The World Trade Organization on Tuesday delivered a mixed judgment regarding U.S. sanctions on subsidized goods produced by Chinese state-owned enterprises.
The 2-1 decision by the World Trade Organization's appellate body closes out a case that dates back to 2007 and is unrelated to the tariffs the administration has imposed on $250 billion in Chinese goods.
In its final decision, the organization agreed with the U.S. that China lets state-owned enterprises subsidize Chinese firms by providing components at unfairly low costs.
But it said the U.S. wrongly calculated the tariffs imposed to punish China for the subsidies. If the U.S. doesn't recalculate them, China can retaliate with its own sanctions.
The office of the U.S. Trade Representative said the ruling proves that China uses state-owned enterprises to 'subsidize and distort its economy.' Nevertheless, the appellate body decision "undermines WTO rules" because it says the U.S. 'must use distorted Chinese prices to measure subsidies,' according to the statement.
The Chinese Ministry of Commerce touted the ruling as a victory in a statement and urged the U.S. to immediately take concrete actions to correct its World Trade Organization-inconsistent practices.
Tuesday's ruling is considered important because it provides more clarity on the critical question of when a Chinese state-owned enterprise can be considered a 'public body.'
The U.S. Commerce Department currently presumes that state-owned enterprises can be considered "public bodies" if they are majority owned by the government and therefore their financial contributions to other companies may be considered countervailing subsidies. The U.S. then uses a methodology that incorporates third-country prices to calculate tariffs on Chinese goods it deems to be subsidized by public bodies.
Chinese trade officials previously said the measures in question affect products with an annual export value of approximately $7.2 billion. The Chinese products considered in the case include thermal paper, pressure pipe; citric acid, lawn groomers, kitchen shelving, wire strand, print graphics, drill pipe, aluminum extrusions, steel cylinders, and solar panels.
Industrial subsidies can take many forms ranging from cheap or free electricity given to factories by local governments, to tax credits and access to cheap capital.
U.S., European and Japanese trade negotiators are working to conclude a partial agreement that is aimed at curbing the market-distorting behavior of China's state-owned enterprises.
The trilateral effort is part of an effort to modernize global trade rules that the U.S. and others claim have failed to address China's rise as a global economic power.
If the talks advance, people close to the discussions say, they would become the most significant attempt to rewrite World Trade Organization rules since the ultimately unsuccessful Doha Round of trade negotiations was launched in 2001.
Information for this article was contributed by Bryce Baschuk of Bloomberg News, and by Paul Wiseman of The Associated Press.
Business on 07/17/2019