China 'ends illegal tax breaks'
China has agreed to end the granting of tax breaks to local manufacturers at the expense of US and Mexican firms, according to US trade officials.
Under the deal, China will remove the subsidies that the US claimed gave Chinese companies an unfair competitive advantage by the end of the year.
The move is a major breakthrough for US-China trade relations which have been strained recently, analysts say.
It comes months after the US filed a case on the issue at the WTO.
Story from BBC NEWS:
How is a Chinese tax break "illegal"?
I would bet that they had to agree to certain terms to be admitted into the WTO.
ANything to avoid floating their currency like the rest of those involved in international trade.
China Agrees to Remove Certain Export Subsidies
WASHINGTON, Nov. 29 —
Bowing to American pressure on the eve of high-level talks to reduce economic tensions, China agreed Thursday to terminate a dozen different subsidies and tax rebates that promote its own exports and discourage imports of steel, wood products, information technology and other goods.
The action mostly affects exports by Chinese companies that have foreign investors or are joint ventures with foreign companies. Nearly 60 percent of Chinese exports are produced by these businesses. Also affected were tax breaks that China gives its own companies if they do not import goods themselves.
There were no clear indications Thursday on which exports, if any, would become more expensive and which imports would benefit, since the precise amount of subsidies that different companies get is not public.
Despite the progress announced Thursday, the Bush administration remained concerned about increasingly aggressive actions by China in recent months to use subsidies, regulations and other government measures to promote national champions in major sectors where foreign countries have been strong, including energy, aerospace, telecommunications and financial services.
The intent of the new agreement, negotiated by Susan C. Schwab, the top United States trade envoy, is to help American companies compete against China. While Ms. Schwab acknowledged that some of the loss of subsidies might be borne by Chinese companies owned in part by Americans, she trumpeted the agreement as a major breakthrough.
“This outcome represents a victory for U.S. manufacturers and their workers,” Ms. Schwab said after the accord was signed by Chinese and American representatives at the World Trade Organization in Geneva. “It shows that President Bush’s policy of serious dialogue and resolute enforcement is delivering real results.”
Ms. Schwab said she hoped that the negotiated settlement on subsidies, after months of litigation at the W.T.O., would improve the atmosphere on other disputes over China’s currency policies, antimonopoly rules, regulations and other practices that seem aimed at discouraging foreign imports and investments.
But no breakthroughs on these other matters appear to be in the offing two weeks ahead of the next round of the “strategic economic dialogue” with China set up last year by Treasury Secretary Henry M. Paulson Jr.
In advance of that session, negotiators led by Ms. Schwab, Mr. Paulson and Commerce Secretary Carlos M. Gutierrez are trying to hammer out agreements on food and product safety, improved access to China for American banks and insurance companies and an easing of China’s restrictions on foreign companies.
Lately, however, the administration has charged that China has become more protectionist in crucial areas by erecting nontariff barriers through the use of increasingly sophisticated regulations and government-imposed standards that hurt foreign companies but help domestic ones.
Asked whether the latest agreement represented a trend away from such industrial policy practices, Ms. Schwab was noncommittal. “I would like to think that it’s a signal the trend is changing,” she said. “We don’t know for sure.”
The agreement on subsidies was hailed in the United States by the National Association of Manufacturers and other groups critical of China’s economic practices. But it met with skepticism among familiar critics of China, especially those who charge that China keeps its currency value low to promote exports.
Senator Charles E. Schumer, the New York Democrat, who has criticized China, said the agreement was “a small step on the long road toward playing more fairly” in trade.
Alarmed by a trade deficit that soared to $232 billion last year, and is likely to go much higher this year, Mr. Schumer and other lawmakers, including Republicans, are calling for legislation to impose sanctions on China over its failure to let the value of its currency appreciate faster.
The Chinese currency has appreciated 12 percent against the dollar since mid-2005, but it has declined against the euro, making it harder than ever for Europeans to sell to China.
The subsidies affected by the agreement on Thursday were those declared illegal by the United States, Mexico and other trading partners with China, citing W.T.O. laws.
But the move by China will not affect other subsidies on certain kinds of steel products, heavy-duty tires, paper and chemicals that the United States also charges are unfair. The Commerce Department has invited manufacturers of these products to seek relief by requesting duties on these products, and that process continues.
Also unresolved are other American legal actions through the dispute resolution mechanism of the W.T.O.
These actions charge that China discriminates against foreign auto parts by requiring local content for automobiles; fails to enforce copyright and trademark rules on software, videos and other property; and restricts imports of films, music and books.
The Chinese have been irate over American actions that challenge their economic practices at the W.T.O. and over the imposition of duties by the Commerce Department.
