China blocks SA’s subsidy challenge

Le Roux, Mathabo (Business Day, Johannesburg) 2009-02-17 

South Africa’s first legal bid to protect itself from unfair subsidies on Chinese imports has been upset in what appears to be excessive pressure from the Chinese government.

Local manufacturing firms already experience heavily subsidised imports from China, and the situation is set to worsen as the Chinese government increases payments to its manufacturers to keep exports competitive amidst the global economic downturn.

State support for industry has been increased so aggressively by China that the United States has challenged their subsidy programmes at the World Trade Organisation (WTO).

SA severely compromised its ability to investigate dumping measures by China when it granted the country market economy status two years ago.

It has now emerged that a South African producer of stainless steel sinks, Franke Kitchen Systems, has hastily withdrawn a countervailing measure application which was brought to counter unfair subsidisation, seemingly because the Chinese government threatened the future success of its operations in China if it moved forward.

This leaves local manufacturers vulnerable as China’s action undermines SA’s trade remedy tools, meaning that manufacturers have no alternative against unfair competition from Chinese imports.

The application, made by a subsidiary of the Swiss-based Franke group, was the first countervailing application to be brought against China by a developing nation.

A countervailing measure is politically sensitive as it scrutinises a country’s industrial policy, and could alert other countries to subsidisation which can potentially be attacked by law.

According to Chief Commissioner of the International Trade Administration Commission (ITAC) Siyabulela Tsengiwe, China told SA of its unease at the application.

China’s response raises concern about its adherence to fair trade obligations as a member of the WTO. However, the multilateral trading system cannot take action without a complaint.

WTO spokesman Keith Rockwell stated: “Only members can initiate a case against another member. The WTO, or the DG (director-general Pascal Lamy) has no power of self-initiation.”

“As to whether this case means that the Chinese are not in compliance with WTO rules, I don’t know, and neither does anyone else because the only way to know for sure is through the dispute-settlement process.”

Franke’s initial bid was to launch an anti-dumping application after an import surge saw China’s market share grow from zero to 60% within three years. However, fears that its dumping complaint would fail meant the company also applied for countervailing measures, alleging that the margin of subsidisation for Chinese kitchen sinks was as high as 47.7% of the value of the product.

The company has a strong case, according to Franke’s consultant Jan Heukelman. In its application, it listed 36 subsidies in 10 subsidy programmes from which Chinese manufacturers have benefitted, claiming that kitchen sinks from China have entered SA at below the cost of stainless steel, the raw material from which the sinks are made.

The application was suddenly withdrawn at the end of last year, after “enterprise to enterprise engagement, facilitated by the Chinese government”, Tsengiwe said.

But the Chinese government pressed Franke in Switzerland to withdraw the application to secure its wide business interests in China in the future.

When approached for comment, lawyer Andreas Hauswirth of the Franke holding company in Switzerland confirmed the high-level discussions between Franke and Chinese state officials. However, both parties had agreed to keep the content of the talks confidential.

Repeated attempts by Business Day to get comments from China’s trade attaché in Pretoria, Wang Jing Bo, were unsuccessful. He also refused to comment on the status of subsidy programmes in China.