Wednesday, December 22, 2010

Hey, Look, Another Green Trade Dispute!

USTR announced today that it has filed a request for WTO dispute settlement consultations with China over its alleged subsidies to domestic wind power manufacturers.  But this is no ordinary WTO dispute for a whole host of reasons.  Here's Reuters with the news:
U.S. trade officials said they were concerned Chinese manufacturers of wind turbines and related parts and components could have received several hundred million dollars in questionable government grants in 2008 under China's Special Fund for Wind Power Manufacturing.
They said the grants appeared to violate WTO rules by requiring Chinese manufacturers to use only Chinese-made parts and components.
"Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules," U.S. Trade Representative Ron Kirk said in a statement. "These subsidies effectively operate as a barrier to U.S. exports to China....
The steelworkers union filed a petition in September, accusing Beijing of a long list of subsidies and other policies to favor production of clean energy technologies in China at the expense of the United States and other countries.
Kirk said his office would continue to investigate many of the allegations raised in the steelworkers' petition, and could bring additional cases at the WTO.
One high-profile issue still being examined by the U.S. trade representative's office is a complaint about China's restrictions on exports of rare earth minerals used in production of wind turbines, electric vehicles, solar cells and energy efficient lighting....
Kirk's office also said it had made progress on some of the steelworkers' concerns during the U.S.-China Joint Commission on Commerce and Trade meeting last week in Washington.
Beijing agreed to no longer require foreign companies bidding for large-scale wind power projects in China to have prior experience in China, the U.S. trade office said.
China also recommitted to eliminating discriminatory local content requirements in wind manufacturing and informed the United States that two other subsidy programs challenged by the steelworkers union had been eliminated, Kirk's office said.
Steelworkers President Leo Gerard acknowledged progress was made in the recent U.S.-China talks and said the steelworkers were satisfied with the administration's approach.
The USTR request resulted from the USW's petition under Section 301 of US Trade Law.  When the USW filed the petition, I had a few notes, two of which still apply now:
(1) I must admit that I'm at a loss as to what the USW is really getting for its unknowing members' duesmoney here....  Section 301 is not like Section 421 (the tires case) or antidumping and countervailing duty investigations (the other cases mentioned), which can result in the unilateral imposition of remedial US tariffs on Chinese products. Instead, the very best outcome here is (i) the mutual resolution of the matter through bilateral consultations or (ii) a WTO case adjudicated by an independent panel of arbiters (unlike the, ahem, sympathetic US Department of Commerce or USTR). And, trust me, a 5000+ page petition drafted by a big DC law firm is not cheap (well, not if you want it done right). So what gives? Is this the world's most boring PR stunt, or am I missing something?


(3) It's no secret to readers of this blog that the USW complaint reeks of hypocrisy, as the Obama administration has already thrown billions of taxpayer dollars at green manufacturers over the last 21 months in an attempt to make them globally competitive. And it wouldn't be surprising at all for USTR to bring a WTO case against China's green subsidies, despite the fact that the US government's hands are also deep into the (green) cookie jar. What is surprising, however, is that the USW petition freely admits that US companies (and their unions, natch) have received tons of government cheese:... 
In essence, the USW is openly complaining that the Chinese are better cheaters than we are, and the union thus wants the US government to call in the WTO's referees in order to stop China's cheating.
The first point still applies: it simply doesn't make much sense from anything other than a PR/muscle-flexing angle for the USW to have spent all that money to get USTR to initiate one small WTO case against China (and to resolve a few other little things on the side).  USTR made clear in its press release that this is the only WTO dispute that it'll be filing based on the union's Section 301 petition.  And USTR was pretty savvy in picking a subsidy program that was relatively simple (allegations of prohibited subsidies don't require proof of "adverse" trade effects, and the subsidies, if found to violate WTO rules, must be withdrawn immediately) and relatively non-controversial.  It's pretty much the exact opposite of a case on China's rare earth minerals policies, which the USW demanded (and USTR dodged).  So by filing the case today, USTR appeases the unions, avoids a major conflict (for now), and gets a pretty easy WTO dispute - one that, if valid, will actually help to (relatively) quickly eliminate trade-distorting subsidies through bilateral consultations or a WTO panel/Appellate Body ruling.  Of course, China can always just terminate the challenged program and initiate another one, but that's not USTR's fault - it's an issue for all WTO anti-subsidy disputes.

