China — Measures concerning wind power equipment (DS 419)

1. China — Measures concerning wind power equipment (DS 419) WeyinmiUranje Mike Wasilewski ITRN 603

2. Introduction • Complainant: USA • Respondent: China • Agreements cited: • Subsidies and Countervailing Measures: • Art. 3, 25.1, 25.2, 25.3, 25.4 • GATT 1994: Art. XVI:1 • Request for Consultations: 22 December 2010

3. DS 419 Background • 9 Sep 2010: United Steel Workers (USW) filed a petition under section 301 of the Trade Act of 1974 • 15 Oct 2010: USTR was in agreement with the USW section 301 petition • 22 Dec 2010: USTR filed a petition with WTO requesting consultations with China • This step was in lieu of unilateral actions on the part of the US. Although section 301 of the Trade Act of 1974 gives the US authority to enact unilateral actions the administration instead decided to submit the case to the WTO DSU. • 12 Jan 2011: European Union request s to join Consultations • 17 Jan 2011: Japan requests to join Consultation • Consultations are to last up to 60 days • If consultations do not result in settling the dispute then the matter can be submitted to Dispute Settlement Panel.

4. Main Issue • The US requested a consultation concerning a program called Special Fund for Wind Power Manufacturing. An organization enacted by China. • China uses this organization as a means of providing subsides that are prohibited under the WTO rules (Article 3: Prohibition). • China provides grants to Chinese wind equipment manufactures using parts and components in China rather than foreign made parts. • The USTR included in the request for consultations the need to discuss transparency-related claims. The USTR needs to address China’s failure to comply with obligations to notify subsidies in issues under the WTO’s agreements on subsides and countervailing measure (SCM)

5. Main Issue • China also failed to translate the underling measures into one or two languages. (SCM agreement – Subsidies and Countervailing measure). • The program Special Fund for Wind Power Manufacturing offered individual grants that range from $6.7million to $22.5million. • Only Chinese manufactures of wind turbine and Chinese Manufactures or parts and components for wind Turbines can receive multiple grants as long as the size of the wind turbine models increases.

6. Agreements in Question • Subsidies and Countervailing Measures: • Article 3 Prohibition • 3.1 Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited: •  (a) subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex I; •  (b) subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods.  • 3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph 1.

7. Agreements in Question Notification and Surveillance Article 25 : Notification • 25.1Members agree that, without prejudice to the provisions of paragraph 1 of Article XVI of GATT 1994, their notifications of subsidies shall be submitted not later than 30 June of each yearand shall conform to the provisions of paragraphs 2 through 6. • 25.3 The content of notifications should be sufficiently specific to enable other Members to evaluate the trade effects and to understand the operation of notified subsidy programmes.  In this connection, and without prejudice to the contents and form of the questionnaire on subsidies(54),Members shall ensure that their notifications contain the following information: (i)   form of a subsidy (i.e. grant, loan, tax concession, etc.); (ii)    subsidy per unit or, in cases where this is not possible, the total amount or the annual  amount budgeted for that subsidy (indicating, if possible, the average subsidy per unit in the previous year); (iii)      policy objective and/or purpose of a subsidy; (iv)       duration of a subsidy and/or any other time-limits attached to it; (v)        statistical data permitting an assessment of the trade effects of a subsidy.

8. Section 301 - Background • Congress enacted Section 301 as part of the Trade Act of 1974, and it is the principal law authorizing the U.S. government to address unfair trade practices • Section 301 directs the President to identify countries that are engaging in unfair trade practices, and to take trade actions against those countries, including sanctions if necessary, to remedy the problem.  • The administration can initiate a Section 301 case itself, and it can accept outside petitions.  • Any interested person can file a Section 301 petition requesting that the administration investigate claims about unfair trade practices and take steps to remedy these practices.

9. Section 301 - Actions • After the section 301 petition is filed, the U.S. Trade Representative (USTR) has 45 days to decide whether to initiate an investigation.  • If USTR does initiate an investigation, it has one year to complete it and to decide what action, if any, to take against the country in question. • Section 301 authorizes USTR to suspend benefits under a trade agreement, impose duties or other restrictions on imports, enter into a binding agreement with the country to end its unfair trade practices, and take all other “appropriate and feasible” action to eliminate the unfair trade practices at issue.

10. China Perspective - Background • China defends its wind industry subsides. They assert that they have complied with the WTO rules. According to the China ministry of commerce press release: “measures on the development of wind energy” are “conducive to energy saving and environmental protection” are “ an important means of achieving substantial development”

11. China Perspective - Background Some Barriers Placed on Foreign Developer in the Wind Energy sector. • Foreign developers are banned from offshore projects; China considers this a national security measure. • They are not allowed to borrow as much money as domestic developers. • Foreign developers are prohibited from selling carbon credits from their wind farms.

12. China’s Perspective- Background • China lifted specific barriers right after the consultation was requested by the US. They lifted barriers like: * Foreign developers can now seek to build wind farms in their country. * China now allows overseas/ foreign experience in wind farm development not just experience in china.

13. America’s fear of China’s growth in the clean energy Industry • China has more than three times as much wind power capacity. • China is now the world’s largest wind energy market. • China has the largest installed base of wind turbines estimated at about 40,000 mega watts compared to the United State at about 36,700 mega watts. • China is also growing rapidly not just in the Wind energy sector, but they have also added a coal- fire plant and nuclear plant to meet up with the demand of electricity.

