Counteracting Distortive Export Tax and VAT Rebate Policies at the WTO: A Downstream Industry Perspective

Transcription

1 Counteracting Distortive Export Tax and VAT Rebate Policies at the WTO: A Downstream Industry Perspective Matthew R. Nicely Partner, Thompson Hine LLP Washington, DC ATLANTA BRUSSELS CINCINNATI CLEVELAND COLUMBUS DAYTON NEW YORK WASHINGTON, D.C.

2 Export restraints at the WTO Quantitative restrictions were addressed and largely eliminated during Uruguay Round; export taxes were not indeed, they are specifically allowed. Some countries have agreed to eliminate or cap export taxes in WTO-plus commitments (e.g., China). EC has taken lead in seeking to eliminate export taxes as part of DDA s NAMA negotiations. Distortions are therefore getting attention they needed. But, recently took turn for the worse as with overall Doha negotiations.

3 Differential VAT Rebates Also An Issue Some countries are manipulating VAT rebate systems to function like export taxes. VAT rebates are made unavailable for upstream raw materials, but remain available for downstream products. When combined with export tax on upstream material, extreme disincentive to export. Difficulties associated with VAT systems within the WTO.

4 Time for Action More and more industries are realizing distortive effects of these policies. Raw materials in short supply globally, driving global prices higher. Glut of domestic raw materials reduces domestic prices. Downstream industries benefit, leading to greater exports, at lower prices. Effects are felt by all not just developed countries. Fallacy to think that elimination of export taxes is a pro-developed country issue. If serious about liberalization, time to put this back on the table and find ways to challenge in dispute settlement in the meantime.

5 Case Study Chinese Aluminum Foil VAT rebate previously available upon export of inputs. Shift began in 2003, in order to promote downstream industries. 15 % VAT rebate phased out for more and more inputs and replaced by equivalent export tax. Effectively a 30 percent increase in costs associated with export. At the same time, VAT rebate remains in place for foil. In 2007, rebate eliminated even for some value added aluminum products. Foil rebate maintained. Chinese exports of primary aluminum products declined by 50% in 2007 alone.

6 Global Impact of Chinese Aluminum Policies Between 2000 and 2006, China's aluminum foil production grew from 242,000 metric tons ("MT") to 760,000 MT with huge capacity to spare. Over same period, China's exports have grown from 24,000 to 186,000 MT; in 2007, they reached 325,000 MT. That s a 1200% increase since China is now the largest global producer of aluminum foil and the second largest exporter. China plans to build additional foil capacity likely up to 1.8 million MT by Exports will no doubt continue to grow already oversupply in Chinese market.

7 Aluminum Foil Is A Global Industry Many companies in this industry are engaged globally; not a mercantilist industry. Problem is therefore not merely effect on producers domestic markets; industry interested in free, fair markets worldwide. China s exports are going to all the big markets, where there is also foil production, and the increases are huge: to USA up nearly 2900% from to Europe up 2000% from to South Korea up 1000% from

8 Solutions Needed Not wise to pull back on negotiations; continuation of export taxes and differential VAT rebates will fawn copycat and retaliatory measures. Although trade remedies an option, not necessarily a good solution for a global industry. Need to find a solution that developing countries can live with. In the meantime, need to press the matter in dispute settlement. Call a spade a spade these are subsidies, plain and simple.

9 For further discussion Matthew R. Nicely Thompson Hine LLP 1920 N St. NW Suite 800 Washington, D.C Direct: Mobile: or matthew.nicely@thompsonhine.com