My point (3) above is even more applicable now, seeing that the US just re-upped on a whole host of subsidies for US biofuels producers and "green" manufacturers.  And that fact should make us all wonder how China will respond to this news.  Recall that after the United States imposed tariffs on Chinese tires, China responded by immediately announcing trade remedies (anti-dumping and countervailing duty) investigations of US cars and chicken and by filing a WTO complaint.  Will China respond to the new US "green subsidy" complaint with a formal WTO challenge of the United States own green subsidies or with new CVD cases against subsidized US exports?  I wouldn't be surprised at all, but I guess we'll just have to wait and see.

Three concluding points re: the bigger picture here.  First, the new US-China WTO dispute continues an increasingly troubling pattern of international trade disputes over nations' "green" policies, particularly subsidies.  I've highlighted several of these over the past year, and should China retaliate in-kind, we'd have (at least) one more.  And, as I've said repeatedly, I wouldn't be surprised if more disputes are on the way, given that pretty much every country in the world (especially the US and China) is simultaneously enacting "green" subsidies and protectionism at home, while trying to boost sales of its green products abroad.  The only bright side (so far) is that the disputes have been peacefully handled at the WTO, through bilateral consultations or through WTO-sanctioned domestic trade remedies cases.  One must wonder, however, if that good news will continue if/when the green trade tensions keep building.

Second, has the USW's (somewhat) successful Section 301 petition resurrected the long-dormant provision of US trade law?  As you may recall, Section 301 was once a pretty powerful, contentious and much-used tool in the US trade enforcement arsenal, but the cases pretty much disappeared after the WTO came online in 1995 because (i) the law was amended to comply with WTO rules and thus no longer would result in unilateral trade measures against other WTO Members (which is pretty much everyone); and (ii) USTR (under the Bush administration) had rejected all recent petitions.  Now, with USTR's acceptance of the USW petition and its filing of this new dispute, does this mean that other aggrieved unions and/or domestic manufacturers have a new way to push USTR into initiating a WTO dispute even when USTR (or some US companies) doesn't really want to do go down that road?  As a longtime supporter of the resolution of trade disputes through the WTO, I can certainly think of worse things, although many US companies have eschewed direct confrontation with China (for obvious reasons).  But a revitalized Section 301 and more WTO cases are certainly a lot better than the often-used alternative: paying off a Senator from, say, Ohio to sponsor WTO-illegal legislation imposing aggressive unilateral measures against possibly-innocent trading partners.

Finally, the new dispute might raise some long-dormant questions about the consistency of Section 301 with WTO rules.  The EU challenged Section 301 back in the early days of the WTO, and a panel delicately ruled that the measure, in theory, didn't violate WTO rules because it allows USTR to postpone any enforcement action until after all WTO dispute settlement proceedings have been completed and authorization to retaliate had been granted.  However, the WTO's Appellate Body never ruled on the issue (thus making the Panel's decision less definitive), and the Panel's ruling was (and still is) pretty controversial.  More importantly, the Panel in the EU dispute made clear that the United States walked a pretty narrow tightrope with respect to Section 301 proceedings, and that the US could quite easily violate WTO rules in practice.  Thus, USTR's actual application of Section 301 in this case could raise a whole host of issues that the EU challenge never really raised.  I'm certainly not saying that China's definitely on solid ground for a new WTO complaint against the US application of Section 301 or the law itself, but such a dispute wouldn't surprise me at all (particularly after China boldly challenged the United States' seemingly-bulletproof decision against Chinese tires under Section 421 of US trade law).  And that doesn't even get into what happens if the US loses the WTO dispute.  Then what happens under Section 301?  Does USTR (not to mention Congress and the USW) just drop the matter altogether?  Hmmm.

I know, I know: I'm asking lots of questions tonight and providing few answers.  But, hey, cut me some slack; we're in pretty uncharted waters here.

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