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Why EU imposes countervailing duties on Indonesian steel from Morowali
Most of China’s investment projects are export-oriented with capital, operational financing, services related to production, marketing and even labor supplied directly by the parent companies.
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The Indonesia Morowali Industrial Park (IMIP) in Central Sulawesi is shown in this undated photo. (Courtesy of IMIP)
T
he growth of Chinese investment globally, including its use of industrial subsidies and deployment of state-owned enterprises, has prompted reactions from developed countries, notably the United States, Japan and the European Union. This is due to the common opinion that China is implementing a grand strategy to help its own industry by transferring its domestic-excess capacity overseas via foreign direct-investment ventures financed by the government.
The EU coined this practice as transnational subsidy and perceived accordingly that it is a prohibited practice of subsidy, not in conformity with the legal framework of subsidies regulated under the World Trade Organization.
The transnational-subsidy practice is observed to take the form of (i) investment and relocation assistance from the government of China (GOC) to the domestic industries which expand their production facilities to other countries, and exports the products throughout the world, including to China; and/or (ii) strategic cooperation between the GOC and other governments to build a special-industrial area wherein the Chinese relocated company operates to produce goods intended for export.
According to what the EU stipulates in its guidelines, this practice is a prohibited form of subsidization against which an anti-subsidy investigation could be carried out, or directly challenged in the WTO dispute-settlement body. Therefore, in 2019, the EU initiated an anti-subsidy investigation into imported-fiberglass fabrics originating from Egypt and China.
The EU authority argued that (i) the Egyptian exporting producer of the investigated product is located in a special-economic zone established under the cooperation between the GOC and the Egyptian government; (ii) the exporting producer is under the control and supervision of its Chinese parent company and the Chinese agency responsible for outbound investment, and (iii) the exporting producer benefited from financial contributions made through Chinese state-owned banks.
As a result, in June 2020, the EU authority imposed additional anti-subsidy duties on imports of fiberglass fabrics from Egypt and China by 10.9 percent and 17-30.7 percent respectively.
The subsidy instrument itself transforms from time to time. Initially, this instrument was mainly used by developed countries to encourage the growth of their agricultural and manufacturing sectors.
