TWN Info Service on WTO and Trade Issues (May17/04)
5 May 2017
Third World Network
US, China argue over subsidy notifications, support measures
Published in SUNS #8453 dated 2 May 2017
Geneva, 28 Apr (Kanaga Raja) - A meeting of the WTO Committee on Subsidies and
Countervailing Measures (SCM) this week heard the United States and China
arguing over US criticisms of China's record on subsidy notifications, as well
as over each other's subsidy programmes.
The meeting of the SCM Committee on 25 April also heard Canada, the European
Union, Japan and the United States calling for discussions to be held at the
WTO on the role that subsidies play in contributing to industrial over-capacity
Under an agenda item of the SCM Committee, the US said that once again it is
returning to the reoccurring issue of China's "abysmal" record of
According to trade officials, the US said that China routinely claims that it
has fully adhered to the transparency requirements under the SCM Agreement.
However, this claim rings hollow and is undermined by the facts, the US said.
According to the US, in the 16 years since it joined the WTO, China has only
provided three subsidy notifications, and all of them were grossly incomplete.
China only notified for the first time subsidies granted at the sub-central
level in 2016, with the notification only covering a small fraction of the
subsidies granted. In addition, not all of China's provinces were included.
The US claimed that subsidies to key sectors such as steel, aluminium and
fisheries were also excluded.
The US further claimed that the notification was "padded" with
programmes that were not normally considered subsidies within the scope of the
SCM Agreement, such as poverty alleviation and support for HIV treatment.
This is not an academic or technical shortcoming, the US maintained.
Given the important role of the Chinese government - both central and
sub-central - in the country's economy, members are interested in having a
complete understanding of China's subsidy regime, the US argued.
The US said China continues to resist providing the level of transparency
required under the SCM Agreement. It argued that China is holding back critical
As a result, the US said that it has submitted "counter-notifications"
in which it has identified over 470 Chinese subsidy measures that were not
notified to the WTO.
It maintained that China refuses to provide written answers to questions posed
by the US about the programs and even makes the claim that it will only answer
questions on subsidies that China has notified to the WTO.
The US said it was unfortunate that it had to resort to counter-notifications
but China's latest subsidy notification demonstrated that hundreds of measures
are not being notified.
The US further claimed that China has not notified a single steel subsidy
program in the 16 years it has been a WTO member, even though China now
accounts for half of global steel production.
The 2008 financial crisis led to a severe global drop in demand for steel, yet
China increased its steel production capacity by more than 160% since 2009 - or
more than the total capacity of the US, Japan, India and Brazil combined, the
According to the US, this excess production has resulted in an increase in
Chinese steel exports from 5 million tons in 2001 to over 100 million tons in
2016, with a subsequent rise in trade remedy cases around the world against
Chinese steel exports.
The US further said both it and the European Union have identified around 160
government subsidies or grants listed in the annual reports of six of the
largest Chinese steel producers (G/SCM/Q2/CHN/70).
The US pointed out that it had recently submitted a counter-notification
regarding China's "Famous Export Brand" (FEB) subsidy programme
In its counter-notification, the US noted that in 2008, it had brought a
dispute challenging China's Famous Export Brand program (and related programs),
which appeared to provide prohibited export subsidies in the form of cash grants
and other benefits to large, well-known exporters.
After the consultation request (DS387), the United States engaged in settlement
talks with China pursuant to which China terminated or amended dozens of
inconsistent measures and demonstrated that other challenged measures had
expired. A mutually agreed solution was reached with China in 2009.
Since then, the United States said that it has discovered central and
sub-central measures implementing the "Internationally Well-Known
Brand" (IWB) program. Many of these measures, at both the central and sub-
central levels, indicate that the new program is the successor to the Famous
Export Brand program.
While China recently notified many of the terminated, amended or expired
sub-central government Famous Export Brand measures, it does not appear to have
notified any terminated, amended or expired central government Famous Export
Furthermore, said the US, it appears that none of the Internationally
Well-Known Brand measures have ever been notified at the central or sub-central
levels of government.
The lack of transparency raises questions about the program now in place and
whether it is consistent with WTO rules, the US said.
According to trade officials, the EU said compliance with notification
obligations was crucial for the work of the Committee, and that these
notifications must include all covered subsidies. It maintained that China's
notification excludes certain sectors such as steel.
Japan was of the view that it would be beneficial to strengthen the
notification requirements under WTO rules.
In response, China said that it had done its utmost to make information on
subsidies available to the Committee.
According to trade officials, China said it submitted notifications on central
and sub-central subsidy programs in October 2015 and June 2016. It believed
that these notifications addressed most of the concerns raised by the US.
On the issue of steel, China emphasised that it does not have specific subsidy
programs for steel. The US claims regarding alleged subsidies for the sector
are "groundless", it stressed.
The Chinese notifications identify programs which may be related to the steel
industry but are not specific to steel.
