopt industrialization programs. However, if the US continues to block such industrialization programs being undertaken in developing and other countries, then, it is practising “double standards” by adopting one set of policies for furthering its economic and security interests, while blocking other countries from pursuing their respective national industrialization programs, China said, according to its statement issued at the meeting. China castigated the United States at the WTO over Washington’s CHIPS Act that provides semiconductor investment and production subsidies worth $369 billion, and the Inflation Reduction Act that provides subsidies worth $78 billion for clean energy and climate maintenance. China said that while it encourages countries in pursuing industrial programs directed at tackling climate change, such programs should not include “draconian” provisions in the arena of trade on semiconductors and other items that are specifically targeted against one country, i.e., China, said people familiar with the Chinese statement. UNILATERAL “BULLYING” OVER SEMICONDUCTORS China pointed out that the US measures would “run afoul of WTO principles and rules, impair the legitimate rights and interests of other members, and distort international trade and investment.” Due to the enactment of the two laws – CHIPS Act in August and Inflation Reduction Act in October -, China said that “a number of projects under consideration in other WTO members were either canceled or put on hold and potentially re-directed to the US in anticipation of the US subsidies.” China’s statement, seen by the SUNS, said that the CHIPS Act “on the semiconductor incentives explicitly requires a covered entity to disengage certain business activities with specified WTO members in order to get the benefit under the program.” According to China, “if implemented (the CHIPS Act), this discriminatory requirement would very likely lead to treatment towards certain semiconductor products, destined for those specified WTO members less favorable than similar products destined for other WTO members.” China reminded the US that what it is trying to do through these two Acts would amount to “a violation of the MFN (most-favoured-nation treatment) principle under the GATT Article 1,” and “a Quantitative Restriction that would violate the General Elimination of Quantitative Restrictions under GATT Article XI.” Furthermore, the US incentives for semiconductor investment and production “could cause adverse effects to the interests of other Members, in particular causing serious prejudice by displacing or impeding the exports of a like product of the Member from a third country market,” China alleged. Worse still, China said that “the specific domestic content requirements of “critical manufacturing industry” in Section 103, would make any incentives provided in consideration of these criteria domestic-content contingent subsidy, which would be prohibited under Article 3.1 (b) of the ASCM (Agreement on Subsidies and Countervailing Measures).” China cited another example of subsidies being provided to consumers under Section 13401 of the US Inflation Reduction Act for purchasing electric vehicles that “limits the place of extraction or process of critical materials, the place of component manufacture or assembly, and the place of vehicle assembly to the United States, countries that have signed free trade agreements with the US, or North America, as a precondition for tax credit.” It said that this provision excludes the application of relevant products from a “foreign entity of concern,” which “constitutes discrimination against certain other WTO members.” China likened the “consumption subsidies contingent on the purchaser choosing a domestically manufactured and assembled EV (electric vehicle), and requires the percentage of the value of the components contained in the battery manufactured or assembled in North America is equal to or greater than the applicable percentage”, to a prohibited subsidy. Beijing said that “the recent discriminatory and distortive subsidies and measures enacted by the US tend to violate the basic principles of the WTO, i.e. non-discrimination, and free and fair trade.” According to China, the two new US laws only demonstrate the “double standards” adopted by Washington, which not long ago called for reigning in industrial subsidies. The industrial subsidies provided by the US undermined its credibility in upholding multilateral trade rules, it said. More disturbingly, China said “while the US made use of WTO-incompatible subsidies to stimulate its domestic semiconductor industry, it also wielded a monopolistic hand to suppress the development of semiconductor industries from other WTO members, by abusing export control and exercising extra-territorial jurisdictions over non-US origin goods from other WTO members.” China criticized the US measures, saying that they are part of “Executing a Modern American Industrial Strategy.” UNPRECEDENTED “BULLYING” & “COERCION” BY US China said while it does not object to countries adopting an industrial strategy or industrial policy in general, “the means by which the US implemented such strategies represented a willful disregard for the multilateral trading system and the global commons, an act of bullying and coercion, and a mind-set of a zero-sum game, reminiscent of