On February 11, the United States requested consultations with China regarding more than 180 central and sub-central government measures that allegedly provide export-contingent subsidies to enterprises in several industrial sectors including textiles, agriculture, medical products, light industry, special chemical engineering, new materials, and hardware and building materials. A request for consultations is the first step in the formal dispute settlement process at the World Trade Organization (WTO).
Under the measures, China is reportedly providing prohibited export subsidies to enterprises operating within certain "Foreign Trade Transformation and Upgrading Demonstration Bases." The subsidies are provided in the form of direct cash grants and the provision of discounted or free services through "Common Service Platforms." The Demonstration Bases are clusters of industrial enterprises in the above-mentioned sectors. Common Service Platforms are service providers designated by the Chinese Government to provide free or discounted services to enterprises within the Demonstration Bases. Although the total value of the subsidies programs is unknown, the United States indicates that China has provided certain entities "at least $635,000 worth of benefits annually" and provided Common Service Suppliers with "almost $1 billion dollars over a three-year period."
Subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods, are prohibited under Article 3 of the WTO Agreement On Subsidies And Countervailing Measures (SCM Agreement). Challenges to prohibited subsidies are subject to accelerated proceedings under the WTO dispute settlement procedures. Once established, a dispute settlement panel considering a prohibited subsidies case is expected to issue its report within 90 days (in contrast to six to nine months for most other disputes).
This consultations request grew out of a 2012 challenge to certain Chinese measures alleged to provide prohibited subsidies to auto and auto parts manufacturers under China's National Auto and Auto Parts Export Base Program. Further research by the United States uncovered additional programs benefitting a broader mix of exporting industries.
This is the sixth challenge the United States has brought against China for allegedly providing prohibited subsidies to its export industries. Many of the previous challenges were resolved without resort to formal dispute settlement. In recent disputes, however, China has been less likely to settle through a mutually agreed solution and more likely to defend its measures through the multiple stages of the WTO dispute settlement process.
A copy of the request for consultations can be found here.