China’s State Council (Cabinet) raises the export tax rebate on textiles and garment from 14 percent to 15 percent, in an attempt to bolster sagging exports and support its vast manufacturing industry.  

This is the third increase for the textiles and garments export tax rebate since last August, as central government leaders look for ways to shore up the manufacturing industry. The previous increases took place in August 2008, when the rebate increased from 11 percent to 13 percent, and in November 2008, with an increase from 13 percent to 14 percent.  

An executive meeting of the Cabinet announced the policy change on 4 February, saying that the move would reduce exporters’ costs and support the textile industry. This policy became effective as of 1 February 2009, as confirmed by the Ministry of Finance.  

Under this plan, the Chinese government would allocate funds for companies that produce textiles or fibres, or operate in the textile printing and dyeing sector, to upgrade technology and develop domestic brands.  

Government departments were told to provide financial support and insurance services to small and medium-sized textile plants. According to China’s official news agency, Xinhua, “The government [will] also announce steps intended to phase out obsolete capacity, eliminate energyintensive, polluting equipment and technology, and encourage textile and garment makers to relocate from south-eastern parts of China to central and western areas”.  

According to the plan, the government will take a proactive attitude to enlarge domestic consumption, develop new products, expand rural markets and promote the use of textile products in industries, while diversifying export destinations to stabilize China’s share in the international market.  

These subsidies by China to its textile industry will no doubt be viewed suspiciously by China’s trade partners, including the EU. European textile producers were meeting Commission trade officials this week, and are reported to be pressing for trade defence action against alleged Chinese export subsidies on branded goods at the WTO. The above new batch of measures will no doubt reinforce their case.  

Also, although the EU has never initiated countervailing duty investigations against China, it cannot be excluded that it could now consider having recourse to this unilateral trade defence instrument, aimed at countervailing the adverse effects of subsidisation.