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TWN
Info Service on WTO and Trade Issues (May25/03) Yerevan, 5 May (D. Ravi Kanth) — The United States has “crossed swords” with China at the World Trade Organization over several issues concerning the huge subsidies provided by the two countries for different sectors, amidst the worsening global tariff and trade war recently launched by Washington, said people familiar with the development. At a time when the WTO is being bypassed by the Trump administration’s imposition of unilateral tariffs, members appeared to continue to go through the motions in the WTO’s Committee on Subsidies and Countervailing Measures (SCM) in questioning the subsidy notifications submitted by several members, including the US and China among others. During the SCM Committee meeting on 29 April, the clash between the world’s two largest economies occupied the centre-stage over the issue of alleged overcapacity created by China as well as the discriminatory subsidies provided by the US to its semiconductor industry among others, said people familiar with the development. GLOBAL OVERCAPACITY On the issue of global overcapacity in steel and other sectors, the US along with its traditional allies – the European Union, Japan, and the United Kingdom – sought a discussion on “subsidies and overcapacity.” For the past several years, the US and its allies had flagged the alleged overcapacity created by China in steel and other sectors as a major dampener on global trade. At the SCM Committee meeting, the US charged China for creating overcapacity through its alleged subsidization programs – which range from cheap land and electricity to large-scale financing – artificially boosting production in sectors like steel, solar, electric vehicles, and chemicals far beyond domestic or global demand. The US said the magnitude of the subsidies provided by China created massive overcapacity, which in turn, led to flooding of the international markets, undercutting competitors, and distorting trade, said people familiar with the discussions. The US argued that the overcapacity issue harmed both developed and developing countries, citing the Rhodium Group’s 2022 research paper which shows that in 2019, land zoned for residential use in China sold for roughly 10 times the price of land zoned for industrial use. The US said due to the overcapacity caused by China, several countries faced factory closures and job losses, including the US, as firms are not able to compete with underpriced Chinese exports. The US sought collective action at the WTO against the overcapacity created by China through its multiple subsidy programs, said people familiar with the development. Several other countries, including the United Kingdom, the EU, and Japan, echoed the concerns expressed by the US on the overcapacity issue. The United Kingdom, a close ally of the US seeking a bilateral free trade agreement with Washington, alleged that persistent global overcapacity driven by harmful subsidies, especially by China, distorted markets while artificially depressing prices. It said that China produces 190% of global demand and dominates 86% of global supplies of solar panels due to the subsidies it provided to this sector. The EU, which provides hundreds of billions of dollars of subsidies, pointed a finger at China for global overcapacity stemming from its subsidies. This is a critical issue that is adversely affecting both developed and developing economies, the EU claimed. Brussels pressed for updating the WTO rules to better address these structural distortions and reaffirmed its commitment to take necessary actions to protect European industries in line with the WTO’s principles, said people familiar with the development. Japan, which was one of the first countries to settle for a deal with Washington over the issue of “reciprocal” tariffs, called for addressing the subsidies causing overcapacity and unfair competition. Several other countries including Australia, New Zealand, and Brazil raised sharp concerns over the huge subsidy programs causing overcapacity in the global market, especially in the steel sector. CHINA’S RESPONSE Responding to the criticisms against China on the issue of overcapacity, Beijing presented a detailed critique countering each argument with examples. Firstly, China said, “overcapacity” goes against the law of the market economy, suggesting that there is no agreed definition or methodology for determining “overcapacity”, calling it a false narrative. In a pointed reference to the US argument that China was unwilling to discuss the issue at the SCM Committee, China said that it did not block the agenda item to demonstrate cooperation, while clarifying that there is no consensus on the concept of overcapacity. It emphasized that fluctuations in supply and demand are a normal part of global markets, influenced by factors such as consumer preferences, geopolitical events, and technological changes. Secondly, China said, “overcapacity” runs counter to the logic of “economic globalization”, suggesting that “the production capacity of different members is indeed determined by their comparative advantages.” China pointed out that “80% of US semiconductor chips, especially high-end chips, are exported, and large quantities of pork and agricultural products are also exported to the outside world of the US.” Thirdly, China argued that “unchecked speculation on “overcapacity” undermines the foundation of the multilateral trading system,” suggesting that “WTO agreements, including the Agreement on Subsidies and Countervailing Measures, are the result of multilateral trade negotiations among its members.” “The SCM Agreement has clear and strict disciplines on what is a subsidy, what constitutes “injury”, and procedures and conditions that countervailing measures can be taken.” Further, “neither “capacity” nor “overcapacity” is a concept defined in any WTO agreement,” China said, adding that “if some members take countervailing measures by constructing the concept of “overcapacity”, this signals that some members could bypass multilateral negotiations without consensus, and unilaterally take measures against other members not authorized by WTO rules.” Fourthly, according to China, “the industrial development and competitive advantage of China are not the result of subsidies.” It cited the example of China’s rapid progress in selling electric vehicles while the US continues to subsidize 7,500 USD for each electric vehicle, which is impossible for the Chinese government to afford at all. Fifthly, China said that it “has always done its utmost to bring its trade policies in line with the WTO rules.” Sixthly, China cautioned that “hype over overcapacity undermines climate change [actions],” adding that while some countries are calling on China to take greater responsibility for climate change, those same members are blocking the free flow of green products from China. It said criticisms against China are part of a classic “double standard”, arguing that “the Inflation Reduction Act of the United States provides a tax credit of up to $7,500 for each and every electric vehicle [EV], but those eligible must eventually be assembled in North America”, while “France have provided incentives of up to $7,000 per EV since 2024, but EVs with Chinese batteries cannot benefit from this policy because of their “carbon footprint” in manufacturing and transport.” China also dismissed the “false and erroneous concept of so-called “systemic overcapacity”.” Lastly, China criticized the US for its false accusation that “it is China’s industrial development and exports that undermine the interests of other developing members.” It said that “the “reciprocal tariffs” fabricated by the United States have seriously violated the most basic and core rules of the WTO, such as MFN, non-discrimination and bound tariffs, and undermined the international economic and trade order, shaking the foundations of the multilateral trading system.” +
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