US Launches WTO Dispute Against Chinese Wind Power Fund

19 January 2011

The US last month initiated dispute proceedings against China at the WTO, alleging that Beijing's special fund for wind power manufacturing is an illegal subsidy under international trade law.

Trade tensions between the two countries have heated up in recent months, as Washington's request for consultations, dated 22 December, represents the second time in less than four months that it has accused China of violating WTO rules.  The Obama administration has also been increasingly concerned that US companies risk falling behind their Chinese counterparts in the area of clean energy.

Beijing insists its policies are both within the bounds of WTO rules and good for the environment. The Chinese commerce ministry said in a statement on its website that it "will conscientiously study the US request for consultations, and will deal with this in accordance with WTO dispute settlement rules."

The US claims the special Chinese government fund awarding grants to wind power makers is illegal under WTO rules because it seems to benefit manufacturers using parts made in China. Washington argues that Beijing's grants are inconsistent with WTO rules because they appear to award funds based on the use of domestic over imported goods, a violation of Article 3 of the SCM Agreement. The US has also taken issue with China's failure to notify the WTO of these measures.  Moreover, the US alleges China has violated the commitments it made when acceding to the WTO by not making available translations of the domestic legislation regarding the grant program in English, French, or Spanish (the official languages of the WTO).

"Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules, said Ron Kirk, the United States trade representative.  "These subsidies effectively operate as a barrier to US exports to China. Opening markets by removing barriers to our exports is a core element of the president's strategy."

According to Kirk's office, total subsidies under the Chinese program, which began in 2008, could amount to several hundred million dollars.  The case originated in Mr. Kirk's office in response to complaints by the United Steelworkers Union (USW).  The USW complaint included allegations that China employs a wide range of policies to protect its domestic producers of wind and solar energy equipment, advanced lithium batteries and energy-efficient vehicles, among other products. The US trade office, however, has only filed complaints at the WTO with respect to wind power, and has yet to make a determination on the solar power aspects of the union's complaint.

Requesting consultations is the first step in the Dispute Settlement process at the WTO.  If the US and China fail to reach a solution in 60 days, the US can request the creation of a panel to hear the case.

President Obama is expected to raise the issue with China's President Hu Jintao at a summit meeting in Washington on 19 January.

ICTSD reporting.  "Beijing moves to defuse trade row with US over green technology," THE GUARDIAN, 24 December 2010; "US says China fund breaks rules," NEW YORK TIMES, 22 December 2010.

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