China’s failure to comply with its WTO obligations is having a significantly adverse impact on U.S. manufacturers, according to Andrew G. Sharkey III, President and CEO of the American Iron and Steel Institute (AISI). Testifying before the U.S. Trade Representatives Office, Sharkey stated that, “no issue is more important to their future than reversing this trend and making sure China lives up to its international obligations.”

Sharkey, whose trade association member companies produce 75% of America’s steel capacity, said the impact of currency manipulation “cannot be overemphasized.”

“With China intervening on a massive scale to keep its currency undervalued by an estimated 40% or more, the effect on the bottom line of many U.S. manufacturers is huge, and quite often debilitating,” he said. “We are well beyond the point where ‘jawboning’ on this issue is sufficient, and we join the call of other industries for this Administration to get tough on currency manipulation — including through legal action and, if necessary, limitation on access to our market.”

Sharkey said government subsidies continue to benefit Chinese producers and to distort Chinese and world markets. He said it is estimated that almost 90% of Chinese steel production comes from state-owned enterprises.

“The Chinese government has treated steel as a targeted industry for low-interest rate financing, and has provided many billions of dollars in subsidies — largely in the form of debt-to-equity swaps — to its leading producers. China's position at the recent OECD steel talks — where it vociferously argued that it be exempted from new disciplines on subsidies — strongly suggests that Chinese government intervention in the market is not a thing of the past. Our government needs a forceful response. And first out of the box in this effort should be full application of our countervailing duty law to China and other non-market economies,” he said.

Sharkey said that export restrictions — particularly in raw material sectors — are also a major problem in China.

“China’s export licensing and quota system for coke is not only WTO-illegal,” he said, “but has resulted in the disruption of supply, as well as enormous (and unauthorized) fees for foreign purchasers trying to buy Chinese coke. This illegal scheme — along with export restrictions in other areas like steel scrap — has had a substantial effect on steel production and pricing worldwide, and has clearly provided an artificial and unfair advantage to Chinese steel producers.”

Speaking on remedies that apply to China as part of its WTO accession agreement, Sharkey said, “Given China's history of violating trade disciplines, there can be no higher priority than effective application of existing trade laws to China — which requires pushing back against China's efforts to weaken or undermine these laws.”

“That means continued treatment of China in antidumping cases as a non-market economy, applying our anti-subsidy laws to China, and putting some teeth in the special China safeguard. Given the size and power of China's industrial sectors, allowing it to violate WTO trading norms and essentially play by a different set of rules would be damaging,” he said.

Sharkey said action is also long overdue to address unfair international tax rules.

“This goes beyond China's manipulation of its VAT system (as seen in the recent semi-conductor dispute),” he said, “to the basic inequity of allowing China and others to adjust VAT taxes at the border, while the U.S. is denied similar treatment for its direct taxes.”

“The effect is to double tax U.S. exporters, while allowing Chinese and other foreign producers to sell here largely tax-free. Fixing this inequity has been a U. S. objective in every recent fast-track bill, and it is time we actually did something about it,” Sharkey concluded.

AISI serves as the voice of the North American steel industry in the public policy arena and advances the case for steel in the marketplace as the preferred material of choice. AISI also plays a lead role in the development and application of new steels and steelmaking technology. AISI is comprised of 31 member companies, including integrated and electric furnace steelmakers, and 118 associate and affiliate members who are suppliers to or customers of the steel industry.