The United States is filing a case against China at the World Trade Organization over allegations that the country is illegally subsidizing various industries catered to the export market, the New York Times reported on Wednesday.
The case, announced on Wednesday by U.S. trade representative Michael B. Froman, will specifically challenge China’s use of “demonstration bases;” groups of sectors that receive government benefits once a certain performance target has been met. A U.S. investigation found that 179 of these bases received nearly $1 billion in subsidies from 2010 to 2012, and that they contributed a significant share to China’s total exports. This practice, Froman said, hurts the competitiveness of U.S. industry.
Political pressure from both Democrats and Republicans influenced the Obama’s administration’s decision to file the case, which is in the interest of securing the U.S.’s authority on the terms of the Trans-Pacific Partnership, an upcoming trade deal to further interlink the economies of countries on the Pacific rim and introduce more protections on intellectual property. China has not been included in the partnership, but is expected to comply with it or form its own trade deal once the partnership has been established.
This case comes after a history of U.S. criticism of China’s infringement of trade agreements since it joined the World Trade Organization in 2001. Froman has said that the purpose of having a trade deal is to be able to enforce its rules should violations occur.
China’s Ministry of Commerce released a statement today, stating that they “regret” the case. In a statement on its website, the Ministry said that “China consistently follows World Trade Organization rules and its policies are important measures to promote the healthy development of its foreign trade.”
The case, however, won’t be settled anytime soon. What will follow is a 60-day period that will allow both the U.S. and China a window to resolve the dispute. If left unresolved, the U.S. can pursue the formation of a dispute settlement panel to decide whether China is breaking WTO rules. The panel’s decision will have to come within nine months of its creation.
If found it was violating trade agreements, China would face penalties from the WTO and would potentially have to compensate the U.S.