The U.S. launched a new trade enforcement complaint against the People’s Republic of China at the World Trade Organization (WTO) concerning China’s subsidies to certain producers of primary aluminum. These subsidies appear to be provided through artificially cheap loans from banks and through artificially low-priced inputs for aluminum production, such as coal, electricity, and alumina. The complaint begins a process to address U.S. concerns that China’s subsidies appear to have caused “serious prejudice” under WTO rules to U.S. interests by artificially expanding Chinese capacity, production and market share and causing a significant lowering in the global price for primary aluminum.
“Artificially cheap loans from banks and low-priced inputs for Chinese aluminum are contributing to excess capacity and undercutting American workers and businesses,” said Michael Froman, U.S. Trade Representative. “Today’s action follows significant engagement by this Administration on excess capacity and demonstrates our commitment to hold China to its trade obligations.”
“When American aluminum workers and producers can compete on a level playing field, they will outcompete any other workers in the world, and today’s action will help level the playing field,” said Representative Dave Loebsack (D-IA), co-chair of the Congressional Aluminum Caucus. “At a time when our economy is still struggling to recover, we have to do all we can to focus on preserving and protecting jobs here at home by working to stop the unfair practices by states like China.”
Background
China’s apparent subsidies raise concerns that China is not acting consistently with its obligations under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). In particular, under Article 5(c) of the SCM Agreement, WTO Members have agreed that subsidies should not cause “serious prejudice” to the interests of other WTO Members. According to the announcement made by Froman, the U.S. is concerned that China’s subsidies appear to be causing or threatening to cause serious prejudice to the interests of the U.S. through displacement or impedance of U.S. imports into China and third country markets, significant price undercutting, price suppression, price depression or lost sales in a given market, or through an increase in Chinese world market share.
Excess capacity and production in China’s aluminum sector is seen by many as contributing to lower global primary aluminum prices, to the detriment of U.S. primary aluminum producers. Despite sinking aluminum prices, China has been constantly building large new or expanded aluminum production facilities. From 2007-2015, Chinese primary aluminum production increased by approximately 154 percent and capacity increased by approximately 243 percent, while global prices for fell by approximately 46 percent. Also during the same period, U.S. primary aluminum production decreased by approximately 37 percent and capacity decreased by approximately 46 percent, even though overall U.S. consumption increased. The number of U.S. aluminum smelters fell from 14 in 2011 to five in 2016, with only one operating at full capacity.
“The aluminum industry has flourished for more than a century, but today American smelters are being shuttered. Even though aluminum demand has increased in the United States, domestic production has plummeted,” said Representative Mike Kelly (R-PA), member of the Congressional Aluminum Caucus. “With unfair subsidies and state-controlled banks, China has quadrupled its aluminum exports over the past decade, which has flooded the world market and depressed prices. We must hold China accountable.”
Following concerns reported by U.S. aluminum industry representatives, the U.S. Government engaged with China to address subsidies and resulting excess capacity and production in the aluminum sector. At the November 2015 U.S.-China Joint Commission on Commerce and Trade (JCCT) meeting, China agreed to intensify discussions with the U.S. regarding excess capacity in the aluminum sector. After the U.S.-China Security and Economic Dialogue meeting held in June 2016, where the U.S. continued to raise concerns about excess aluminum capacity, China’s State Council issued guiding opinions on structural adjustment needed for China’s non-ferrous metals industries, including the aluminum industry.
On September 29, 2016, the U.S. International Trade Commission (USITC) held a hearing (Investigation No. 332-557) — Aluminum: Competitive Conditions Affecting the U.S. Industry. The hearing addressed the harmful effects of Chinese aluminum overcapacity and pricing on the U.S. aluminum industry, covering primary, secondary, and wrought aluminum products.
While China has expressed a willingness to continue talking about the excess aluminum capacity situation — both when President Obama and President Xi met in Hangzhou, China, in September 2016 and at the November 2016 JCCT meeting — China has not been willing to take concrete steps to address it, according to Froman’s announcement.
Froman notes that the U.S. has devoted many thousands of hours investigating the Chinese practices, identifying and reviewing the documents in building this complaint concerning an urgent problem for the U.S. and its businesses and workers. This has lead to the trade enforcement complaint at the WTO.
Aluminum Industry Reactions
Century Aluminum Company commended the action taken by the U.S. Trade Representative at the WTO. “China’s subsidies have done enormous damage to the U.S. and global aluminum industries,” said Michael Bless, president and CEO of Century Aluminum. “Following a series of closures due to Chinese overcapacity, Century operates three of only five remaining smelters in the United States. USTR’s decision to challenge these unreasonable, illegal, and harmful subsidies is an important step towards a long-term solution for the global aluminum industry, and we are thankful for the Administration’s efforts on the industry’s behalf. We look forward to continuing this work in the coming months and years.”
The Aluminum Extruders Council (AEC) expressed strong support for the new trade enforcement action. “China’s subsidies have had and are continuing to have a significant adverse impact on the U.S. domestic aluminum industry, and ultimately are harmful to American jobs, workers, and business,” said Matt McMahon, AEC’s chairman. “The USTR’s action is an important first step towards addressing, and correcting, China’s policies on aluminum.”
Heidi Brock, president and CEO of the Aluminum Association, responded with a call for negotiations between the U.S. and Chinese governments: “The Aluminum Association will review in detail the consultation request filed by the United States at the World Trade Organization today. We will assess the impacts of this action across the full value chain and continue to believe that a negotiated agreement between the U.S. and Chinese governments is needed to address the fundamental issue of aluminum overcapacity in China. Overcapacity is damaging to all segments of the domestic aluminum industry – upstream, midstream and downstream – and it is critical to assess the potential impact of any trade action on all aluminum producers. The Aluminum Association looks forward to working with the incoming Administration to help us create a level playing field for the entire industry.”