But Ms. Schwab said Thursday’s agreement on subsidies vindicated the administration’s approach of using negotiation to resolve disputes and to oppose punitive legislation that is pending in Congress on currency and other policies.
U.S.-China Subsidy Deal Draws Mixed Reviews
WASHINGTON, Nov 30
- China has agreed to scrap some trade subsidies, handing U.S. officials a rare chance to claim success in international affairs.
Industry reaction has been upbeat, but workers remain unimpressed as the impact remains to be seen.
Beijing said Thursday it had signed a memorandum of understanding rescinding a raft of tax breaks and subsidies that Washington had challenged earlier this year as unfair and in violation of World Trade Organisation (WTO) rules.
The concessions come in the run up to high-level trade talks scheduled for next month and aimed at reducing Sino-U.S. economic tensions.
A similar deal was reached with Mexico, which had joined the U.S. complaint at the WTO, China's mission to the Geneva-based institution announced.
Beijing thus headed off a formal WTO ruling under which it might have been found guilty of stacking the deck against U.S. and Mexican competitors with measures that encouraged Chinese firms to export more than they otherwise would and rewarded them for using domestic, rather than imported, goods.
The top U.S. trade envoy quickly claimed the laurels.
"This outcome represents a victory for U.S. manufacturers, producers, and their workers," Trade Representative Susan Schwab told reporters here. The offending Chinese tax incentives and subsidies would be abolished by Jan. 1, she said.
Industry quickly chimed in. "The settlement of this case is great news," the National Association of Manufacturers, the largest U.S. industrial exporters' lobby, said in a statement.
"China is to be commended for recognising that these subsidies were illegal and for acting responsibly to eliminate them without going through prolonged litigation. We hope this is a harbinger of things to come," it added.
The AFL-CIO, a federation of some 54 unions claiming a combined membership of some 10 million U.S. and Canadian workers, demanded stronger action to reduce the U.S. trade deficit with China.
"This is an important accomplishment," John Sweeney, the AFL-CIO president, said of the Chinese decision.
"However, we hope that USTR and the Bush administration will show equal diligence in addressing worker rights violations, import safety and currency manipulation, all of which contribute to the enormously lopsided trade imbalance between the United States and China," he said, referring to the U.S. trade representative's office.
China ran a record trade surplus of 187.6 billion dollars with the United States in the first nine months of this year and seems set to surpass last year's surplus of 232.5 billion dollars. Workers and politicians have been baying for an end to the haemorrhage.
Democrats in Congress are advancing measures that would make it easier to impose tariffs on imports and thus protect U.S. firms against China's subsidies and weak currency.
Schwab said the administration of President George W. Bush remained opposed to such punitive measures. The administration succeeded in bringing Beijing around because it shunned a punitive approach in favour of negotiation, eventually buttressed with litigation at the WTO -- an appropriate route since both countries are members.
"The agreement demonstrates the two great trading nations can work together to settle disputes to their mutual benefit," she told reporters.
Sweeney, however, said the U.S. complaint and its resolution were too long in coming.
"These subsidies should have been eliminated when China joined the WTO six years ago," he said.
Just how much U.S. exporters and their workers stand to benefit from Thursday's deal remains to be seen. Officials and analysts alike have said the impact will be more than symbolic because the subsidies applied across steel, information technology, and other major sectors of China's export economy and to all companies with foreign investors or joint-venture partners. Such companies are said to make about 60 percent of China's exports.
The agreement is aimed at helping U.S. companies against Chinese competitors but since it covers firms in which foreigners hold a stake, at least some of the cost will be borne by U.S. investors and partners.
Another three U.S. complaints -- involving auto parts and intellectual property rights protections -- remain pending at the WTO.
These and other issues are to be taken up in China Dec. 12-13, during the next round of the Strategic Economic Dialogue. Washington's delegation, to be headed by U.S. Treasury Secretary Henry Paulson, also is expected to ask Chinese officials to ease limits on U.S. bank investments.
Beijing has previously scrapped tax breaks deemed offensive by Washington and has begun to allow its currency to rise gradually against a weak dollar -- moves that signal not only that it is willing to accommodate Washington's needs but also that it feels itself in a strong enough economic and financial position so to do.
Separately, China and the European Union said this week they would launch a series of high-level trade talks in March.
I don't believe for a minute that this will make beans worth of difference.
US: "We want X reduction,"
Chinese: "Herro. We give you .1(X)"
The Chinese aren't going to do anything to reduce their profits.
I'll believe it when I see it.
They are probably going to try to push into other markets more with the dropping US dollar so they are striving to look like the good guys.