Based on petitions filed by a consortium of Chinese auto producers, China’s Ministry of Commerce (MOFCOM) recently initiated investigations into alleged dumping and subsidization of U.S.-made autos.  The investigations, which according to MOFCOM’s initiation notices cover “saloon and cross-country cars” with engine displacement above 2,000 cc, could result in the imposition of antidumping and countervailing duties on imports of covered U.S. autos exported to China.  Some trade analysts view these investigations as a politically motivated response to the recent U.S. announcement of special “Section 421″ safeguard duties on Chinese-made tires, pursuant to a China-specific provision of U.S. trade law that allows the President to restrict imports of Chinese goods found to be causing market disruption.

MOFCOM’s countervailing duty investigation is notable because it is the first to target U.S. government funding to automakers intended to spur the development of next-generation clean energy drive-trains.  The programs subject to MOFCOM’s investigation include the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing (ATVM) Loan Program, the Troubled Asset Relief Program (TARP), the “Cash for Clunkers” program and various tax incentives related to hybrid and electric autos.  Of the thirty-one distinct U.S. federal and state programs under investigation by MOFCOM, most are related to U.S. government efforts to stimulate the U.S. auto industry’s transition to the production of more efficient and greener vehicles.

The investigation also highlights a tension between the Obama Administration’s energy policies and international trade rules.  On the one hand, the Administration is concerned that U.S. global leadership in green technology innovation is waning and has launched a series of initiatives - including financial assistance programs like ATVM - intended to restore U.S. leadership in this area.  Speaking at a recent energy conference, U.S. Energy Secretary Steven Chu suggested that the U.S. is behind other countries in high-tech green manufacturing areas such as solar photovoltaic technology, hybrid vehicle batteries and high-voltage transmission lines, and he urged aggressive action to promote these and other emerging green technologies.  U.S. Rep. Bobby Rush (D-IL) sounded similar themes in opening a recent hearing before the House Subcommittee on Commerce, Trade and Consumer Protection, on the topic “Growing U.S. Trade in Green Technology,” where he exhorted the U.S. to adopt “a strong long term export promotion policy to turn our economy toward what will make us a global leader.” 

On the other hand, government assistance programs intended to stimulate production and export of specific technologies may fall within the definition of “subsidy” in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).  Such subsidies, when found to be conferred on specific industries (and when other conditions set out in the SCM Agreement are satisfied), may be countervailed through the imposition of import duties that offset the competitive advantage bestowed by the subsidies.  The SCM Agreement contains no exception for subsidies that purport to advance environmental purposes.  In 1995, when the SCM Agreement became effective, it included exceptions for certain environmental subsidies.  These exceptions lapsed in 2000, however, leaving subsidy programs with purported environmental purposes vulnerable to countervailing duty actions.

The U.S. and its major trading partners - many of whom are actively promoting emerging green energy technologies - will need to remain cognizant of the risk that their promotion of domestic champions could also spur trade friction.

For further information about this topic, please contact Akin Gump.