|Saturday, 08 October 2011 00:00|
While US politicians debate the proposal on whether retaliatory import duties should be levied on imports from China if the country doesn't revalue the yuan, the Obama administration has already made a move towards disciplining China, albeit on different grounds. US Trade Representative Ron Kirk has said the US has told the WTO that there are about 200 Chinese subsidy programmes that violate free trade rules. The complaint, it appears, is the result of a year-long US inquiry into how the Chinese government was helping Chinese firms get more competitive in areas such as the clean energy business. Under Article 25 of the agreement on subsidies and countervailing measures (SCM), every WTO member country has to come up clean on subsidy programmes on a regular basis. But China had submitted only one subsidy notification, in 2006, since it joined the WTO in 2001.
Until now, the US has pursued three cases against the Chinese trade regime. The first was in February 2007 when it challenged the various income tax and VAT exemptions in a wide range of Chinese industries—the Chinese government eliminated these by January 2008. In December 2008, the US government challenged the export subsidies provided under the famous brand initiatives launched by China, and by December 2009 these were eliminated. The last such effort was targeted on the imports substitution subsidies provided to wind turbine and solar manufacturers in December 2010. Several US solar power producers have blamed Chinese subsidies for their plight—three US solar firms filed for bankruptcy in August.
If the US is successful in getting China to eliminate such subsidies, the move will have major ramifications in the competitive landscape in various countries including India. So this, and the US discussions on trade sanctions, will be watched with interest by India Inc. What could upset the applecart, though, is that the US has notified the WTO about 50 Indian subsidy programmes as well. These include allowing excess duty drawback in some items, various pre-shipment and post-shipment financing to exporters at a preferential rate, and the subsidies to the textile industry through various modernisation schemes such as the technology up gradation fund scheme and the scheme for integrated textile parks. As in the case of China, the US has said India has failed to notify several well-known subsidy schemes. Perhaps the US would like to differentiate between the two countries as it has a $273bn trade deficit with China in 2010 as compared to just $10.3bn with India.