This class was for a paper I wrote for my International Trade Law class. My conclusions on the dispute, as far as I am aware, have still not been resolved by the WTO.

1. Import
Substitution
A 21st Century Wind Power Dispute

2. • Wind is created by the ever
changing surface
temperatures of the earth
• The sun warms the land
faster than the sea Cool
• Warm air rises high in the
sky and cools off
• The cool air moves out to
sea
Cool Air
• The sea warms as well but
slower
• Sinking cold air blows on to
the land
Hot
Where does
wind come from

3. • A wind turbine converts
wind energy into usable
electric energy
Wind turbine

4. • On August 11th, 2008
• Chinese officials announced
of a special fund for wind
power manufacturing to
• speed up technology
• promote wind power
development in China.
Special Fund

5. • Recipients of the fund would be those companies who research
and develop market accepted technologies and products.
• Produce wind turbines rated at 1,500KW or more
• The grant will cover the cost of Research and development
(R&D)
• R&D cost:
• based on the production cost in principal which says all cost will
be historical cost
• calculated from the start of the project to the completion of the
final product
• Eligible companies are state owned and Chinese controlled
stock companies.
• The grant will to be factored into the production cost of the
first 50 wind turbines and components produced by the
company.
Special Fund Eligibility

6. • Each Wind Turbine must be rated over 1500KW/hour
The grant is 600 Yuan/KW hour
• 1500 KW x 600 Yuan =
900000 Yuan
• The grant is for the first 50 machines produced
• 900,000 Yuan x 50 machines =
•
45,000,000 Yuan
• 45,000,000 Yuan x 0.15141 ($FX) =
•
6,813,450 U.S. Dollars per company.
The grant

7. • On December 22, 2010
• U.S. Trade Representative (USTR) Ron Kirk
requested WTO Dispute Settlement
proceedings with China.
• Kirk claims the Chinese special fund is against
World Trade Organization (WTO) rules and
cites Article 3.1(b) of the WTO's Agreement
on Subsidies and Countervailing Measures
(ASCM).
• Kirk is requesting consultations under section
301 of the Trade Act of 1974
The accusation

8. • The WTO defines a subsidy as a financial
contribution by a government or any public body
within the territory of a Member (referred to in
this Agreement as “government”), i.e. where:
• A government practice involves a direct transfer of
funds (e.g. grants, loans, and equity
infusion), potential direct transfers of funds or
liabilities (e.g. loan guarantees);
• Government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives
such as tax credits); a government provides goods or services other than general
infrastructure, or purchases goods;
• A government makes payments to a funding mechanism, or entrusts or directs a private body to
carry out one or more of the type of functions illustrated in (a) to (c) above which would
normally be vested in the government and the practice, in no real sense, differs from practices
normally followed by governments;
• There is any form of income or price support (i.e.-fixing the exchange rate) in the sense
of Article XVI of GATT 1994 and a benefit is thereby conferred. (The World Trade
Organization, 1995)
What is a subsidy?

9. • Subsidies
artificially create a
demand for the
Price
producers that is Supply
Pre Subsidy
reflected in the
price of the product
Subsidy
• Supply: Pre subsidy P1
Supply
Post Subsidy
P1/Q1 P2
• Supply: Post
subsidy P2/Q2 Demand
• Increase Q1 Q2 Quantity
output/lower price
What does a subsidy do?

10. • Agreement on Subsidies and Countervailing Measures
(ASCM) only restricts 2 kinds of subsides:
• Export subsidies
• Subsidies that are dependent on domestic produced goods
over imports.
• Kirk describes the fund as an import substitution. An
import substitution is a type of subsidy.
Restricted Subsidies

11. • Import substitution industrialization (ISI) is a concept that attempts to
wean a smaller economy off a bigger economy that it has been
dependent on for a long time.
• lessor economies were exporting raw materials while at the same time
importing popular consumer goods from countries with a stronger
economy.
• ISI tries to reduce its reliance of imports of popular consumer goods
from other countries by creating its own industry (sometimes state
owned) to support consumer demand.
• ISI also tries to control imports through a systems of tariffs, quotas
and strict control of its currency exchange thus giving local industry
an advantage over foreign imports.
• During the 20th century, this type of economic policy was very
popular with Latin American economies
Import Substitution
Industrialization

12. • Imports did increase
• Raw material prices decreased
• Capital spending increased
• Modernize or be eliminated
• Lasted until the 70s and ultimately labeled a bad idea
ISI Problems

13. • Factors that might be considered when this case is
reviewed
• Environment
• International trade vs. healthy planet
• Similar programs: US/World
Possibilities…

14. • WTO-UNEP Report
• Climate change
• Controllable changes
• Green house gas
(GHG)
• Change or die
• Other countries have
similar programs
Environment

15. • Chinese government spent 34
billion on renewable energy
projects
• USA spent about half of what
the Chinese have spent
• WTO/UN: “Be creative”
• USA: Has national resources
• World: Disadvantaged
• USA: Selfish
International Trade vs.
Healthy Planet

16. • USA has similar programs
• Transparent???
• Red tape/bureaucracy
• Trade barrier
• USA: 300 million people
• China: 1.3 billion people
• Which country has a better chance to solve the worlds
problems?
Similar U.S. Programs

17. • Article 8 of the MOF Document (2008) 478
• “the special fund must be specially used to cover the cost of
new wind power equipment’s research and development
activities.”
• Research and development is not a finished product
• Therefore, Article 3.1(b) of the WTO's Agreement on
Subsidies and Countervailing Measures (ASCM) would not
apply
• The incentive is not being offered to a good but to the research
of an idea that is not marketable
• Article 3.1 (b) of the ASCM is for finished goods only
• The United States will lose this case
Prediction

18. • Are there any questions?
Questions