U.S. Takes China Complaint to WTO

2007-02-20
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U.S. Trade Representative Susan Schwab. Photo: AFP/Fabrice Coffrini

A U.S. complaint against China before the World Trade Organization (WTO) may be only one of several steps to address trade grievances due to a lack of progress in talks with Beijing, experts say.

On Feb. 2, U.S. Trade Representative Susan Schwab announced that Washington had filed a case against China with the WTO, seeking to halt China’s practice of paying subsidies that unfairly benefit a wide range of Chinese exports including steel, wool products, and information technology.

Schwab said that U.S. officials have tried repeatedly to address the issue through negotiations with China, suggesting that it was a key topic during the December visit to Beijing of a U.S. delegation led by Treasury Secretary Henry Paulson.

“Our decision to bring this case to the WTO comes after our efforts at dialogue failed,” Schwab said.

Under the WTO process, the complaint will open a 60-day period for consultations to resolve the issue. If those fail, the United States may seek the formation of a dispute settlement panel which could decide on penalties or sanctions after deliberations that may take over a year.

China’s response to the WTO complaint has been muted. On February 3, a Commerce Ministry spokesman said it was “a pity for the United States to seek consultation process at the WTO,” according to China’s official Xinhua news service.

Our decision to bring this case to the WTO comes after our efforts at dialogue failed,

Action sends “message to Congress”

In an interview with Radio Free Asia, Gary Hufbauer—a senior fellow at the Washington-based Peterson Institute for International Economics—said that the Bush administration’s complaint to the WTO sends a message to the U.S. Congress that it is responding to calls for action on China trade problems.

“I think this complaint is meant to say to Congress on the part of the administration, ‘We hear you. We understand you’re unhappy with the progress that has been made on China, and here is the case we are bringing.’”

Hufbauer noted that China still faces pressure over its currency practices. He added that last year’s slight strengthening of the yuan has been effectively wiped out by the U.S. dollar’s decline against other major world currencies, like the euro and the Korean won .

This has given China an even greater currency advantage than before, he said.

Congress is therefore likely to press for import measures this year to deal with China’s currency advantage despite the administration’s separate action against subsidies, Hufbauer said.

“I would be surprised if Congress doesn’t come up with a bill which specifically penalizes China for the currency undervaluation, unless in the next six months China has moved quite a bit.”

“By quite a bit,” he added, “I mean at least by another 10 percent.”

Separate problems

Frank Vargo, spokesman for the National Association of Manufacturers, a Washington-based industry group, agreed that the subsidy and currency issues are separate problems. The subsidies, he said, “appear to be expressly illegal under the requirements of the WTO.”

“And in fact, when China joined the WTO back in 2001, it agreed to get rid of all of its WTO-illegal subsidies back then, immediately. Not at some vague point in the future.”

Though China’s currency controls tip the scales against U.S. imports, Vargo said, his group does not support legislation to deal with the problem. But he argued that China still must act on its exchange rate.

“China’s currency is still a very serious problem,” Vargo said.

“It’s still distorting world trade, and it’s not just the United States that says so,” Vargo said. “The International Monetary Fund does, the Europeans, the Japanese, even the Asian Development Bank, you name it.”

“And everybody’s saying to China, ‘You need to change your currency, not just to make us happy, but because it’s also distorting your internal economy.'”

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.

Original reporting in Chinese

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