U.S. takes China aircraft import tax dispute to WTO

The United States has initiated dispute settlement proceedings at the WTO by asking for consultations with China on its rules exempting certain aircraft produced in China from value-added tax.    The United States has initiated dispute settlement proceedings at the World Trade Organization by asking for consultations with China on its rules exempting certain aircraft produced in China from value-added tax (VAT), while at the same time imposing those taxes on imported aircraft.
   In specific, China’s tax exemptions result in “substantial discrimination” against certain imported aircraft, according to the Office of the U.S. Trade Representative which filed for the WTO proceedings on Tuesday. China imposes a 17 percent VAT on imported aircraft – generally those under 25 metric tons by weight, including general aviation and regional planes, while exempting from VAT such similar size Chinese-made aircraft, such as its AJR21.  
   “China’s measures appear to breach WTO rules prohibiting discriminatory taxation on the basis of national origin,” as well as its trade transparency commitments to the WTO, USTR said. 
   “We’re also especially concerned that China attempted to hide this discriminatory tax policy,” said U.S. Trade Representative Michael Froman in a statement. “Transparency of laws and regulations impacting trade is a core WTO commitment that China must uphold, just as it expects other countries to do. For these reasons, the United States is filing a trade enforcement case to hold China accountable.”
   China’s aviation sector is one of the fastest growing aviation markets in the world, with a large potential demand for general aviation aircraft. Chinese regulatory agencies estimate an annual growth of 19 percent per year in general aviation aircraft through 2020, according to USTR.
   Consultations are the first step in the WTO dispute settlement process.  If the United States and China are not able to reach a mutually agreed solution through consultations, the United States may then request the WTO establish a dispute settlement panel to examine the issue.