China Trade Policies Examined at WTO

Over a two-day review at the World Trade Organization on China's trade policies, China insisted that intellectual property violations are no longer a major issue; that its support of state-owned enterprises is no different from Fannie Mae; and that its overcapacity in steel is not a problem for global steel prices, because China only exports 9 percent of its steel. Moreover, China's Commerce Vice Minister Wang Shouwen said, addressing overcapacity needs collective actions and China stands ready to join hands with other countries to tackle this problem together.

U.S. ambassador to the WTO, Dennis Shea, said: "China’s failure to fully embrace the open, market-oriented policies on which this institution is founded must be addressed, either within the WTO or outside the WTO. Given China’s very large and growing role in international trade, and the serious harm that China’s state-led, mercantilist approach to trade and investment causes to China’s trading partners, this reckoning can no longer be put off. If the WTO is to remain relevant to the international trading system, change is necessary." And, Shea said, it's not true that IP theft is no longer a major problem.

The U.S. was joined by 66 other countries and the European Union in submitting questions to China about its trade policies, and despite trade tensions between the U.S. and its allies, many of those allies confronted China over the two-day review hearing, according to a Geneva trade official. The WTO report that began the discussion noted that China had made some progress in reducing overcapacity -- but noted that even that progress was exaggerated by the government. The report said China subsidizes money-losing firms in coal, cement, steel, plate glass, aluminum, chemicals, paper, solar power, shipbuilding and coal-burning power plants.

China does not disclose how much it spends on subsidies in these sectors, or for industry more broadly, which makes antidumping and countervailing duty investigations more difficult to prosecute. The WTO asked for this information, and China didn't give it any data on subsidies between 2015 and 2017, the period under review. "Information available from other sources indicates that China has continued to provide substantial support for, inter alia, intelligent manufacturing, advanced technologies, new energy vehicles and fisheries. Outlays for these programmes are reported to be considerable," the report said.

Japan, when it spoke during the review, said it's worried that subsidizing firms that should have gone bankrupt will continue in the Made in China 2025 plan, and it said "zombie firms" are a root cause of an uneven playing field between Chinese firms and foreign firms.

Wang took an opportunity to change the subject from China's actions to U.S. bad behavior on the trade front, and he called on WTO members to stand up to trade bullying, protectionism and unilateralism such as sections 301 and 232 tariffs.

The European Union, which agrees that the Section 232 action is unlawful, responded that it was heartened to hear that China wants to defend the rules-based system, but stressed that the WTO membership is eager to see China translate these words into actions. Companies based in the EU continue to struggle to receive licenses to sell technology in China, and continue to be forced to transfer technology as a cost of doing business inside its borders. And, the EU said, IP theft continues to be a problem.

Wang said that all tech transfer is completely voluntary, and there's no law requiring it. All these issues are at the heart of the Section 301 actions, which include a 25 percent tariff on $34 billion in Chinese goods and a plan to levy 25 percent tariffs on an additional $16 billion in Chinese goods and 10 percent tariffs on $200 billion in Chinese goods.

China said on July 11 that it was shocked by the plan to add $200 billion in goods to the list, and on July 12, the Ministry of Commerce said it is slander that the U.S. calls China a cheater. China said that it's the U.S. that is breaking international law in its tariff setting, and that China has always been willing to negotiate about the trade deficit, which it says is due to America's low savings rate; the fact that the dollar is the world's reserve currency; and the differences between the two economies' cost of labor. Where the U.S. has competitive advantage, in advanced technology, it applies export controls, China complained. China said it was ready to narrow the trade deficit after a series of negotiations, "but due to domestic politics, the United States has gone back on its words, brazenly abandoned the bilateral consensus, and insisted on fighting a trade war with China. China has done its utmost to prevent the escalation of trade frictions. The United States is fully responsible for the current situation."