that of the Cold War.” “If left unchecked,” China said, “such practices would disrupt the stability of the global industrial chains and supply chains, and seriously undermine the collective efforts of all WTO members to jointly promote global economic recovery and tackle global challenges.” Despite its allegedly damning critique of the US actions, China appealed to the US to “play its leading role to make positive contributions to build the global industrial chains and supply chains, to make them stable and resilient, open and inclusive, beneficial to all stakeholders and to the global economy.” In short, China called on the US to enter into “an honest and informed discussion about such practices in this committee and other relevant WTO forums,” emphasizing that “[collectively], the duty is upon all of us to act together and rise up to the common challenges of our time, be it climate issues, economic resilience, with the available tools in our hands.” Otherwise, Beijing argued that “policy measures that undermine multilateral rules and distort international supply chains will, in the end, defeat themselves.” At the Committee meeting, Russia and India also raised concerns over the US subsidy programs. Russia criticized the US, saying that the US IRA (Inflation Reduction Act) preference under the Act did not comply with the WTO’s ASCM provisions, said a trade official. India said it is not ready to support the US notification on the two subsidy programs, adding that more discussions are needed in the Committee. NORTHERN COUNTRIES “STAND BEHIND” THE US Instead of addressing the critical comments raised by China over the US measures, the US seemed to have diverted the discussion towards issues of transparency and timely notification of new subsidies by China. 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. Washington said that “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.” Commenting on the IRA, the US apparently said WTO members all share an urgent need to increase investments in clean energy technologies to seriously combat the climate crisis, as well as to address supply chain issues. The US argued that the transportation sector is the highest source of greenhouse gas emissions in the US and the US will not meet its Paris Agreement commitments and other climate goals without bold action. Many US trading partners, including China, have also prioritized investment in electric vehicle technologies and taken a range of domestic measures to support zero-emission vehicles, the US said. The US claimed that the CHIPS Act is consistent with the WTO rules, maintaining that imposing limitations that reflect national security concerns on which entities can receive government support is not discriminatory. The US said the CHIPS Act does not tax or regulate domestic products differently than other products and does not violate the US most-favoured-nation (MFN) obligations. At the Committee meeting, the European Union, the United Kingdom, Australia, and Japan stood by the US in raising concerns about China’s alleged failure to provide timely information on the subsidies being provided by Beijing. Even though the EU had recently raised sharp concerns over the provisions in the CHIPS Act and the IRA during a meeting with the US Trade Representative (USTR), Brussels did not express the same concerns at the SCM Committee meeting, said a person, who asked not to be quoted. Responding to the US allegation, China said the information sought by the United States was outside the scope of information to be provided by its inquiry point. China emphasized that it will report its required subsidy notifications on time and members are free to contact the inquiry point for information that is required to be submitted. During the meeting, the chair of the Committee, Ms. Kerrlene Wills from Guyana, spoke on the problem of missing subsidy notifications. The WTO’s Agreement on Subsidies and Countervailing Measures (ASCM) requires WTO members to submit annual notifications of any subsidies they provide which are “specific,” i.e., subsidies given to a particular enterprise or industry, or a group of enterprises or industries, she said. Apparently, to date, around 85 WTO members – more than half of the WTO membership – have failed to submit required notifications for 2021, while 65 have still not submitted notifications for 2017. The United States, the United Kingdom, Canada, Australia, New Zealand, the European Union, and Norway expressed their concerns about the poor state of compliance with the notification requirements and urged fellow members to submit the required information as soon as possible. Intervening for the second time, the US and its allies including the EU, Japan, Australia, and Canada among others targeted the role of state subsidies allegedly provided by China in contributing to excess production capacity in sectors such as semiconductors, steel, aluminum, and others. In response, China said the problem of excess capacity was cyclical and the result of the global recession caused by the 2008 financial crisis. China said it has made great efforts to reduce capacity in the steel and aluminum sectors. Russia criticized the Northern countries, saying that the discussion was one-sided and needed to take into account the impact of trade protectionism. +
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