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TWN
Info Service on WTO and Trade Issues (May26/02) Yerevan, 4 May (D. Ravi Kanth) -- China has severely criticized the United States for its Section 301 investigations - based on a non-WTO concept of "overcapacity" - as well as for Washington's imposition of a unilateral "10% tariff on various economies under Section 122 of the Trade Act of 1974," during a meeting of the World Trade Organization's Committee on Subsidies and Countervailing Measures (SCM) on 30 April. In a strong rebuke of the US unilateral tariffs at the SCM Committee, China said it "believes that the United States has no right to unilaterally determine whether its trading partners have "overcapacity" through Section 301 investigations, nor does it have the right to take unilateral restrictive measures." Suggesting that "some other Members share China's position," it said that "the US trade policy increasingly shows a tendency of "political logic overriding economic logic", simplifying deep-rooted structural problems such as its own trade deficit and the decline of its manufacturing industry by blaming others for "overcapacity"." China said Washington's approach "has neither factual basis nor accords with economic logic." At the SCM Committee meeting, China seemingly rejected the allegedly fallacious arguments advanced by the United States, the European Union, Japan, and other industrialized countries on "overcapacity", said people familiar with the development. At the SCM Committee, the US, along with several other industrialized countries, appeared to be clashing with China on issues related to "overcapacity" and China's alleged subsidy measures, even as the trade body is being continually undermined by US unilateral reciprocal tariffs that have upended the rules-based, member-driven organization, said people familiar with the development. A day after the SCM Committee held its discussions on 30 April, US President Donald Trump announced that Washington would impose a tariff of 25 percent on cars and trucks exported by the European Union to the American market. Writing on his Truth Social platform on 1 May, President Trump said that he is pleased "to announce that, based on the fact the European Union is not complying with our fully agreed to Trade Deal, next week I will be increasing Tariffs charged to the European Union for Cars and Trucks coming into the United States. The Tariff will be increased to 25%." President Trump seemingly offered a proverbial carrot to the EU, saying that "if they produce Cars and Trucks in U.S.A. Plants, there will be NO TARIFF." He said, "Many Automobile and Truck Plants are currently under construction, with over 100 Billion Dollars being invested, A RECORD in the History of Car and Truck Manufacturing. These Plants, staffed with American Workers, will be opening soon - There has never been anything like what is happening in America today!" G7 CRITICISM Against this backdrop, several members of the Group of 7 (G7) industrialized countries seem agitated about the utility and effectiveness of discussing issues such as "overcapacity" when one member of the global trade body seems prepared to violate current and future disciplines negotiated at the WTO, said participants who asked not to be quoted. Criticizing the "overcapacity" allegedly created by China in several sectors, the US appears to have said at the SCM Committee meeting that in its paper on WTO reform issued last December, Washington had pointed out that widespread non-market policies and excessive subsidies are the root causes of two key issues: systemic overcapacity and production concentration across industries. The US said it had raised this concern repeatedly starting in 2016, providing several examples of how one member (China) has been subsidizing the steel industry at 10 times the rate of firms in the Organization for Economic Cooperation and Development (OECD) and building capacity at almost twice its domestic vehicle demand. Citing studies of the International Monetary Fund, the US said subsidies provided by China at various levels are "around 4.5% of GDP." Further, Chinese subsidies are buttressed by preferential loans, tax breaks, and land concessions, the US claimed, also highlighting that China's global trade surplus reached "$1.2 trillion in 2025," a 5.5% increase from 2024. Continuing its tirade against alleged Chinese subsidies, the US argued that the world is facing a "second China shock" on a "vast industrial scale" and "some of the highest subsidies in the world," which both fuel industrial champions and generate overcapacity that floods global markets, causing significant job losses in other regions, such as the European Union and the Association of Southeast Asian Nations (ASEAN). Ironically, the US - with its well-established behaviour of disregarding the WTO rules - said that the existing WTO rules are insufficient to address systemic distortions, while calling for reforms allowing members to respond more easily - such as by adjusting tariffs - against countries that maintain persistent surpluses and subsidy-driven imbalances. The EU apparently expressed sharp concern over the alleged subsidy system being followed by China, pointing to "the scale and opacity of state interventions in China, which continue to drive global overcapacity." The EU highlighted a study conducted by the European Parliament in which African and Southeast Asian producers abandoned plans for solar panel or battery manufacturing due to unsustainable price pressures from subsidized imports. "This is not just a trade issue; it is also a development issue," the EU said. The EU called for facilitating further discussion at the Committee, drawing attention to the upcoming