WTO Case Targets Chinese Subsidies to Exporters Via System of ‘Demonstration Bases’

WASHINGTON—The U.S. opened a new front in a long string of trade disputes with China, challenging a broad program Beijing uses to subsidize export businesses.

U.S. officials say the subsidy program, benefiting seven industries ranging from textiles to seafood, gives Chinese companies a small but crucial advantage in exports, contrary to the rules of the World Trade Organization.

The new WTO case comes as the Obama administration is seeking to negotiate a 12-nation trade bloc among Pacific nations, not including China. President Barack Obama last month said the Pacific agreement would help ensure China doesn’t write the rules of trade in the rapidly growing Asia-Pacific economic zone.

Successfully enforcing existing trade rules, especially broad subsidies that affect diverse industries and congressional districts, may help the administration make the case for the Pacific deal, known as the Trans-Pacific Partnership, and legislation needed to ease its passage.

In the case filed Wednesday, U.S. trade representative Mike Froman said his office is requesting WTO consultations over an obscure program in China that allows local officials to subsidize smaller exporters through “common-service platforms” at nearly 200 “demonstration bases” throughout the country.

U.S. officials say that while it is difficult to quantify the subsidies involved, China apparently provided around $1 billion over three years to the suppliers that give discounted or free services to Chinese companies through the common service platforms, including to exporters located in the demonstration bases.

“All of these services, provided free or at a discount, undermine fair competition,” Mr. Froman said.

In a statement Thursday, China’s Ministry of Commerce said it “regretted” the U.S. decision to file a challenge with the WTO and would respond according to the group’s dispute-resolution procedures.

In China’s eastern Anhui province, for example, the local demonstration base offers subsidies of up to 10% of the cost of an applicant’s project, according to a document on the Commerce Ministry’s website. The amount of the subsidy is capped at 1 million yuan (about $160,000).

Beneficiaries included companies that export items including processed meat, fish, tea and honey. Local officials evaluated the companies based on their potential as exporters, certification in their target markets and other criteria.

China’s goods exports to the U.S. totaled $467 billion last year, and the U.S. sent $124 billion in goods to China, resulting in a record trade deficit, according to the U.S. Census Bureau.

The current case is unlikely to gain as much attention as previous high-profile disputes involving specific Chinese industries, but trade experts say the case is representative of the many difficulties U.S. companies blame for complicating their operations there. Beijing and Washington are currently negotiating an investment treaty designed to improve commercial ties, and business groups say the pact would help prevent business and trade disputes.

By: WILLIAM MAULDIN, The Wall Street Journal

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