MELBOURNE Feb 12 (Reuters) - A legal challenge by the United States to Chinese export subsidies that takes aim at aluminium products is set to revive industry concerns that China could cut a sales tax refund that has boosted exports and eased a supply shortfall in Asia.
The U.S. on Wednesday launched a legal challenge to Chinese subsidies supporting billions of dollars of exports across a wide swathe of industries from steel to shrimp, in the first step of a World Trade Organization dispute.
Chinese companies in designated export hubs benefited from free or subsidized services, cash grants and other incentives which gave their products an unfair advantage, the U.S. said. Industries covered include advanced materials and metals such as speciality steel, titanium and aluminium products.
"The Chinese primary metals industry is still alive today only thanks to forgiveness of debt, subsidies from governments on electricity bills, low interest loans and so on," Managing Director Paul Adkins of Beijing-based aluminium consultancy AZ China said.
The spotlight on aluminium product exports could raise pressure on Beijing policymakers to kill a value-added tax (VAT) refund on exports of semi-manufactured products, even though any action could take years to complete, Adkins said.
"It's not inconceivable for the government to make some changes to the VAT refund scheme... It's already on (policymakers') agenda, because they're looking at ways to support domestic industry," he said. Removal of the refund would drain metal from the region and support premiums, he added.
China is the world's top producer of aluminium and semi-manufactured products used in everything from window frames to beer cans. China adds a 15 percent tariff to exports of raw aluminium ingot on top of a 17 percent VAT effectively making the energy intensive metal uneconomic for export.
But exports of semi-manufactured shapes, known as semis, don't attract the tariff, and are eligible for a refund for most of the sales tax, making them cheaper for consumption in other markets.
China's exports of semi-finished products soared to 4.5 million tonnes last year. This tempered a record run for premiums - the cost consumers pay traders or producers to obtain metal - in Asia. Some in the industry expect regional premiums to fall if the trend accelerates further. (Reporting by Melanie Burton in MELBOURNE and Krista Hughes in WASHINGTON; Editing by Alex Richardson)