Mexico files a WTO dispute against China on textile and clothing subsidies

Mexico files a WTO dispute against China on textile and clothing subsidies

On October 15, 2012, Mexico has officially filed a dispute against China on alleged subsidies to clothing and textile products at the WTO World Trade Organisation’s Secretariat

The claim results in a request for consultations with China concerning several measures allegedly taken by China to support the production and exports of clothing and textile products. Mexico states that it appears as China maintains a wide variety of measures that support producers and exporters of apparel and textile products, both directly and indirectly. It added that these measures appear to involve both prohibited and actionable subsidies that are inconsistent with China’s obligations under the Subsidies and Countervailing Measures Agreement, GATT 1994 as well as the Agreement on Agriculture, and China’s Accession protocol.

The list of claimed subsidies granted by the Chinese Government

In an extensive paper (12 pages, with evidence list) Mexico lists the measures the Chinese Government is offering to textile manufacturers and exporters of apparel and textile products, namely income tax exemptions, reductions offsets, and refunds for certain groups of enterprises, including those designated as FIES Foreign Invested Enterprises and HNTEs High and New Technology Enterprises, those located in designated geographic areas including certain Western provinces and special economic zones, and those generating income from the production of certain agricultural goods, including cotton. Mexico understands that certain of these measures are contingent on the use of Chinese goods.

Further Mexico states additionally, exemptions, refunds and reductions of import duties and VAT Value Added Tax for purchase of equipment by certain groups of enterprises, including FIEs and those located in designated geographic regions such as economic development zones. Mexico understands that certain of these measures are contingent on the use of Chinese goods. There are also exemptions from certain municipal taxes for certain groups of enterprises, including FIEs.

The list is not completed yet, because there are additionally low-cost loans, extended loan repayment periods, and debt forgiveness, provided by state-owned banks, including both policy banks and nominally commercial banks, to key industries and enterprises identified in industrial planning documents.

Mexico indicates that Chinese industrial policies favour producers of certain apparel and textile products, as well as their suppliers in the cotton and chemical fibres industries. The relevant policies identify enterprises and groups of enterprises for special treatment by Chinese banks. The policies also call for sub-national governments to provide guarantees and loan interest subsidies, the latter of which appear to be cash payments to enterprises intended to cover the interest expense of loans made in connection with government policies.

Also preferential prices for land use rights and refunds of associated fees for enterprises that are located in designated geographic regions, including special economic zones, are applied.

It further lists discounted electricity rates for enterprises that are located in designated geographic regions, including certain special economic zones.

Existing are further a support for the production, sale, transportation, processing, importation, exportation, and use of cotton, which is used in making the thread and the fabric that go into Chinese subsidised products. Such support is provided to cotton farmers, transporters, processors, millers, and spinners through tax breaks, cash payments, loans from state-owned banks, and the distortion of domestic supply volumes through the use of state-trading enterprises, tariff rate quotas, and other means. Producers and exporters of certain apparel and textile products benefit directly to the extent that their operations are integrated, and indirectly through the lower prices for raw materials in China resulting from these measures. Mexico understands that certain of these measures may be contingent upon export performance or the use of domestic over imported goods.

Additionally, various measures, relating to the production, sale and use of chemical fibres, which are used in making the thread and the fabric are going into the Chinese subsidised product. China has declared that it will exercise “absolute” control over the Chinese petrochemical industry and consequently directs the activities of producers of chemical fibres through industrial policies, the power to hire and fire company executives, the provision of subsidies for undertaking designated activities, and other means. Pursuant to government policies, state-owned producers sell chemical fibres in the Chinese market at below market prices that constitute less than adequate remuneration. Manufacturers and exporters of certain apparel and textile products benefit directly to the extent that their operations are integrated and indirectly through the lower prices for raw materials in China that results from these. Certain of these measures may be contingent upon export performance or the use of domestic over imported goods.

Mexico mentions also cash payments from Chinese government agencies at all levels to enterprises active in designated industries or undertaking activities encouraged by the government in it industrial policies. The information available to Mexico indicates that enterprises become eligible for such payments for the following reasons, including that they are owned at least in part by the Chinese government or they operate in the apparel and textile industry, or they operate in an industry designated by China as “key”, or have been designated as a “key” enterprise, or make a “key” product, and upgrade technology. Or, those engage in research related to issues identified in China’s industrial planning documents or have a brand or product designated by China as “famous” or “well-known”, or export or otherwise “expand” into foreign markets.

The evidence and reservations

Mexico offers the evidence over nine pages and of a multitude of sources that all such means of financial support and subsidies do exist and explains why Mexico is convinced that is against GATT and WTO rules and the Agreement of Agriculture as well as China’s WTO accession protocol.

Mexico reserves the right to request that China produce information and documents regarding the measures at issue and their effect on the interest of Mexico during the consultation process, as well Mexico reserves the right to raise further factual and legal claims during the course of consultations and beyond. It looks forward to receiving China’s response in order to set a mutually convenient date for consultations.

Purpose and conclusions

When you are reading through the comprehensive and extensive list of means granted to Chinese textile and apparel manufacturers, as well as chemical fibre producers and the cotton area, you are shocked of the number of measures and at the different levels such are granted. It becomes obvious that such measures distort competition and trade in favour of Chinese manufacturers and exporters. Leading to the fact, that non-Chinese textile and apparel manufacturers and chemical fibres companies are in no position to compete with Chinese price levels subsidised to such an extent!

TextileFuture voices that Mexico is to commend for its courage to file a complaint and to take upon all the detailed work of analysis to support its claim. It is also understandable that this is only the first step for Mexico and that it reserves the right to put further claims forward, and in regard to the effect of these Chinese measures do have on Mexico. It is already now a given fact that the move of Mexico will encourage other nations to follow the procedure and to introduce similar claims against China. The list of evidence is so long that it seems almost impossible for China to deliver the necessary explanation that it has pursued all GATT and WTO rules. There arises the necessity by the arbitrary WTO division to carefully look at all the submitted items Mexico has been handing over and to carefully examine what China will bring up as arguments.

Mexico’s research is profound and extensive and TextileFuture risks to voice the opinion that China will be obliged to eliminate a majority of these subsidies, because they are not in line with the conduct of a WTO member. Since Mexico is a member of NAFTA, it cannot be excluded that also the USA and Canada will file similar claims, particularly because in America textiles and clothing are in the focus of political attention, because those goods are in these days mainly deriving from Chinese origin. Chemical fibres are discussed to a lesser extent, because of the own American manufacturing base.

Mexico has made this filing at a crucial point, taking into account the enormous difficulties in the cited sectors of economy, and because of the elections in America.

Recently there are rumours that the EU is planning to file also a claim against illegitimate subsidies granted by China to the three sectors of industry. Under the existing general economic and trade situation, governments will act more quick and fiercely against unfair commercial and trade conditions. We will keep you informed on further developments. Anyhow, the claim by Mexico bears all signs of tinder and might ignite a general discussion on subsidies in the textile relevant areas, probably including the ones America is granting to cotton producers.

www.wto.org


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.