U.S., EU Press China to Justify its Extensive Steel Subsidies

The International Trade Practice Center on Bloomberg Law® provides in one comprehensive, time-saving resource.

By Bryce Baschuk

The U.S. and the European Union increased their scrutiny of China’s steel production subsidies and asked Beijing to justify the exclusion of nearly 200 government support programs in its latest World Trade Organization subsidy report.

In a WTO notice that circulated April 13, Brussels and Washington asked for specific details about an array of government funding and investment schemes for Chinese companies such as the Wuhan Iron and Steel Corp., Hesteel Group Co. Ltd. and Angang Steel Co. Ltd.

China previously provided information about only three of its steel subsidy programs that Beijing said were intended to promote research and innovation, energy conservation and environmental protection.

The notice comes ahead of an April 25 WTO meeting where members plan to press Beijing on its role in facilitating an overcapacity of steel products that has weighed heavily on steel producers around the globe.

Transparency Concerns

A second document issued by the U.S., EU and Canada flagged China’s failure to adequately report the full breadth of its domestic subsidy programs for steel, though it stopped short of accusing China by name.

The document said it is “troubling” that “some members” don’t report sub-central subsidy programs, “especially when its industrial policy objectives are crafted at a central level and subsequently implemented by sub-central governments.”

The U.S., EU and Canada also alleged that “some members’” sub-central governments “implement their own beggar-thy-neighbor policies in competition with other regions.”

Furthermore, the U.S., EU and Canada criticized the quality of “some members” notifications, which disclose subsidy programs that “clearly fall outside the scope” of the WTO’s Subsidies and Countervailing Measures (SCM) agreement.

Such practices “create the appearance of transparency without subjecting actual industrial subsidies to global scrutiny,” the document said.

Overcapacity Concerns

Last week the U.S. said its fight over China’s industrial overcapacity problems had “culminated to a critical point” after Beijing failed to reduce its government intervention in steel, aluminum and other industrial sectors.

The U.S. said WTO members have no choice but to bolster their trade defenses in order to defend their domestic industries against an influx of cheap Chinese steel.

Despite China’s pledge to reduce the country’s annual steel capacity by as much as 150 million tons before 2020, the country remains the world’s largest steel producer and accounts for nearly half of the globe’s total steel production.

Beijing previously argued that the growing overcapacity in steel markets is a global problem that must be solved in a collaborative effort in forums like the Organization for Economic Cooperation and Development and Group of 20. The G-20 is an international forum for the governments and central bank governors from 20 major economies.

U.S. Steel Policies

China submitted a separate document that asked for more information about U.S. subsidies for Nucor Steel Gallatin LLC, West Virginia Steel Corp., Bethlehem Steel Corp., LTV Corp., National Steel Corp., ISG Weirton Steel Corp., United States Steel Corp. and AK Steel Holding Corp.

The report cited U.S. federal pension payments offered by the U.S. Department of Labor’s Pension Benefit Guaranty Corp. and antidumping and countervailing duties paid by the U.S. Department of Homeland Security.

China alleged that the measures in question qualify as subsidies under the SCM agreement because they were applied in a manner that specifically benefited various U.S. steel companies.

China also alleged that the U.S. offered hundreds of millions of dollars in state and local subsidies, including: Kentucky’s tax deductions and employee skills training programs; North Carolina’s tax refunds; Louisiana’s grants, loans, tax deductions and performance grants; and West Virginia’s construction and renovation grants.

Market Economy Case

The WTO filings come amid a period of increased east-west trade tensions after China filed a pair of WTO disputes in December that targeted the U.S. and EU’s respective antidumping and countervailing subsidy regimes.

The U.S. and EU aim to defend their policies by arguing that China hasn’t met the baseline requirements to be considered a market economy in antidumping and countervailing duty investigations.

Separately, the Trump administration is re-investigating China’s non-market economy status in order to determine whether a shift in U.S. trade remedy policy is needed.

In addition, the European Trade Commission has proposed legislation to strengthen its trade defense instruments to permit higher antidumping duties on exports from countries where there are “significant distortions” to free market forces.

To contact the reporter on this story: Bryce Baschuk in Geneva at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Trade Practice Center on Bloomberg Law