US Launches WTO Case against China’s Aircraft Sector

Stephanie Henry

December 8, 2015

The United States today announced that it is challenging China’s support for its domestic aircraft manufacturers at the World Trade Organization (WTO). US Trade Representative Michael Froman said today the United States would seek consultations with China under the WTO’s dispute settlement mechanism on China’s imposition of value-added taxes (VAT) on certain foreign aircraft. Consultations are the first step toward launching a formal dispute against another WTO member.

The US alleges that the Chinese government is giving domestic aircraft producers an unfair benefit by exempting certain domestic aircraft from VATs while levying a 17 percent VAT on foreign aircraft imports. The aircraft under dispute include general aviation, regional, and agricultural aircraft. The US claims that the differential tax treatment is in violation of China’s WTO commitments, and that China has not publicized the taxes in accordance with WTO transparency obligations.

USTR Michael Froman was joined at today’s announcement by Reps. Dave Reichert (R-WA), Rick Larsen (D-WA), and Derek Kilmer (D-WA), who have significant aviation manufacturing presence in their state, as well as Rep. Pat Tiberi (R-OH), former Chair of the House Ways and Means Trade Subcommittee. 

The case is the second WTO case launched by the United States against China this year, following a February 2015 case on Chinese subsidies tied to export performance. Since China’s entry to the WTO in 2001, the US and China have engaged directly in 25 dispute settlement cases. The US has won 10 cases; China has won 6 cases; 3 cases were settled before a WTO decision; and 6 cases are undecided. Today’s case marks the first case launched against China’s aircraft sector.

The US and China will have 60 days to consult, after which the US may request that a panel be established.