TPSC Hearing on China Compliance with WTO Commitments

 Oral Testimony of
Mr. Barry Solarz
Senior Vice President, Trade and Economic Policy
American Iron and Steel Institute
Washington, D.C.

Submitted for the Record
United States Trade Representative (USTR)
Trade Policy Staff Committee (TPSC)
Public Comments on China’s Compliance with
Commitments Made in Connection with its Accession
 to the World Trade Organization
Wednesday, October 5, 2011

 

Click here for a PDF of the written submission filed with the USTR

Introduction
Good morning.  This is the eighth submission of the American Iron and Steel Institute (AISI) detailing China’s non-compliance with its WTO commitments.  Despite clear evidence that China has repeatedly violated its WTO obligations, it continues to practice WTO-illegal and market-distorting behavior, and its state-owned and supported steel industry continues to grow dramatically – to the point where it is now roughly seven times the size of our privately-owned, market-based, highly efficient steel industry here in the United States. 

Good morning.  This is the eighth submission of the American Iron and Steel Institute (AISI) detailing China’s non-compliance with its WTO commitments.  Despite clear evidence that China has repeatedly violated its WTO obligations, it continues to practice WTO-illegal and market-distorting behavior, and its state-owned and supported steel industry continues to grow dramatically – to the point where it is now roughly seven times the size of our privately-owned, market-based, highly efficient steel industry here in the United States. 

Therefore, on this 10-year anniversary of China’s accession to the WTO, it is well past time for the U.S. government to adjust its strategy and send a much clearer signal to China that it needs to comply now -- and fully -- with all of its WTO obligations.  China is today the world’s second-largest economy and the number one country in terms of manufacturing output and exports.  Steel producers and other U.S. manufacturers cannot sit idly by for yet another report identifying China’s failures to comply with its WTO obligations.  This is a crisis and should be treated as such.

I. China’s Non-Compliance with Its WTO Obligations Remains a Severe and Growing Problem for American Steel Producers and Other U.S. Manufacturers

Already by 2006, USTR said it was "clear … some parts of the Chinese government did not yet fully embrace the key WTO principles of market access, non-discrimination and transparency.”  By 2008, with the economy in crisis, USTR said China was moving “toward a more restrictive trade regime.”  By 2009, the U.S.-China Economic and Security Review Commission said China was taking “steps backward to greater government control.”  As our economy continues to struggle, and this negative trend in China has continued, there is now widespread agreement that this is a severe and growing problem not just for steel, but for all of U.S. manufacturing.

The Status Quo of the U.S.-China Trade Relationship is Unsustainable
The U.S. trade deficit with China has soared from $83 billion in 2000 to over $273 billion in 2010 – and so far this year, it is running about 12% higher than last year.  According to one recent estimate, over the past decade since China joined the WTO, 2.8 million U.S. jobs have been lost or displaced, including 1.9 million in manufacturing.  This bilateral trade deficit is unprecedented, unsustainable and causing serious, long-term damage to our manufacturing base.

China’s Massive Steel Industry Continues to Grow
Nowhere is the impact of Chinese government ownership, control and direction of strategic industries more clear than in steel.  From 2000 to 2010, Chinese crude steel production soared from 128 million MT to 627 million MT – an increase of 499 million MT.  This increase is a product not just of growing Chinese consumption, but of intervention by all levels of Chinese government – and the increase itself is more than six times total U.S. production. 

Chinese Steel Continues to Injure the U.S. Industry
There is no question that China’s trade-distorting practices have harmed U.S. steel producers. 
China, which must import huge amounts of iron ore, is not a low-cost steel producer.  Yet repeated surges of dumped and subsidized Chinese steel have caused injury to firms worldwide, and the U.S. currently has four antidumping (AD) orders on Chinese steel products and both antidumping and countervailing duty (CVD) orders on another 10.  While these orders have helped relieve some injury, Chinese imports remain a significant problem for our industry.

Decisive Action Must Be Taken
Because the status quo is not working and China has no intention of complying with its WTO obligations, U.S. policymakers need to develop a decisive and different plan of action to address China’s market-distorting trade and industrial policies.  It should include: stronger trade laws (especially AD/CVD); stronger trade enforcement (especially vs. fraud and transshipment); more effective and creative tools (to address currency manipulation and state-owned enterprises); and intensified outreach efforts (to coordinate with other governments with similar concerns).  

II. Issues of Particular Importance to U.S. Steel Producers


Subsidies
Upon its accession, China assumed certain obligations with respect to subsidies, including the commitment to end all export subsidies.  Despite these commitments, Chinese steel and other manufacturers continue to benefit from massive government subsidies.  Since I testified last year, we have seen affirmative U.S. CVD decisions involving Chinese drill pipe, galvanized steel wire and steel wheels.  It is clear that China will continue to subsidize its steel production.  At the same time, we have seen China continue to manipulate its value-added tax (VAT) system to manage and promote the exports of certain steel products.  Given that China has long subsidized steel and other strategic sectors -- and that Chinese government policy provides for further subsidies going forward -- AISI joins with those who say a more aggressive approach is needed.

