DISPUTE PANEL CREATED IN CHINA SUBSIDY CASE, AS US RATCHETS UP PRESSURE

The US is turning up the heat on China at the WTO, pushing separate cases against Chinese tax and intellectual property policies.

A WTO dispute panel was created on 31 August to investigate allegations by the US and Mexico that Beijing offers a series of illegal tax refunds, reductions, and exemptions that discriminate against imports while effectively subsidising the export of Chinese manufactured goods, in contravention of international trade rules. At a meeting of the Dispute Settlement Body that day, a US representative repeated Washington's charges against China, and asked for the creation of a single panel to jointly examine its claims along with Mexico's. "Although we continue to prefer to reach a mutually agreed solution to this dispute, unfortunately to date we have not been able to do so," said the delegate.

At the same gathering, China blocked the creation of a separate panel to examine the US' complaints that Beijing is tolerating intellectual property rights violations and maintaining trade barriers against books, music, and other copyrighted goods. WTO rules prevent China from doing so a second time should the US repeat its request.

The US delegation said that consultations with China in June "did provide some helpful clarifications," but failed to resolve the dispute, which was initiated in April (see BRIDGES Weekly, 18 April 2007).

Washington claims that China is doing too little to enforce copyright and trademark protection on a wide range of goods such as books, CDs, and DVDs. It argues that Beijing sets an unacceptably high bar for punishing copyright infringements with criminal prosecution, allowing large-scale commerce to take place in pirated movies and music with the threat of little more than an administrative fine.

Furthermore, the US contends that the Chinese government's policies on intellectual property-right infringing goods - including counterfeits - are too lax. It also says that China's denial of copyright law protection to works that have not received censorship approval for publication and distribution in the country allows for wide-scale piracy without the risk of legal punishment.

China's commerce ministry said that the US and Mexico's subsidy complaint was based on "a huge misunderstanding of Chinese policies." A statement on the ministry's website said that "some of the subsidies mentioned in their lawsuit had already been abolished," and that a new tax law had brought regulations into accord with WTO rules.

Notably, China argued that instead of genuine incompatibility between its policy and WTO strictures, the case was "motivated by the need of domestic politics" in both the US and Mexico.

The George W. Bush administration filed the two cases earlier this year following heavy pressure from the new Democratic majority in Congress to take action against perceived Chinese subsidy and intellectual property rights violations, and also to fight artificially low currency exchange rates that make Chinese and Japanese exports more competitive (see BRIDGES Weekly, 28 March 2007). Several US politicians blame these practices in part for the country's record trade deficits, as well as politically-sensitive job losses in the manufacturing sector, although many economists say that mechanisation is more responsible for the latter.

Congress is currently considering legislation to encourage China to boost the value of the yuan, although Reuters reports that progress is unlikely before next month. One proposal threatens the withdrawal of insurance and export financing, and raises the spectre of WTO litigation should China not comply. The Bush administration has thus far opposed demands for a WTO case against China's exchange rate policy.

ICTSD reporting; "Congress could delay action on China currency: aides," REUTERS, 4 September 2007; "WTO opens investigation into alleged Chinese industrial subsidies," ASSOCIATED PRESS, 31 August 2007.