The United States Initiated A WTO Case Against China On Certain Wind Energy Subsidies; USTR Seeks Comments From Interested Parties
On December 22, 2010, the United States requested formal WTO consultations with the Government of China (“China”) with respect to China’s Special Fund for Wind Power Manufacturing. The United States Trade Representative (“USTR”) estimates that grants provided under this program since 2008 may amount to several hundred million dollars. USTR alleges that the program is a WTO-prohibited import substitution subsidy because grants under the program are contingent on Chinese wind power equipment manufacturers using domestic parts and components over foreign-made parts and components. It also appears that China failed to comply with its transparency obligation of making available a translation of the measure in a WTO official language and providing notice of the measure to the WTO.
On December 29, 2010, USTR published a request for comments from interested parties concerning the issues raised in the consultation request. Although USTR will accept comments received anytime during the course of the dispute, USTR requests comments be submitted by January 31, 2011 to be assured timely consideration.
The announcement stems from a formal investigation by USTR initiated on October 15 under Section 301 of the Trade Act of 1974. USTR initiated the investigation in response to a lengthy trade petition filed by the United Steelworkers (“USW”) on September 9, 2010 against a broad range of allegedly WTO-inconsistent Chinese policies to promote its clean energy industries.
Section 301 is designed to give U.S. economic interests relief from foreign laws, policies, and practices that impede U.S. access to foreign markets or otherwise create unfair or unreasonable conditions of competition in international trade.
The USW petition addressed five specific areas of concern with respect to Chinese policies that adversely affect U.S. clean energy producers: (1) Restrictions on access to critical materials, which restrictions deny U.S. producers access to these materials and give Chinese producers privileged access to them; (2) Performance requirements on foreign investors, which often result in U.S. investors having to license key clean energy technologies to their Chinese counterparts as a condition for investing in China; (3) Discrimination against foreign goods and services, including the imposition of local content requirements as a condition for foreign clean energy producers to invest in or sell to China; (4) WTO-prohibited export subsidies and import substitution subsidies that require a certain level of local content or a minimum level of production for export; and (5) Trade-distorting domestic subsidies that have led to increased Chinese production, lost sales, and depressed prices for U.S. producers.
In its announcement on December 22, 2010, USTR indicated that it had made bilateral progress with China on a number of these areas of concern, including at the most recent meeting in mid-December of the Joint Committee on Commerce and Trade. USTR will continue to work on these and other areas of concern bilaterally, but outside the framework of the Section 301 investigation. Questions have been raised as to the reasons USTR requested consultations with respect to only one of the alleged programs and whether industry members may have been reluctant to support or provide information to USTR for fear of retaliation.
The WTO’s dispute settlement procedures provide for a mandatory consultation period of 60 days during which the complaining party and the responding party should attempt to reach a satisfactory resolution of the matter. If the matter is not satisfactorily resolved through WTO consultations, the complaining party may then request the establishment of a WTO panel to adjudicate the matter. Once established, a WTO panel normally takes approximately one year to render a judgment as to whether the measure(s) at issue are inconsistent with the provisions of any WTO agreement that may have been invoked in the complaint.
If a WTO panel ultimately adjudicates the case and finds that China violated its WTO obligations and if China fails to bring its measures into conformity with its WTO obligations, USTR must take certain steps before taking any action. In particular, USTR must provide any interested party with the opportunity to present its views on how USTR should proceed in the circumstances, including whether to retaliate against China and, if so, in what manner.