Background Information on Chinese Unfair Trade Practices

1.  2004 Annual Report of the U.S.-China Economic and Security Review Commission to the United States Congress[1]

According to the 2004 Annual Report of the U.S.-China Economic and Security Review Commission to the United States Congress, China continues to practice a wide array of unfair and WTO illegal trade practices.  The report concluded that “Chinese unfair and mercantilist trade practices have tilted the playing field unfairly against U.S. interests” . . .  “give Chinese industry an unfair competitive advantage, thereby contributing to erosion of the U.S. manufacturing.”  The report also concluded that “China continues to heavily subsidize its manufacturing sector – in the form of tax incentives, preferential access to credit and capital from state-owned financial institutions, subsidized utilities, and other measures.”

The unfair trade practices cited in the report included:

• Artificially suppressing the value of its currency by as much as 40 percent;
• Discriminatory lending practices by China’s state-owned banks, much of whose lending is driven by political and non-commercial considerations, some with no expectation of repayment; 
• Subsidized credit,
• Discriminatory tax relief;
• Privileged access to land;
• Privileged access to listings on national and international stock markets;
• Limitations on access to domestic marketing channels;
• Direct support for R&D from the government budget, and
• Government selection of partners for major international joint ventures.

The report also concluded that China’s adherence to the market access commitments it made as part of its World Trade Organization (WTO) agreement has been, “at best, mixed, with many U.S. producers continuing to face steep hurdles”.

In an accompanying press release, Chairman Roger W. Robinson stated:

“China has artificially suppressed the value of its currency by as much as 40 percent and continues to heavily subsidize its manufacturing sector – in the form of tax incentives, preferential access to credit and capital from state-owned financial institutions, subsidized utilities, and other measures.  Lastly, China’s adherence to the market access commitments it made as part of its World Trade Organization (WTO) agreement has been, at best, mixed, with many U.S. producers continuing to face steep hurdles.”

In an accompanying press release, Commission Vice Chairman C. Richard D’Amato also stated:

“When China was admitted to the WTO and given permanent normal trading status after contentious Congressional debate, certain assumptions were made.  First, we were told that economic, market-based reforms, including new openness in information flows, enhanced respect for the rule of law, and even, eventually, political reforms would come with China’s entry into the world economy.  Second, that enhanced U.S.-China engagement would result in strategic cooperation on proliferation, terrorism, and regional questions such as North Korea and Taiwan.  These economic and strategic reforms have been long in coming and disappointingly slim. 

Mercantilist trade practices, poor observance of the rule of law underpinning the WTO, and broken promises on curbing proliferation, have continued.” 

The Commission recommended specifically that:

The Congress should press the Administration to use the WTO dispute settlement mechanism and/or U.S. trade laws, including Section 301 provisions, to seek redress for China’s practices in the areas of exchange rate manipulation, denial of trading and distribution rights, massive violations of intellectual property rights (IPR) that have cost U.S. firms billions of dollars, and government subsidies to export industries that harm the competitiveness of U.S.-based manufacturing firms.

Regarding textiles, the Commission recommended that:

The U.S. Government should make optimum use of the special Section 421 and textile safeguards negotiated as part of China’s WTO accession agreement. 

2.  2003 Report by the United States Trade Representative to Congress on China’s WTO Compliance[2]

Last year, in its annual report to Congress on China’s WTO Compliance, United States Trade Representative Robert Zoellick stated, “the shortcomings in China’s WTO implementation are noteworthy. Unlike last year, China’s uneven and incomplete WTO compliance record can no longer be attributed to start-up problems.”

….2003 also proved to be a year in which China’s WTO implementation efforts

lost a significant amount of momentum. In a number of different sectors, including some key sectors of economic importance to the United States, China fell far short of implementing its WTO commitments, offsetting many of the gains made in other areas.

Indeed, institutionalization of market mechanisms still remains incomplete, and intervention by Chinese government officials in the market is common. In many instances, China has sought to deflect attention from its inadequate implementation of required systemic changes by managing trade in such a way as to temporarily increase affected imports from vocal trading partners, such as the United States.

At the same time, other areas of concern have developed, such as China’s questionable use of certain tax policies to favor domestic production. This year has also seen an increasing use of industrial policies to encourage domestic industries at the expense of imports from abroad or foreign businesses operating in China.”

Other recent information:

• According The Standard[3], a Chinese official recently admitted that “about 44 per cent of the total textile exports during the first eight months of 2003 benefited from subsidies. These included lower or zero interest loans, reduced rent or better access to labour or capital.”