China’s aircraft tax exemptions challenged by US

The USA has launched a challenge against the Chinese policy of exempting ‘home grown’ aircraft from taxes, making it difficult for American manufacturers to be competitive. In the last three years alone the USA has exported over $US500 million worth of small-to-medium-sized planes to China. Currently China has a policy of imposing 17% ‘value added tax’ on small to medium planes under 25 metric tons that are imported from overseas.
This situation puts planes like the Comac ARJ 21 at a distinct advantage over its competitors with Embraer’s E170 and E175 basic empty weight (BEW) at just over 21 metric tons, and Bombardiers CRJ 700, CRJ 900 and CRJ 1000 coming in at operating empty weights (OEW) of between 19 and 23 metric tons respectively.
US Trade Representative Michael Froman made it clear in a statement that: “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.”
Documentation dating back as far as 2000 relating to this tax break was uncovered by USTR investigators indicating that, as a result, China had not complied with WTO transparency commitments in failing to publish such regulations for open review. The challenge allows for a 60-day period for consultations, after which the US can then request a panel investigate the case more closely.
With the launch last week of the Comac C919 China has made it clear it intends to challenge the dupololy of Boeing and Airbus in the ‘big jet’ market, while the ARJ21 is directly aimed at competing with Embraer and Bombardier. However, this move by the US shows the levels of scrutiny now being adopted by Washington as China enters this broader market for larger passenger jets.
With China having contributed testimony to the world’s biggest trade dispute over mutual allegations by the United States and the European Union of illegal aircraft subsidies involving Gulf carriers, it is now anticipated that all eyes will now turn in China’s direction as the country challenges for a larger slice of the global aircraft market.