WASHINGTON — U.S. Trade Representative Michael Froman said Wednesday that China has agreed to terminate a program that provided export subsidies in several industries, including textiles, apparel and footwear.
The two countries signed a memorandum of understanding Wednesday after the Asian nation agreed to terminate the export subsidy program, stemming from a World Trade Organization case the U.S. brought against China last year, Froman said.
The U.S. filed the case in February 2015, alleging that China provided illegal export subsidies to enterprises across seven economic sectors and scores of subsectors in more than 179 industrial clusters.
The program that China has agreed to terminate was known as the Demonstration Bases-Common Service Platform export subsidy program, which American officials claimed provided $1 billion to suppliers over a three-year period. These suppliers in turn gave discounted or free services to Chinese manufacturers that export in the sectors identified.
The value of subsidies provided varied, but officials said at the time of the WTO filing that there was evidence that certain “base enterprises” had received at least $635,000 worth of annual benefits.
“Last year the U.S. launched a trade dispute against China at the WTO after USTR found significant evidence that China breached WTO rules by using a complex, large-scale program…to subsidize [several of] its sectors,” Froman said at the press conference.
“Demonstration bases are clusters of enterprises in a number of key Chinese industries that qualify for special assistance from the government’s common service platform,” Froman said.
“The WTO expressly prohibits governments and member companies from providing subsidies like this to private industry if those subsidies are contingent on exports,” he added. “These Chinese subsidies do exactly that, thereby distorting the global market and disadvantaging American exporters, including manufacturers in Texas, farmers and medical device-makers in California and the textile industry in North Carolina.”
He noted that China has agreed to dismantle the massive program and has now issued and provided more than 130 directives, instructions and notices to address U.S. concerns outlined in the WTO case.
“The transparency provisions of the agreement give us a solid basis to monitor closely and confirm whether the terms of the agreement are being met,” Froman said.
One of the Chinese “demonstration bases” receiving the export subsidies comprised textile-, apparel- and footwear-makers, according to trade officials.
In 2012, 16 of the estimated 40 “demonstration bases,” or clusters of companies in the combined textile, apparel and footwear sector, allegedly received subsidies and exported more than $33 billion of products, said a U.S. trade official speaking on background with reporters. That accounted for nearly 15 percent of China’s global exports in those three categories.
“So it’s huge,” the trade official said. “In the same year, 2012, almost 20 percent of all of China’s total textile exports were destined for the United States — a big chunk of that affecting our market. Our textile and apparel industry had 368,000 worker at the beginning of this year.”
The other six sectors identified by the U.S. as being subsidized by China’s program include advanced materials and metals, light industry, specialty chemicals, medical products, hardware and building materials, and agriculture.
“[The American Apparel & Footwear Association] is pleased to see that the United States and China were able to resolve the long-standing dispute over China’s export subsidies that are not consistent with international trade obligations and a balanced business model.,” said Rick Helfenbein, president and ceo of the trade and lobbying organization.
“AAFA members depend on global adherence to these international trade commitments to compete and create U.S. trade-based jobs,” Helfenbein added.
“We are pleased that the U.S. and China have reached a settlement that resolves the threat of a dispute settlement case based on these export subsidies,” said Julia Hughes, president and ceo of the U.S. Fashion Industry Association. “This shows that the U.S. and China have a positive working relationship to solve trade disputes and live up to our WTO commitments.”
“We thank the Obama administration for working diligently to construct an arrangement to eliminate these subsidies which directly damage U.S. manufacturing jobs, output and investment,” said Augustine Tantillo, president and ceo of the National Council of Textile Organizations.
“There is no doubt that China’s rise to become the world’s largest exporter of textile and apparel products has been aided by a pervasive series of illegal state-sponsored subsidies,” Tantillo said. “These subsidies are clearly inconsistent with the rules of the World Trade Organization, and they are unfair to domestic textile manufacturers and the hundreds of thousands of U.S. workers they employ,” Tantillo added.