China’s 301 problems in perspective

Looking mainly from an environmental perspective, this column originally appeared in Asia Correspondent in October 2010. Gerry O’Kane looks at 301 trade wars on clean and green sectors.

There should be little surprise that the US government has decided to use section 301 to investigate claims that China has been subsidising its green energy sector. Should the claims be substantiated, it has pledged to take them to the World Trade Organisation.

As I mentioned some weeks ago, the United Steelworkers union handed a 5,800-page petition to the office of the US Trade Representative Ron Kirk accusing Beijing of effectively subsidising its green energy sector and hindering foreign companies from competing in China.

Coming so close the sensitive time of Congressional mid-term elections, where President Obama’s Democratic party is desperate to have something positive to take to the generally xenophobic electorate, the move satisfies cross-party lobbyists and sticks two fingers up at China’s stance during the recent UN climate talks in Tianjin.

The announcement of the first investigation under section 301 of US trade law since 2001 immediately prompted Chinas Ministry of Commerce to say the allegations were groundless. “The United Steelworkers union allegations on Chinas clean energy policies are groundless and irresponsible,” the ministry said, unsurprisingly.

Environmental threats

Rather ominously, the ministry added that any action taken against Chinas clean energy policies sends the signal that the US doesn’t support China’s efforts to improve the environment. Perhaps that’s a hint that China intends to be more obstructive at the next Cancun climate talks than it was in Tianjin.

There, China, with some justification, blamed the US for failing to meet its responsibilities to cut emissions and for trying to overturn UN principles. At the same time, the worlds biggest producer of carbon emissions (and paradoxically the biggest recipient of carbon credits) refused to have its own estimates of cuts in emissions independently verified.

As anyone who has dealt with China knows, its use of state figures falls under the adage of “lies, damned lies, and statistics“. It certainly made few friends in the US delegation when one of its negotiators completely forgot the national preoccupation with ‘face and accused the US of behaving like a preening pig”.

The steelworkers have made allegations in five key areas:

  • restrictions on access to critical materials
  • performance requirements for investors
  • discrimination against foreign firms and goods
  • prohibited export subsidies and prohibited domestic content subsidies
  • trade distorting domestic subsidies

But the administration held true to the long-held US foreign policy strategy of walk quietly and carry a big stick. The same day it announced the investigation into China’s green energy policies, it also said it would delay a scheduled report on whether China is manipulating its currency to gain trade advantages. Considering that China is the largest holder of US government debt, the whole thing is becoming perilous.

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