Ambassador Kirk's Letter to Senator Enzi Regarding China's VAT Rebate Policies
March 1, 2010
The Honorable Michael Enzi
United States Senate
Washington, D.C. 20510
Dear Senator Enzi:
Thank you for your recent letter on behalf of the soda ash industry expressing concern regarding China's value-added tax (VAT) rebate policies. Please be assured that we are continuing to press China on its VAT rebate policies, both as a systemic issue and specifically in relation to soda ash.
I agree that different tax policies and structures across major economies can adversely affect the competitive positions of producers in both domestic and third-country markets. Specific VAT rebate decisions in China can have substantial effects on the competitive positions of U.S. manufacturers that compete with Chinese manufacturers in the United States and in third country markets. We are particularly concerned that the Chinese government raised the export VAT rebate rate on soda ash from zero to 9 percent in 2009, at a time when world demand for soda ash had slowed.
As your letter notes, I expressed strong concerns about China's VAT rebate practices as part of our engagement of Chinese government officials at the U.S.-China Joint Commission on Commerce in Trade (JCCT) meeting held in October 2009. The Chinese officials argued that China's VAT rebate policies are consistent with the rules of the World Trade Organization (WTO). At the same time, they did indicate that China is reforming its VAT system in an effort to adopt policies that encourage domestic consumption over production and exports, although this reform will take time.
More recently, during the January 2010 meeting of the JCCT Structural Issues Working Group, USTR and Commerce Department officials continued to engage China on this issue, stressing that China's current VAT rebate policies appear to be designed to promote labor-intensive industries by encouraging exports by these industries despite weakened global demand. We also noted that China's VAT rebate policies have been inconsistent. In the past year, for example, China has raised VAT rebate rates on products like soda ash in an apparent effort to stimulate exports, even though China has previously indicated that it wanted to limit production for environmental reasons. We reiterated that these types of practices are of serious concern to U.S. soda ash producers, which compete with Chinese producers in third-country markets and which use more energy-efficient and less polluting production methods than their Chinese counterparts.
I can assure you that this Administration will continue to work with U.S. industry and the governments of like-minded trading partners to press China, both bilaterally and in multilateral fora like the WTO and the Organization for Economic Cooperation and Development, to abandon its trade-distortive VAT rebate policies.
Thank you for sharing your concerns with me. I look forward to working with you on this.
Sincerely,
Ambassador Ron Kirk