State-Owned Enterprises (SOEs)
Upon its accession, China committed that it “would not influence, directly or indirectly, commercial decisions on the part of state-owned enterprises.”  However, China’s steel-producing SOEs, which account for most of Chinese steel production, continue to operate in accord with bureaucratic policies and not market principles.  This is a clear violation of China’s WTO commitments and a significant distorting force in steel markets around the world.  While China has yet to publish the details of its new 12th Five year Plan for Steel, we know that government ownership, control and direction will remain key elements with respect to: consolidating and reorganizing; relocating; controlling access to iron ore; “going out”; and providing detailed instructions regarding capacity and production.  Using steel as a case in point, USTR should take all possible steps – including WTO litigation – to address the China SOE problem.

Raw Materials
China has also taken numerous inappropriate measures to help its producers secure access to raw materials and manipulate supply and prices to give Chinese producers an unfair advantage in the marketplace.  In June 2009, the U.S. filed a request for consultations at the WTO regarding China’s export restrictions on nine raw materials that impact the production of steel and other manufactured products.  In July 2011, a WTO panel found these export restrictions to be in violation of China’s WTO commitments.  While an important step in the right direction, China has appealed this decision and has shown no intention of changing its practice on export restrictions.  We urge the Administration to work with other governments to pursue additional WTO litigation where appropriate against Chinese raw materials export restrictions.

Currency Manipulation
Turning to currency manipulation, the Chinese government continues to intervene actively in foreign exchange markets to keep its currency severely undervalued.  According to a recent Peterson Institute report, China’s currency is today undervalued by more than 28 percent.  According to the Economic Policy Institute, if China’s currency were to rise by this amount to a  market-based level, U.S. GDP would increase by more than $200 billion; over 1.6 million U.S. jobs would be created; and our federal budget deficit would decline by nearly $52 billion.  These figures would be greater still if other key countries in Asia (such as Taiwan, Singapore, Hong Kong and Malaysia) -- which have all devalued their currencies to remain competitive with China – were also to revalue.  Chinese currency manipulation is hurting U.S. growth, limiting U.S. exports and destroying U.S. jobs.  Against the background of this week’s Senate action, AISI supports prompt passage of legislation to address this issue under our trade remedy laws.

Intellectual Property Rights
When China accepted the WTO “TRIPS” Agreement, it “took on obligations… to protect and enforce the intellectual property rights (IPR) held by U.S. and other foreign companies and individuals in China.”  Nevertheless, USTR reports that IPR enforcement by China remains a serious problem.  This is deeply concerning to AISI and all of U.S. manufacturing.

Effective Enforcement of U.S. Trade Laws
Given the extent to which China has not complied with its WTO obligations, the United States must effectively enforce its trade remedy laws and WTO rights.  Among other things: the Commerce Department must continue to treat China as a non-market economy (NME) in AD proceedings; Commerce should fully countervail Chinese subsidies, including those bestowed prior to China’s WTO accession; U.S. Customs authorities must aggressively pursue cases against Chinese firms seeking to evade AD/CV duties; and the Congress should also pass the “ENFORCE Act” legislation to address this growing problem of Chinese customs fraud.  At the same time, AISI supports stronger efforts to defend our WTO rights with respect to the use of WTO-consistent U.S. trade laws -- including our right to apply AD and CV duties to Chinese imports that are both dumped and subsidized, and our opposition to the way China has been applying its trade remedy laws in ways that clearly violate the WTO.  

Enforcement of China-Specific Safeguard Provision
As part of its WTO accession, China agreed that for 12 years, other members could impose product-specific safeguards against Chinese imports.  This provision – implemented into U.S. law under Section 421 of the 1974 Trade Act as amended – remains critical to ensuring that U.S. industries and workers do not suffer market disruption as a result of Chinese import surges, and we again commend the Administration breathing new life into this provision in 2009 by granting safeguard relief with respect to tire imports from China.

 
Product Safety Issues
In 2010, there were 220 U.S. safety recalls of Chinese-made products and, as the two co-Chairs of the Congressional Steel Caucus, Reps. Tim Murphy (R-PA) and Peter Visclosky (D-IN) stated two years ago, “China has a proven track record of making dangerous, substandard products, including steel.”  Last year, Commerce discovered that, in the AD/CVD investigation of steel grating from China, the largest Chinese producer of this product had falsified certain mill test certificates.  At a time when our nation urgently needs to rebuild its infrastructure, including steel-intensive pipelines and bridges, there are troubling questions about the quality and reliability of at least some Chinese steel.  The Administration must work with Congress to ensure that the relevant WTO agreements governing product safety are fully enforced.  

III. Conclusion
In conclusion, for eight years, AISI has presented information detailing China’s non-compliance with its WTO obligations.  This non-compliance continues to have serious, long-term consequences for American steel producers, other manufacturers and our entire economy.   China sees its explosive growth as an affirmation that it is correct and that “Western policies of free trade and open markets do not work as well as previously thought.”  The U.S. government must take a firm stance to correct that view.  While AISI continues to support the two-pronged U.S. policy of engagement and enforcement, the status quo is just not working.  We need a more proactive, pro-enforcement strategy to address the challenge of trying to compete against “China Inc.” and its version of state-owned and supported “capitalism.”   It is long past due to send a clear signal to China that it must comply fully with its WTO obligations.  Thank you.

 

Link here for a PDF version of the testimony.