As for the FEB/IWB programs, China said that it had received the US
counter-notification shortly before the Committee meeting and would examine
carefully the US claims before responding.
In turn, China requested certain information from the US relating to support
programs granted or maintained by the US for the benefit of its steel sector
According to information obtained by China, the US is implementing or has
implemented the following government support measures in the steel sector,
which appear to provide subsidies as defined in paragraph 1 of Article 1 of the
SCM Agreement and which appear to be specific within the meaning of Article 2.
The Chinese communication highlighted US steel subsidy policies at the federal
level as well as at state and local level.
At the federal level, it pointed to pensions that are provided for steel
enterprises by the Pension Benefit Guaranty Group (PBGC).
According to the law, PBGC currently provides 29,000 pension guarantee schemes
for 47 million workers and retirees. Four of the ten enterprises that received
the most pension payments from PBGC were steel enterprises, namely Bethlehem
Steel, LTV Steel, National Steel and Weirton Steel.
PBGC paid US$3.7 billion, US$2.1 billion, US$1.3 billion and US$600 million
respectively or a total of US$7.7 billion to the 15 single employer pension
insurance programs of the above four enterprises, and the above insurance
schemes have remained valid since 2003.
The main beneficiaries of the program are primary metal manufacturing (mainly
steel) and air transport sectors. Of the 10 enterprises that received the most
pension payments, 5 were from the air transport sector, and 4 were from the
"Therefore, the application of the program in steel and air transport
sectors was suspected to constitute de facto specificity," said China.
China also noted that since 2008, Customs and Border Protection under the
United States Department of Homeland Security has paid the anti-dumping and
countervailing duties levied to eligible steel enterprises in the form of compensation
in accordance with the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA,
or the Byrd Amendment) which was abolished in 2007.
In the fiscal years of 2008-2015, Customs and Border Protection paid US$29.089
million, US$23.625 million, USD$14.6 million and US$9.083 million of
compensation to ArcelorMittal, US Steel, AK Steel and Nucor Steel respectively.
In the fiscal years of 2008, 2013 and 2014, Customs and Border Protection paid
US$258,000, US$11,000, and US$106,000 of compensation to Gallatin Steel (which
was acquired by Nucor Steel afterwards) respectively.
China held that such compensations were only provided to specific enterprises
and therefore constituted de jure specificity.
China also highlighted several state and local subsidy programmes, namely,
subsidy provided by the Government of Kentucky to Gallatin Steel, subsidy
provided to Nucor Steel by the State of North Carolina, subsidy provided to
Nucor Steel by the State of Louisiana, and subsidy provided to the steel
companies in Virginia by the State of Virginia.
In response, the US maintained that no government funding has been provided to
PBGC and that the pension insurance has to be paid for.
It said the Byrd Amendment was rescinded many years ago and that the state
programs in question related to worker training and building skills and are not
limited to any particular industry.
PAPER ON ROLE OF SUBSIDIES IN INDUSTRIAL OVER-CAPACITY
The Committee held a discussion on a revised paper put forward by Canada, the
European Union, Japan and the United States (G/SCM/W/572/Rev.1) outlining what
the proponents said are some initial thoughts and ideas aimed at fostering a
more detailed debate among Members on how to tackle subsidies contributing to
According to the paper, the question of how and to what extent subsidies act as
a contributor to overcapacity is complex. The answer depends on the
circumstances prevailing in the specific sector of the economy in which excess
It is clear that market forces such as a decrease in demand may also play an
important role in contributing to overcapacity, at least initially. However,
the experience gathered in sectors currently experiencing high excess
capacities, such as steel, aluminium, and solar panels, shows that governments
often identify national strategic industries and systematically support them to
boost their production, grow GDP, and expand or preserve employment, uncoupling
these privileged sectors from supply and demand signals, and from other market
"In particular, the relevance of market forces diminishes when the state -
functioning as the leading economic actor - owns, controls, or influences large
numbers of important industrial enterprises and banking entities, and generally
retains a significant role in resource allocation. In these circumstances,
subsidization becomes a dominant contributor to excess capacity, which is
further exacerbated as governments, both at the central and sub-central levels,
often provide financial and other support throughout the entire lifetime of the
Indeed, the paper maintained, in pursuit of strategic industry objectives,
governments can create overcapacity by providing concessional loans or equity
to newly-established companies without due consideration of market conditions,
such as projected future demand and profitability.
Similarly, when perceived strategically important companies begin to fail,
governments may seek to maintain employment, production and capacity -
especially in the absence of an exit mechanism.
The four proponents said that while the SCM Agreement requires WTO Members to
notify subsidy programs, the continuously rising number of WTO Members that
have failed to make the required notifications "is deeply worrying".
They noted that an alarming 65% of the Members have failed to submit their
legally required notification for the 2015 cycle.
Equally worrying is the fact that, while notifications are required for subsidy
programs implemented at both the central and sub-central levels of government,
some Members do not notify sub-central subsidy programs.