14. America’s Fear of China’s growth in the clean energy sector. • Senator Sherrod Brown’s statement basically summarizes the fear America has over China’s growth in the clean energy sector. • “The United States cannot replace its dependence on foreign oil with dependence on clean energy technology made in China. America’s manufacturing must lead the way and to do this they need a level playing field”

15. US Perspective - Background • US concerned about growing trade gap with China • Green technology sector is a high priority of the administration • Obama State of the Union “Sputnik Moment” • US desires to be a leader in the green technology sector • Green technology sector holds potential for future economic/trade growth and jobs • “Whomever leads in the global, clean energy economy will also take the lead in creating high-paying, highly skilled jobs for its people,” • US wants fair access to China’s green technology market since it is potentially the largest market in the world

16. US Perspective – China’s Producers Have Displaced US Producers • US EXPORTS: • China’s demand for wind energy equipment rose ten-fold from 2006 to 2009. • During the same period, massive subsidies to Chinese producers displaced U.S. exports to China of wind turbine sets and the gears used in such turbines, which shrank by 81 percent and 67 percent, respectively. • Subsidized Chinese exports have also shut the U.S. out of the growing European wind market. • In 2009, Chinese exports to Europe of the towers and masts used in wind turbines were nearly 19 times higher than they had been in 2006, while U.S. exports of the same product fell by more than a third. • US IMPORTS: • U.S. imports from China of the towers and masts for windmills have grown seventeen times over since 2006. • The pace of import growth has far exceeded the rate at which the domestic market for wind power equipment has grown, eating into the market share of domestic producers.

17. US Perspective – Section 301 Background • United Steelworkers (USW) filed a section 301 petition related to China’s actions in the green technology sector • The administration can take action under Section 301 if a country is: • 1) denying the U.S. its rights under a trade agreement; or • 2) engaging in unjustifiable, unreasonable or discriminatory acts, policies, or practices that burden or restrict U.S. commerce. 

18. US Perspective – USW section 301 petition summary • From United Steelworkers section 301 petition: • China engages in illegal practices that stimulate and protect its domestic producers of green technology, ranging from wind and solar energy products to advanced batteries and energy-efficient vehicles. • These practices have enabled China to emerge as a dominant supplier of certain green technologies. • They also have facilitated the transfer of manufacturing and R&D investment from the U.S. to China, cost American workers the high-skilled green jobs of the future, and increased the U.S. trade deficit.

19. US Perspective – USW section 301 petition specifics • Article 3 of the WTO Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) prohibits WTO members from granting subsidies that are contingent on export performance or on the use of domestic over imported goods. • The prohibition includes subsidies whether the contingency is in law or in effect. China committed to eliminate all prohibited subsidies when it joined the WTO. • The USW petition identifies five prohibited subsidy programs that China currently uses to benefit its producers and exporters of green technology. • Ride the Wind Program • Special Fund for Wind Power Manufacturing • Export Product Research and Development Fund. • Export Credits from China’s Export-Import Bank • Export Credit Guarantees from Sinosure.

20. Potential Ruling • DS2: United States – Standards for Reformulated and Conventional Gasoline • US attempted to use Article 20 of the GATT to justify an exception to the national treatment principle • Article 20 exception was based on environmental concerns • DSB ruled against the US. The Article 20 exception can not be used as a barrier in disguise. • China cited environmental concerns and the need to cut emissions as a potential justification for its subsidy barriers • In 2006 China became the world’s largest producer of emissions • They claim that the investments they are making in green energy will benefit the world’s environment • However, if they were truly interested in spurring the wind turbine sector they should make the subsidies available to all companies regardless of national origin • Potential Ruling: • China’s subsidy programs do not comply with the national treatment principle • An exception under Article 20 for environmental protection is not justified – it is a barrier in disguise • The subsidies are a barrier to competition which may actually be stunting the growth of the wind turbine sector. • China should bring their subsidy program into compliance

21. Bibliography • (AFL-CIO), America's Union Movement. An Introduction to Section 301. www.aflcio.org.  • Wald, Matthew L. China's Galloping Wind Market. green.blogs.nytimes.com.  • Workers, Unity and Strength for. United States Steel workers Section 301 Petition Demonstrates China's Green Technology Practices Violate WTO Rules. assests.usw.org. • Steel Workers Applaud Obama Administration Acceptance of Trade Case.www.usw.org. • Chan, Sewell. US says China Fund Breaks Rules. www.nytimes.com.  • Danko, Peter. China Defends Wind Power Subsides.www.earthtechling.com. • News, BBC. U.S wants trade talk on China wind power subsidies.www.bbc.co.uk.

22. Bibliography • Post, Global. US Sues China at WTO on Wind Power Subsidies.www.globalpost.com. • Pruitt, Alison. U.S Disputes China Wind Power Subsidies.www.energyboom.com. • United States SteelWorkers Challenges China Over Renewable Energy Jobs.www.energyboom.com. • Representative, Office of the United States Trade. United States Request WTO Dispute Settlement Consultation on China's Subsidies for Wind Power Equipnment Manufactures.http://www.ustr.gov. • Organization, World Trade. Agreement on Subsidies and Coutervailing Measures.www.wto.org.