Subsidies are financial contributions by the government or public bodies which confer benefits to their recipients. China has provided various grants, preferential loans, tax incentives and other forms of subsidies to promote the production and export...
Subsidies are financial contributions by the government or public bodies which confer benefits to their recipients. China has provided various grants, preferential loans, tax incentives and other forms of subsidies to promote the production and export performance of its industries. With its accession to the World Trade Organization (WTO) in 2001, China has fallen under the regulatory framework of the multilateral trading system. As a result, China's industrial policy is subject to both WTO's general subsidy disciplines, and specific commitments and tailor-made provisions laid down in the accession package. The latter include a partial recognition of the developing country status, special provisions on Chinese state-owned enterprises, transparency obligations, the use of out-of-country benchmark prices in countervailing investigations against Chinese products and others. Composed of six chapters, this study examines the state of play on China's subsidization practice and counteractions taken by its major trading partners, as well as to explore possible implications for Korea. In particular, Chapter II considers the application of WTO rules to China's subsidies. Chapter III shows major trends in the use of subsidies by industrial sectors on the basis of China's declared policies, WTO notifications and relevant laws and regulations. Chapter IV examines how Chinese subsides have been addressed in the WTO's political and judicial "control" mechanisms, such as the Transitional Review Mechanism, the Trade Policy Review Mechanism and dispute settlement procedures. Chapter V discusses the practice of individual countries-basically the United States and Canada-of countervailing Chinese subsidies. Finally, Chapter VI considers what lessons and implications Korea can draw from other countries' anti-subsidy measures against China. Over the past ten years, China has been criticized in WTO political forums for the lack of transparency in its subsidization practice. In the judicial track, Chinese subsidies have been complained of in 9 out of 23 dispute cases initiated against China as of November 2011. Most of them centered on prohibited subsidies and ended with mutually agreed solutions. The countervail mechanism vis-a-vis China has been used mainly by developed countries such as the United States, Canada, Australia, and the European Union of whom Canada was the very first user. Unlike these and some other countries, Korea has so far maintained a passive stance toward Chinese subsidies. It has usually kept silent in WTO forums, never resorted to the WTO dispute settlement or countervailing mechanism against China. However, given the increasing role of China as a trading partner, Korea should first of all strengthen its monitoring capacity with respect to both China's subsidization policy and other countries' anti-subsidy measures. Countervailing investigations and WTO dispute cases are initiated by the government normally upon the requests of domestic industries. In choosing between these two tracks, the government should weigh all the pros and cons in terms of the time consumption, costs, the actual effect of remedies etc. and then decide which track to resort to. On the other hand, the case study on anti-subsidy measures demonstrates that it is important for the Korean government and companies to minimize the possibility of being targeted by such measures and, in any event, to be well prepared for such challenges.