The Wyoming delegation, U.S. Senators Mike Enzi, John Barrasso and Representative Cynthia Lummis, all R-Wyo., are stepping up pressure on China to protect Wyoming's soda ash industry from manipulative Chinese tax policies.
In a letter to the U.S. Trade Representative, the delegation and eight of their colleagues, outlined their support for Wyoming soda ash and pushed for multilateral pressure on China.
"Despite the issue being raised at the highest level, the Chinese apparently refuse to modify their trade-distorting VAT rebate policy. This is a troubling development, especially due to the negative impact that the VAT rebate continues to have on the U.S. soda ash industry," the delegation wrote. "We encourage you to find appropriate multilateral forums to discuss the impact of the issue."
Full text of the letter is below.
January 28, 2010
The Honorable Ron Kirk
U. S. Trade Representative
600 17th Street, N.W.
Washington, DC 20508
Dear Ambassador Kirk:
We are writing to express our gratitude to USTR for raising China's use of VAT rebates as a policy that is harmful to our economic relationship -- and the case of soda ash, specifically -- both in the context of the October 28-29, 2009 Joint Commission on Commerce and Trade (JCCT) in Hangzhou, and the July 2009 Strategic and Economic Dialogue held in Washington. Despite the issue being raised at the highest level, the Chinese apparently refuse to modify their trade-distorting VAT rebate policy. This is a troubling development, especially due to the negative impact that the VAT rebate continues to have on the U.S. soda ash industry.
As you are aware, effective April 1, 2009, China began offering its soda ash exporters a 9% rebate on the 17% VAT. This policy change has further stimulated excessive soda ash capacity expansions in China, has given China an artificial incentive to export, and has driven Chinese export prices down at the expense of U.S. exports. All of this is happening in the midst of a major decline in global demand for soda ash. The rebate is nothing short of irresponsible during this troublesome economic period.
Export data shows that during the first three quarters of 2009, China's soda ash exports have increased 9.8% as compared to the same period in 2008. The increase itself is dramatic, but even more so when compared to the fact that U.S. exports have fallen over 20% during the same period. Moreover, Chinese production in September 2009 surged to the second highest monthly output on record, while October 2009 production was the third highest on record. It is apparent that China's producers are paying little attention to market conditions and instead are being driven by artificial incentives, including the VAT rebate.
Concern over China's VAT rebate policy was also recently highlighted in the U.S.-China Economic and Security Review Commission's 2009 Annual Report to Congress. In the report, the Commission notes, "China has consistently used a 17 percent value added tax (VAT) as an instrument of industrial policy China applies different rules for rebating its VAT in order to promote select industries." Among its ten "particularly significant" recommendations, the Commission urges the Administration to evaluate the use of selective VAT rebates by China and their trade-distorting effect and determine what steps, if any, should be taken to address the issue.
Given these facts, we strongly urge you and others in the Administration to take additional action to press China to withdraw its 9% VAT rebate on soda ash and urge China to cease using VAT rebates as a tool to artificially distort trade to its advantage.
We also ask that you put the VAT rebate policy on the agenda of the newly-formed vice minister- level working group with China's Ministry of Industry and Information Technology. We understand that the agenda for this is still under formation, and we hope that you will ensure that any discussion of unfair trade concerns would include VAT rebates.
Finally, we urge you to engage multilaterally on the issue of VAT rebates. The United States is not the only country being adversely impacted by China's manipulation of its VAT for export promotion purposes. We encourage you to find appropriate multilateral forums to discuss the impact of the issue, such as the OECD Raw Materials Working Group, or appropriate working groups in APEC or the WTO.
We greatly appreciate your consideration of this important matter to the U.S. soda ash industry and look forward to your response.
Senator Mike Enzi
Senator John Barrasso
Representative Cynthia M. Lummis
Senator Joseph Lieberman
Representative Phil Gingery, M.D.
Senator Robert Menendez
Representative David Wu
Senator Frank Lautenberg
Representative James Himes
Senator Jeff Merkeley
Senator Ron Wyden