U. S. Seeks WTO Dispute Settlement Consultations on China’s Support for its Domestic Wind Power Industry

The United States announced on December 22, 2010 that it has sought the World Trade Organization’s (WTO) intervention to address US concerns over support for the domestic wind power industry in the People’s Republic of China. According to US Trade Representative (USTR) Ron Kirk, the United States filed a request for consultations with China under the WTO Agreement’s dispute settlement provisions concerning China’s Special Fund for Wind Power Manufacturing program. This request is the first step in a potential WTO case.

China’s government provides official support, in the form of monetary grants and other benefits, to develop its domestic wind power manufacturing industry. In its filing, the United States asserts that the program provides subsidies and other support that is contingent on the use of domestic Chinese parts and components, which is prohibited by the WTO Agreement on Subsidies and Countervailing Measures (SCM). The United States also claims that China failed to notify the WTO of its wind power program, which is inconsistent with China’s obligations under the SCM Agreement.

After a 60-day consultation period (or shorter if the parties agree), the United States could ask the WTO to establish a dispute settlement panel. If the panel agrees with the United States and any related appeals fail, the WTO could permit the United States to raise tariffs on Chinese imports. The amount of permitted US retaliation generally would be proportional to any injury the WTO panel finds. Potential US retaliation could be substantial—the United States alleges that the program provides prohibited support worth several hundred million dollars.

The US action stems from an investigation under Section 301 of the Trade Act of 1974. That investigation, opened October 15, 2010, was spurred by a United Steel Worker’s Union (USW) September 10, 2010 Section 301 petition. If a Section 301 investigation reveals practices allegedly inconsistent with a trade agreement, the law requires the USTR to seek formal consultations to address those practices.

The USW petition went beyond the wind power program targeted in the US government’s filing. The USW contended that China violates its WTO commitments by imposing export restrictions on “rare earth” minerals used to produce several green technology products, including advanced batteries, solar panels, and fluorescent light bulbs. The petition further accused China of providing prohibited direct and indirect subsidies to its clean energy industry, including R&D grants, low-interest loans, and export credit guarantees. The USW also alleged that China discriminates against foreign investors through domestic content and technology transfer requirements. All of these measures, according to the USW, cause “serious prejudice to US interests.”

The USTR stated that the United States was able to effectively address a substantial portion of the claims in the USW’s petition during the course of the Section 301 investigation through its bilateral engagement with China (including confirmation that two other subsidy programs have been terminated). With respect to the remaining allegations, USTR will continue to investigate them and, if sufficient evidence is developed, may begin additional WTO litigation, even though no further formal action is being taken under the Section 301 statute.

The December 22 action has major implications for the US-China relationship. Businesses that produce or trade wind power-related, or other “green industry” products, should follow this issue closely. This dispute could also impact the broader US-China trade relationship, and potential retaliatory measures could affect businesses and investment unrelated to green technology.

The US action may also mean the resurrection of Section 301 as a tool for US businesses and workers to address international trade issues. In recent years the United States has frequently rejected Section 301 petitions, and thus Section 301 has been considered an ineffective tool for prompting government action on trade issues. However, the current action may signal that the US government is now more receptive to Section 301 petitions.

Sources: www.mayerbrown.com