On April 22, 2015, the United States formally requested the formation of a dispute settlement panel at the WTO in a new case against Chinese export subsidies.  The call for a panel comes after two unsuccessful rounds of negotiations between the U.S. and China after the U.S. filed its request for consultations on February 11, 2015, regarding a sweeping export subsidy program benefiting at least seven different Chinese domestic industries (DS489).

The U.S. charges that China illegally subsidized targeted industries that operate in industrial clusters, or “demonstration bases,” by providing firms in the demonstration bases discounted or free services through “Common Services Platforms” and cash grants.  Critically, these demonstration bases subsidies were contingent upon export performance, and, thus, prohibited by law under Article 3 of the WTO Agreement on Subsidies and Countervailing Measures.

According to the United States’ February 2015 allegations, the textiles, agriculture, medical products, light industry, special chemical engineering, new materials, and hardware/building materials industries benefited from export-contingent demonstration bases subsidies under the program.[1]  Specifically, the U.S. identified a minimum of 182 central and sub-central government measures reaching across 179 different demonstration bases.  The value of the benefits provided reached nearly $650,000 per year for some of these demonstration bases.  Moreover, China gave almost $1 billion over a three-year period to Common Services Platform providers that supplied services to exporting companies in the demonstration bases.

The U.S. and China share an active history of WTO litigation since China acceded to the organization in 2001, particularly with respect to alleged Chinese subsidy programs.  Although only half of those past disputes have moved beyond consultations, it is not surprising that the U.S. is pushing forward in this latest case by calling for a panel given the program’s apparent breadth and scope – across multiple industries, involving subsidized services and cash grants, and involving up to 20 percent of Chinese exports for some products.  In February, U.S. Trade Representative Michael Froman announced the dispute as part of the “vigorous enforcement” objective of President Obama’s trade agenda.  The United States’ move to target such a program at the WTO can be seen as a strategic decision to get a comprehensive, far-reaching, and precedent-setting result on China subsidies.  The European Union, Japan, and Brazil have already joined the proceedings.  The dispute will also likely have an impact on countervailing duty cases under U.S. law by shedding light on potentially countervailable subsidies impacting at least seven large and diverse sectors, with each in turn involving countless product imports competing – perhaps unfairly – with U.S. businesses.