ANNUAL REPORT

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As a result, products from demonstration bases were cheaper and
more competitive in export markets. 307 In 2012, for example, 16
demonstration bases in the textile sector accounted for 14 percent
of China’s total textile exports. 308
The subsidy program was discovered as part of a separate WTO
dispute the United States raised with China in 2012 regarding unfair
auto parts subsidies. 309 While China eliminated the auto parts
subsidy program, the investigation revealed the network of demonstration
bases and illegal export subsidies. 310 The United States
challenged the program at the WTO in February 2015, citing concerns
that “China’s actions [were] damaging [the] international marketplace,
undercutting American businesses, and hurting workers in
communities across [the] country.” 311
For some U.S. industries, however, the MOU may not be comprehensive
enough to maintain free and fair trade in international
markets. The steel industry, for example, remains wary of the
Chinese government’s claims, anticipating Chinese steel companies
will receive additional forms of support—like cheap loans from state
banks, artificially low prices for inputs such as energy and water,
and support for R&D and technology acquisitions—that continue to
put U.S. firms at a disadvantage. 312
United States Challenges China’s Discriminatory Taxation
for Small Aircraft
In December 2015, the USTR initiated dispute settlement proceedings
at the WTO over China’s discriminatory tax exemptions
for domestically produced small aircraft. These measures impose a
17 percent value-added tax on imported aircraft while exempting
domestically produced aircraft, particularly aircraft under 25 metric
tons by weight, in violation of the WTO’s nondiscriminatory taxation
rules. 313 Examples of exempted aircraft include China’s domestically
produced regional jet, the ARJ21, and general aviation
aircraft ranging from propeller-driven aircraft to business jets. 314
The USTR noted these tax measures were not reported to the WTO
as required. 315 (For a discussion of China’s industrial policies in the
aviation manufacturing industry, see Chapter 1, Section 3, “13th
Five-Year Plan.”)
The USTR noted that unfair taxation policies disadvantage the
U.S. general aviation manufacturing industry, which provides approximately
103,000 jobs and contributes $14 billion annually to
the U.S. economy. 316 According to Ambassador Froman, “China’s discriminatory,
unfair tax policy is harmful to American workers and
American businesses of all sizes in the critical aviation industry,
from parts suppliers to manufacturers of small and medium-sized
aircraft.” 317 Since 2011, U.S. exports of civilian aircraft, engines,
equipment, and parts to China more than doubled—reaching $13.9
billion in 2014, or about 12 percent of total U.S. exports. 318 Based
on Chinese regulators’ estimates, China’s general aviation sector is
expected to grow 19 percent annually through 2020, creating enormous
potential opportunities for U.S. firms. 319
worth of benefits annually” and provided “common service platform” suppliers with “almost $1
billion over a three-year period.” Office of the U.S. Trade Representative, United States Launches
Challenge to Extensive Chinese Export Subsidy Program, February 2015.