Applying the 'Specificity' Test in the Context of Foreign Investment Policies of China

Abstract

The confirmative determination on the specificity of China's Investment-Inducing Policy - the "Two Free/Three Half" program raises several technical questions about how to clarify the specific requirement provided by the U.S. CVD law and the WTO SCM agreement. The determination also has broad policy implications for China, India, Vietnam, Laos and other developing countries that adopt the similar investment-inducing policies. The examination of the negotiation history shows that the negotiators wanted to put a more stringent discipline on sector-specific subsidies. Moreover, if we accept that incentives given to foreign investment enterprises are countervailable, it will be inconsistent with the common practice adopoted by the WTO system with respect to foreign investment policies. The level of foreign ownership alone cannot determine the specificity of a subsidy. Thus, extending the CVD application to those foreign investment policies raises concerns as to how much room developing countries have in their policymaking for social and economic development. It turns out any careless manipulation of the specificity test will inappropriately restrict the state autonomy on the policy-making in the area of investment encouragements, which will undermine the long run of multilateral trading system.

Keywords: Specificity test, Foreign investment Policies, Investment-Inducing Policy, Sector-specific subsidies, China, WTO, Subsidies and Countervailing Measures, SCM, Multilateral trading, Subsidy Rules, Foreign Investment enterprises

JEL Classification: F02, F10, F12, F13, F14