Industrial subsidy has become a bone of contention between China and the United States. The US claims that, through its industrial policy, China gives subsidies and financial support to its domestic industries thereby distorting the market. But the fact is, the US itself provides huge amounts in form of industrial subsidy for its domestic enterprises.
A World Trade Organization report released on June 27 said eight states of the US illegally subsidize renewable energy generation. They provide subsidy for "qualified" renewable industries through financial and taxation policies, which is a violation of the WTO's national treatment principle in the General Agreement on Tariffs and Trade 1994 and results in imported products losing out to US domestic products because of the unfair competition.
In October 2004, the European Union took legal action against the US for giving illegal subsidy to American aircraft manufacturer Boeing. The WTO passed the final ruling in March 2019 after 15 years of investigation and review, saying the US subsidy to Boeing in the form of tax exemption is illegal and causes loss to Airbus.
Besides, the US has been regularly offering subsidy to its agricultural sector. Since 1996, the form of US agricultural subsidy has changed from price support and supply management projects to income guarantee that focuses on crop insurance subsidy, agricultural research and comprehensive development. Although it appears to be in accordance with the WTO's Agreement on Agriculture, the change from price support to insurance project through domestic legislation is still price subsidy in nature, and a source of discontent for many countries.
In 2003, Brazil filed a complaint with the WTO that the US provided as much as US$12.5 billion in subsidies for cotton producers over the previous four years, which boosted the US' cotton export advantage while seriously undermining the interests of countries such as Brazil. But despite the WTO ruling in favor of Brazil in 2004, the US didn't withdraw the illegal subsidies to American cotton producers.
The US is one of those countries that has frequently violated the WTO's subsidy rules, but it is smart enough to conceal its unlawful actions under the garb of legitimacy. From 2000 to 2018, the US provided at least US$100 billion every year for domestic enterprises through tax credit and other means, with 582 major companies getting two-thirds of the overall subsidy. The US has also established many supporting subsidy programs including Small Business Innovation Research, Manufacturing Extension Partnership and National Network for Manufacturing Innovation.
To maintain its advantage in the high-tech field, the US aims to promote high-tech development by giving subsidies to its high-tech companies. For instance, the US administration has legislated to provide US$5 million every year for each manufacturing innovation center under the National Network for Manufacturing Innovation. Some say the US' subsidy to high-tech industry is more than that of China.
Industrial and subsidy policies are similar, if not the same, in many countries. The United Nation's World Investment Report 2018 said that over the past decade at least 101 economies have launched industrial development strategies to cope with the challenges of the new industrial revolution. Which means the US' accusation that China grants illegal industrial subsidy to its enterprises is more like an excuse to intensify the bilateral trade dispute.
So, in future trade negotiations with the US, China should clarify the goal, scale and form of its domestic industrial policy to remove the US' misunderstanding that China is trying to challenge its leading position in the high-tech field by providing subsidies for its high-tech enterprises. Also, the US should be reminded that it has always given industrial subsidy to its domestic enterprises.
Moreover, China could approach the WTO with its complaint that US subsidies are unfair and cause losses to Chinese enterprises to get the issue resolved through the dispute settlement mechanism, in order to safeguard the enterprises' interests and maintain the healthy operation of the global economy under the multilateral framework.
China could also make efforts to reach a consensus with other economies including the European Union and Japan to improve global economic and trade rules, and expedite the development of its trading sector, and take measures to reduce the negative impact of the Sino-US trade conflicts so as to guarantee the healthy development of the Chinese as well as the world economies.
The author is a researcher at the National Academy of Development and Strategy, and a professor of economics at Renmin University of China.
The views don't necessarily represent those of China Daily.
HONG KONG NEWS