From Julia Qin:
USTR targets FDI Incentives in China
The US consultation request in the China subsidy case is now available on the WTO website (DSU358). Of the nine measures cited by the US as evidence of illegal subsidies, seven are incentives offered to foreign-invested enterprises (i.e., companies with foreign equity investment from 25%-100%). The Chinese laws and regulations cited in the document are mostly pre-accession legislation (from 1986 to 2000) that have passed the massive legislative clean-up in connection with China's accession. I suspect the Chinese government either did not believe FDI incentives would run afoul of WTO subsidy disciplines or did not expect that major investor countries would ever challenge them at the WTO.
The specifics of the nine Chinese measures are:
• Circular of the State Administration of Taxation Concerning Transmitting the Interim Measure for the Administration of Tax Refunds to Enterprises with Foreign Investment for Their Domestic Equipment Purchases;
• Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Issue of Tax Credit for Business Income Tax for Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises, read in conjunction with Circular of the State Administration of Taxation on Printing and Distributing the Measures Concerning Business Income Tax Credit on the Investment of Enterprises with Foreign Investment and Foreign Enterprises by Way of Purchasing Homemade Equipment;
• Circular on Distribution of Interim Measures Concerning Reduction and Exemption of Enterprise Income Tax for Investment in Domestically Made Equipment for Technological Renovation;
• Articles 75(7) and 75(8) of the Rules for Implementation of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises, read in conjunction with Articles 8 and 9 of the Provisions of the State Council on the Encouragement of Foreign Investment and Articles 6 and 8 of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises;
• Article 73(6) of the Rules for Implementation of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises, read in conjunction with Articles 6 and 7 of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises and Section XIII of the Catalogue for the Guidance of Foreign Investment Industries;
• Article 81 of the Rules for Implementation of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises, read in conjunction with Articles 6 and 10 of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises and Article 10 of the Provisions of the State Council on the Encouragement of Foreign Investment;
• Article 3 of the Provisions of the State Council on the Encouragement of Foreign Investment;
• Articles 3 and 6 of the Circular of the People's Bank of China, the State Administration of Foreign Exchange, the Ministry of Foreign Trade and Economic Cooperation and the State Administration of Taxation Concerning Printing and Distribution Detailed Rules on Rewarding and Punishment Concerning Provisional Regulations over Examination of Export Collections of Foreign Exchange;
• Circular of the State Council Concerning the Adjustment in the Taxation Policy of Imported Equipment, read in conjunction with Section XIII of the Catalogue for the Guidance of Foreign Investment Industries.
