Post by Steve Gardner on Nov 30, 2007 19:45:01 GMT
Source: Forbes
Shu-Ching Jean Chen, 11.30.07, 3:34 AM ET
HONG KONG - The United States hailed as a victory an agreement signed Thursday under which China will eliminate subsidies and tax rebates that boost its exports in certain sectors and stymie imports. For China, it is evidence of a quiet and growing recognition that it must play by the rules of the global trade regime.
China reacted with indignation when the U.S. Trade Representative’s Office announced in February that it would challenge China at the WTO over state subsidies of exports of steel, wood and information technology products, among other goods, as well as “import substitution” subsidies that encouraged Chinese companies to buy domestic products instead of imports.
Chinese officials and trade experts angrily claimed that the subsidies were allowable under WTO regulations and that Washington was attempting to retaliate against China’s rising trade surplus with the U.S., which this year is on pace to exceed $250 billion.
Thursday’s agreement in Geneva, negotiated by U.S. Trade Representative Susan Schwab, commits China to eliminate the offending subsidies by Jan. 1.
China denied the agreement was a stand-down from its earlier position, preferring to phrase it as result of an “understanding” with the U.S. Nonetheless, it represents a breakthrough for the U.S. as well as for China, which has been the largest target of anti-dumping investigations and complaints at WTO for the last 12 years in a row.
China’s WTO representative, Sun Zhenyu, was quoted by the state-controlled Xinhua News Agency as saying that Beijing has already quietly phased out many of the subsidies.
Substantial business income tax breaks, which according to U.S. estimates benefited up to 60% of China’s exports, “have been repealed or will be repealed along with the implementation of a new Enterprise Income Tax Law,” Xinhua said.
According to Xinhua, the exemption of Chinese operations set up by foreign investors from paying worker allowances to the government is “no longer operative.” Such companies are responsible for 58% of China’s exports.
In one area, however, China was found to be innocent: giving refunds of value-added tax to companies when they purchased domestically made equipment, which is not barred by WTO.
China’s concessions should help small and medium-size enterprises in the U.S. and other countries to better compete with Chinese exports, but arguably, the largest Chinese subsidy to its exporters is the artificially low value of the yuan.
The deal provides ammunition for the Bush administration against advocates of retaliatory tariffs, giving it tangible proof that dialogue with China can produce results.
The dispute over subsidies is one of five cases in which the U.S. has hauled China in front of the WTO. The first, in 2004, challenged China’s discriminatory tax treatment of imported semiconductors; it was resolved through a settlement similar to Thursday’s agreement in which China removed the tax.
Pending before the WTO are three cases involving Chinese tariffs on imported auto parts; copyrights and trademarks; and China’s restrictions on the importation and distribution of products from copyright-intensive industries such as movies, DVDs, music, books and journals.
Shu-Ching Jean Chen, 11.30.07, 3:34 AM ET
HONG KONG - The United States hailed as a victory an agreement signed Thursday under which China will eliminate subsidies and tax rebates that boost its exports in certain sectors and stymie imports. For China, it is evidence of a quiet and growing recognition that it must play by the rules of the global trade regime.
China reacted with indignation when the U.S. Trade Representative’s Office announced in February that it would challenge China at the WTO over state subsidies of exports of steel, wood and information technology products, among other goods, as well as “import substitution” subsidies that encouraged Chinese companies to buy domestic products instead of imports.
Chinese officials and trade experts angrily claimed that the subsidies were allowable under WTO regulations and that Washington was attempting to retaliate against China’s rising trade surplus with the U.S., which this year is on pace to exceed $250 billion.
Thursday’s agreement in Geneva, negotiated by U.S. Trade Representative Susan Schwab, commits China to eliminate the offending subsidies by Jan. 1.
China denied the agreement was a stand-down from its earlier position, preferring to phrase it as result of an “understanding” with the U.S. Nonetheless, it represents a breakthrough for the U.S. as well as for China, which has been the largest target of anti-dumping investigations and complaints at WTO for the last 12 years in a row.
China’s WTO representative, Sun Zhenyu, was quoted by the state-controlled Xinhua News Agency as saying that Beijing has already quietly phased out many of the subsidies.
Substantial business income tax breaks, which according to U.S. estimates benefited up to 60% of China’s exports, “have been repealed or will be repealed along with the implementation of a new Enterprise Income Tax Law,” Xinhua said.
According to Xinhua, the exemption of Chinese operations set up by foreign investors from paying worker allowances to the government is “no longer operative.” Such companies are responsible for 58% of China’s exports.
In one area, however, China was found to be innocent: giving refunds of value-added tax to companies when they purchased domestically made equipment, which is not barred by WTO.
China’s concessions should help small and medium-size enterprises in the U.S. and other countries to better compete with Chinese exports, but arguably, the largest Chinese subsidy to its exporters is the artificially low value of the yuan.
The deal provides ammunition for the Bush administration against advocates of retaliatory tariffs, giving it tangible proof that dialogue with China can produce results.
The dispute over subsidies is one of five cases in which the U.S. has hauled China in front of the WTO. The first, in 2004, challenged China’s discriminatory tax treatment of imported semiconductors; it was resolved through a settlement similar to Thursday’s agreement in which China removed the tax.
Pending before the WTO are three cases involving Chinese tariffs on imported auto parts; copyrights and trademarks; and China’s restrictions on the importation and distribution of products from copyright-intensive industries such as movies, DVDs, music, books and journals.
