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U.S., EU Lean on China at WTO Forum

Michael Punke took China to task over the dominant role of government in trying to manage trade and its lavish outlay of subsidies.

GENEVA — The U.S. and the European Union leaned on China in a World Trade Organization forum last week over its widespread use of trade-distorting subsidies, its weak enforcement record of intellectual-property rights and other impediments to global competition.

This story first appeared in the June 19, 2012 issue of WWD.  Subscribe Today.

Michael Punke, U.S. ambassador to the WTO, took China to task over the dominant role of government in trying to manage trade and its lavish outlay of subsidies, especially to state-owned enterprises.

“China’s subsidies practices are far from trivial,” said Punke, noting that despite some efforts by the authorities to improve IPR enforcement, infringement levels remain “unacceptably high.”

Similarly, the EU’s ambassador to the WTO, Angelos Pangratis, said despite all the reforms, state-owned enterprises in China “still tend to benefit from lower cost of, and better access to, capital than non-public-sector enterprises.” Pangratis also voiced concerns over “the lack of transparency” of China’s trade and investment policies.

“Many aspects of China’s trade and investment regime remain complex and opaque, leaving scope for administrative discretion and corruption,” concluded a WTO secretariat report on China trade policies compiled for a two-day review of the country’s trade regime hosted by the WTO that ended Thursday.

On subsidies, the WTO report said, “In many cases there are no figures on the magnitude of support provided, and no information is available on subsidies and other government assistance provided at the provincial level, which is believed to be considerable.”

Punke said in recent years China had also increased subsidies in many agricultural products, “including what appears to be the world’s largest…in the area of cotton.”

Yu Jianhua, China’s assistant minister of commerce, told WTO delegates the government has “deepened reform and is opening up” and has “expanded domestic demand and accelerated economic restructuring.”

In the first quarter of 2012, China’s economy grew 8.1 percent and inflation dropped to 3.8 percent, he said. Yu said import growth has outpaced exports the past two years and indicated the government is making efforts to further stimulate domestic demand. Retail sales are expected to grow 15 percent annually, reaching 32 trillion yuan, or $3.99 trillion at current exchange, in 2015, he said. In 2011, retail sales of consumer goods reached 18.39 trillion yuan, or $2.29 trillion, up 17.1 percent on the year before, according to a report by China circulated to WTO members.

On the export front, Yu said external demand has been sluggish, and added the influence of the euro-zone debt crisis has been deepening. He also said the yuan has appreciated 21 percent since 2005, when reforms of the exchange rate kicked in and the cost of labor has “shot up.”

Last year, 25 of China’s 31 provincial governments raised the minimum wage an average of 22 percent, and the year before 30 raised the minimum wage an average of 22.8 percent, he said.

“Against this backdrop, many Chinese companies, in particular the export-oriented [ones] along the coastal regions, are having a hard time dealing with dwindling orders, rising costs and difficulty in financing,” Yu said.