"This is particularly troubling where a government's industrial policy
objectives are crafted at a central level and subsequently implemented by
sub-central governments, and where sub-central governments implement their own
beggar-thy-neighbour policies in competition with other regions."
The quality of actual notifications, including the attempts by some Members to
notify subsidy programs that clearly fall outside the scope of the SCM
Agreement to create the appearance of transparency without subjecting actual
industrial subsidies to global scrutiny, also deserve attention, they said.
In presenting the group's paper, the EU told the SCM Committee that it was
important to examine the link between subsidies and overcapacity in various
According to trade officials, the EU said that at their meeting in Hangzhou,
China last September, G20 leaders recognized that overcapacity was a major
problem for the global economy and one of the key causes for distortions in
While the OECD's Global Forum on Steel Excess Capacity, established last
December in response to the G20 meeting, can address other issues related to
overcapacity, the SCM Committee has the capability and expertise to handle the
subsidy side of the issue, the EU maintained.
The range of subsidy measures is enormous, and once overcapacity is created,
the problem is transmitted to other countries to the detriment of their
industries. The SCM Agreement does not seem to offer remedy for such
situations, and such subsidies should be subject to more stringent disciplines,
the EU said.
The US said that the impact of subsidies that contribute to overcapacity can be
as distortive as prohibited export subsidies, and should be considered for more
stringent disciplines. The first step however should be in improving
transparency in line with notification requirements under the SCM Agreement.
Canada said that the Committee is uniquely situated to examine and address the
problem, and improvements should be made through subsidy disciplines and
Japan said that WTO members would benefit from deeper discussions on
strengthened subsidy disciplines and transparency obligations, and that the
problem of overcapacity exists in various sectors.
According to trade officials, Australia, Israel, Mexico, Korea, Russia and
Turkey expressed support for the proposal, with Australia and Turkey asking the
proponents to clarify what exactly they expected to result from the proposed
discussions and what they meant by the need for more stringent disciplines.
Russia pointed out that the problem was not only about subsidies but also trade
protectionism, and in particular the growing use of anti-dumping trade remedy
measures. Russia said that looking at subsidies alone was a one-sided approach
which would not solve the problem.
On the other hand, China underlined that the SCM Committee was not the
appropriate forum for discussing the issue of overcapacity.
According to China, subsidies were not the major cause of overcapacity. It
pointed out that the G20 leaders affirmed in Hangzhou that sluggish demand and
the slow economic recovery since the 2008 financial crisis were the main cause,
while trade protectionism and trade remedies were making the situation worse.
Focusing only on subsidies while ignoring other important elements will not
help solve the problem, and could even trigger further protectionism, China
In response, the EU said that focus of the proposed discussion would only be on
subsidies. While it agreed that the underlying issue is the need for greater
transparency in subsidy programs, this issue alone should not be the end of the
road and that more should follow, it said.
China pointed out that only around 10 of the WTO's 164 members voiced support
for the group's proposal. Thus, it was premature to conclude that the group's
idea has strong support among the membership, it said.
Meanwhile, the Chair of the SCM Committee, Mr Jin-dong Kim of Korea, expressed
concerns about what he said is the "discouraging" record of members
in meeting their obligations to notify their subsidies to the WTO on an annual
The Chair cited the latest report prepared by the WTO secretariat
(G/SCM/W/546/Rev.8), and said that 79 members have yet to make their subsidy
notifications for 2015, despite the mid-2015 deadline for making submissions.
He also said that 60 members had not yet submitted notifications for 2013, and
55 had not submitted notifications for 2011.
Many of these members either have never notified or have done so only in the
distant past, the Chair said. "The chronic low compliance with the
fundamental transparency obligation to notify subsidies constitutes a serious
problem in the proper functioning of the (SCM) Agreement," the Chair
According to trade officials, the US said the compliance rate with notification
requirements was "alarming" and that the figures for 2015 were the
worst since 1998.
The Secretariat report does not talk about the "disturbing" quality
of the notifications, with some citing only a handful of programs when many
more exist, the US claimed.
According to trade officials, the EU, New Zealand, Canada, Australia, Russia
and Chinese Taipei shared the US concerns.
Meanwhile, the US reiterated the need to improve transparency in fisheries
subsidies. It circulated an informal paper which listed seven questions aimed
at enhancing transparency and better understanding of the possible trade
effects of such subsidies.
New Zealand, the EU, Canada and Australia said that they supported efforts to
improve transparency. Australia underlined the importance of not duplicating
the work being carried out in other international organizations.
Brazil voiced doubts on whether this issue should be addressed in the SCM
Committee. It said that discussions on transparency should be linked to the
negotiations on subsidy disciplines for the fisheries sector, thus making the
Negotiating Group on Rules (NGR) the appropriate forum.
According to trade officials, India also cautioned against duplication of work.
It pointed out that the issue of fisheries subsidies is being discussed in the