OECD report on manufacturing groups and industrial corporations, due to be released this May (MAGIC database), detailing industrial subsidies provided to 482 major companies across 14 key manufacturing sectors from 2005 to 2022. Other G7 members, including the United Kingdom, Canada, and Japan, joined the US and the EU in seemingly challenging the Chinese subsidy scheme. The UK, for example, highlighted massive and growing global excess capacity (e.g., nearly 180 million metric tons in 2025) due to rising exports from subsidized producers. The UK - whose steel products are being subjected to unilateral tariffs by the Trump administration - apparently said the current WTO framework (the SCM Agreement) is no longer fit for purpose in addressing large-scale, state-driven overcapacity and subsidization, which lead to harm to industries and the increasing reliance on unilateral measures that fragment the global trading system. Canada, which appears to be struggling with the allegedly "maximalist" demands being made by the US, said that the alleged Chinese subsidies are having a systemic impact across sectors (e.g., steel, aluminum, electric vehicles, and semiconductors), while affecting global value chains and undermining long-term competitiveness and industrial development. Japan pointed to China's alleged non-market government support, saying that it encourages over-investment, depresses prices, and generates spillover effects across global markets. CHINA'S CRITIQUE In a sharp critique of the arguments on the issue of "overcapacity", as advanced by the US, the EU, the UK, Japan, and Canada at the SCM Committee meeting, China apparently reiterated its two fundamental principled positions in its statement. To start with, China said that "the SCM Committee is not the appropriate forum to discuss the so-called "overcapacity" issue," adding that "when "overcapacity" was first placed on the Committee's agenda in April 2017, China already made it clear that this issue falls outside the scope of the Committee's functions as set out in Article 24.1 of the ASCM." Continuing its arguments, China said, "at that time, in order to facilitate the Committee's work, China did not block the adoption of the agenda," adding that "China expressly emphasized that this should not set a precedent, nor should it be interpreted as any consensus among Members on this matter." The second point raised by China is that any discussion on the issue of overcapacity "is of no constructive benefit to any Member," arguing that "this issue has been raised repeatedly over multiple sessions." "Despite China and relevant Members having stated their positions time and again, no substantive progress has ever been achieved." According to China, "the fundamental reason is that there is no clear definition of "overcapacity", and the causal link between "overcapacity and subsidies is even more obscure" and "thus, the very basis for serious discussion is lacking." China said, "What is particularly concerning is that the United States recently initiated, under Section 301, investigations into 16 economies, including China, on the grounds of "overcapacity"." China added, "WTO panels have already ruled clearly that tariff measures taken under Section 301 investigations are inconsistent with WTO rules." China said, "this latest development precisely confirms China's longstanding position: "overcapacity" is not a rigorous academic or legal concept." It stressed that "it has been turned into a politically manufactured label and is being used by certain Members as a tool to address their own trade deficits, to attack other Members, and to pursue unilateralism and protectionism." China opposed any further discussion on "overcapacity", suggesting that even though it did not block the agenda, "this in no way implies that China endorses this issue, nor does it signify any form of consensus among Members on the inclusion of similar issues in the agenda of the Committee or any other subsidiary body of the WTO in the future." Further, China contended that "certain Members are using this concept as a tool to push forward protectionist policies and erect discriminatory barriers against products from China." It said, "such practices not only lack any basis in multilateral rules, but also seriously violate the core principles of the WTO and the spirit of multilateralism." China argued that its "industrial competitiveness does not come from subsidies - it is the natural result of respecting the laws of economic development," while challenging the common refrain "that simply attributes the competitive edge of China's manufacturing sector to government subsidies." "This story is convenient and spreads quickly, but it cannot stand up to serious data scrutiny," China said. Moreover, "given the sheer scale of China's manufacturing industry, it would be fiscally impossible for the government to sustain it through subsidies," China said. "The foundation of China's manufacturing lies in decades of continuous technological innovation, proactive market opening, deeply integrated industrial chains, and sustained talent development." Besides, "such a large-scale [manufacturing] naturally brings significant economies of scale: lower costs, higher efficiency, and faster R&D cycles," China maintained. "This is a self-reinforcing virtuous cycle, and the real driving force is genuine competitiveness, not subsidies." China said it "is a testing ground, application hub, and profit center for global innovation - that is why foreign companies choose China. In 2025, China's innovation index ranked among the top ten globally, and R&D spending intensity reached 2.8%, surpassing most EU member states." +
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