United States Challenges Chinese Trade Subsidies

The US Trade Representative (USTR)
has asked the World Trade Organization (WTO) to establish a dispute settlement panel to address
what it says are illegal trade subsidies prohibited by WTO rules. The controversy surrounds certain
financial assistance given Chinese manufacturers, which the United States believes are “
trade-distorting subsidies.”

In an effort to resolve the dispute through negotiation, the United States and China have
held two rounds of consultations that resulted in only minor concessions, which the United States
says do not go far enough. In announcing the action, Sean Spicer, a spokesman for the office of the
USTR, said: “China has taken a positive step by repealing one of the subsidy programs we
challenged, but much more needs to be done. We continue to prefer a negotiated settlement to this
dispute, but without assurance of complete corrective action by China, we must continue to pursue
the WTO process.”

The United States says subsidies conditioned either on a firm’s use of domestic over
imported content or on exports are prohibited by the WTO. Special tax breaks under a newly enacted
Chinese law also are in dispute. US textile manufacturers have listed financial incentives along
with other forms of subsidies, such as currency manipulation, as illegal actions by the Chinese

Mexico, which was involved in the earlier consultations, is expected to join the United
States in the request for dispute settlement action.

July 17, 2007