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Dispute Settlement

WTO - Canada Seeks to Join WTO Consultations on China Subsidy Programs

Backgrounder

On May 14, 2007, the Government of Canada filed a request to participate as a third party in a supplemental round of the World Trade Organization (WTO) consultations with China on certain Chinese subsidies. This second round of consultations was requested by the United States and Mexico, who had an initial round of talks with China on March 20. Australia, Japan and the European Union were involved as third parties in the first round of consultations, and have asked to participate as third parties in the second round.

The programs at stake appear to subsidize exports or encourage the use of domestic over imported goods by offering refunds, reductions or exemptions from taxes or other payments due to the Chinese government by Chinese enterprises with some foreign investment. As such, these programs appear to be “prohibited subsidies” under the rules of the WTO.

The Chinese programs identified are horizontal, i.e. they apply to a wide range of manufacturing sectors. As such, they can influence the conditions of competition facing Canadian companies in Canada, in China and in third-country markets. Canadian companies have expressed concerns regarding competition from Chinese goods that benefit from subsidization.

In recent months, China has undertaken reforms, such as enacting a new corporate income tax law. Depending on how they will be implemented, these reforms could have an impact on some of the Chinese programs.

Earlier this year, Canada held bilateral discussions with China on the programs in question. While China has been open to discussing its policies, the WTO consultations offer a further opportunity to seek clarification on the scope and content of the new corporate income tax law and the planned implementing regulations. The information gained from participating in the consultations would assist Canada in assessing the impact of these changes, including whether they will address Canada’s WTO concerns.

Consultations represent the first stage in the WTO dispute settlement process. This phase allows parties to discuss the measures at issue, with a view to resolving their differences outside a formal adjudicative process. If agreement is not reached, the party who initiated the consultations has the right to request the establishment of a WTO panel to rule on the issue. Other WTO Members would have the option to seek third party status in such panel proceedings.

The U.S. and Mexican requests for further consultations with China, and Canada’s request to participate in those consultations, can be obtained from the WTO web-site.

Further information about the WTO dispute settlement process can is also available from the WTO web-site.