See also: Combating China’s Trade Subsidies Isn’t the Entire Answer by Adam Hersh; The Complexities of the U.S. Decision on Chinese Solar Panel Imports by Melanie Hart and Kate Gordon
Next week’s verdict due from the U.S. Department of Commerce on whether the Chinese government is unfairly subsidizing the production of solar panels and thus driving American competitors out of the market reflects the Obama administration’s commitment to making sure our trading partners play by the rules. Indeed, President Obama’s February 28 executive order creating a beefed-up trade enforcement office means our domestic trade laws and agreements will be more aggressively enforced.
But the new trade enforcement office won’t ensure those rules and treaties adequately protect American workers and firms. For that to happen, we need to do more to fill in large intelligence gaps about foreign trade activities. We don’t know the full extent of subsidies, export financing, or the range of trade promotion activities in other countries, especially those with state-owned enterprises.
Without this crucial information, our lawmakers and trade negotiators can’t adequately safeguard American workers and companies from unfair trade practices by our competitors.
President Obama’s request for $26 million to create the Interagency Trade Enforcement Center, a new department within the U.S. Trade Representative’s office, will increase the number of trade lawyers and investigators available to take cases against countries that violate trade rules. Investigators will also defend America’s firms and workers from claims filed against the United States. But in order for the new Interagency Trade Enforcement Center to function effectively, we must still fill in large gaps in our intelligence in the following three areas:
- State-owned enterprises and subsidies
- Export finance
- Export promotion
Let’s look at each in turn.
State-owned enterprises and subsidies
We need more information about state-owned enterprises in other countries, and the extent to which governments in China, Vietnam, Singapore, and elsewhere subsidize the production and export of their goods and services.
What we do know is that a number of countries today manage their economies through a state-capitalist model in which the government directly or indirectly controls many of the economy’s productive assets, formal financial systems, and activities. State-owned enterprises participate in commercial markets but enjoy state backing benefiting from preferred access to bank capital, below-market-rate financing, favorable tax treatment, capital injections, and other subsidies that distort the playing field.
What we don’t know is how deep or wide these practices run. Our efforts to date have been piecemeal. And our laws and regulations are not adequately equipped to deal with such subsidies in a state-capitalist model. And without this information, it’s hard for us to craft rules and treaties, much less enforce them, to truly protect firms and workers from unfair competition.
We don’t have enough information on how much other governments are spending on financing their exports.
The U.S. Export-Import Bank—the government agency that provides loans, guarantees, and insurance products to help U.S. companies export—has some records of equivalent institutions in other countries. But in many countries these export-finance institutions operate more like commercial banks that don’t share their information publicly. And the extent of export financing that takes place in countries with state-owned enterprises is even harder to discern.
Our government must provide access to appropriate levels of export finance for those who need it—and at levels that are in line with the financing other governments provide their businesses. That’s hard for us to do when we don’t fully grasp the extent to which other governments are financing their country’s exports.
Finally, we don’t systematically keep track of the full range of activities other countries engage in to promote their exports. Our government’s trade advocacy and export-promotion efforts are largely focused on educating, training, and assisting U.S. businesses on accessing information and resources on how and where to export, especially small- and medium-sized companies.
But other countries have a less conventional approach to promoting their exports. Foreign governments tend to play a more active role in negotiating deals to boost their exports, while the U.S. government tends to let businesses sell their own products. We must collect data on how other countries promote their exports to be able to compete with them.
We must allocate people, time, and money to improving our trade intelligence in these areas in addition to improving trade enforcement. If these gaps were filled, then we would be better equipped to try to preempt violations before they occur, protecting the rights of American firms and workers.
Sabina Dewan is Director of Globalization and International Employment at the Center for American Progress.
- Combating China’s Trade Subsidies Isn’t the Entire Answer by Adam Hersh
- The Complexities of the U.S. Decision on Chinese Solar Panel Imports by Melanie Hart and Kate Gordon