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January 15, 2020

US, Japan, EU seek new global rules limiting subsidies


January 15, 2020

By Monitoring Desk

Washington: Washington, Tokyo and Brussels on Tuesday joined forces in calling for stronger global rules against government subsidies that distort trade, a practice China has long been accused of exploiting.

A day before Chinese officials are due to sign the first phase of a trade deal with the United States in Washington, Beijing is again the focus of criticism from its main trading partners.

The Phase 1 U.S.-China deal will lead to China buying more U.S. products, but not tackle hard issues such as subsidies.

The three partners intend to bring their proposals to the Geneva-based WTO, with as many countries involved as possible, even if probably not all the WTO’s 164 members.

“This would only make sense if the big subsidisers were on board,” an EU source said.

The governments called on the World Trade Organization to beef up existing regulations, which they said in a statement are "insufficient to tackle market and trade distorting subsidization."

But they refrained from naming China directly.

The proposed rules are the outcome of two years of trilateral discussions, but are only a precursor to the hard work of convincing other WTO members, including China.

US Trade Representative Robert Lighthizer met Tuesday with Japan´s Economy, Trade and Industry Minister Kajiyama Hiroshi, and European Trade Commissioner Phil Hogan, and also discussed the need to prevent forced technology transfers -- an issue at the heart of the US-China trade conflict.

"These unfair practices are inconsistent with an international trading system based on market principles" and undermine "growth and development," the statement said.

The latest statement came after many months of trilateral meetings, a rare display of multilateral cooperation by the administration of President Donald Trump, who has launched multi-front trade wars and crippled the WTO´s dispute settlement function.

The three sides called on the WTO to add to its list of prohibited government subsidies for companies by banning support that is unlimited, is given to an insolvent or ailing enterprise with no "credible restructuring plan," to companies that cannot on their own get long-term financing or investment, or for debt forgiveness.

They also called for a ban on subsidies for industries that are over capacity.

This is another issue behind long-standing complaints against China in industries like steel and aluminum, where the markets have been flooded with supply, driving down prices and pushing some firms out of business.

And the officials want to make it easier for WTO members to file complaints against other harmful subsidies, including those to support uncompetitive firms.

Such subsidies can create massive manufacturing capacity "without private commercial participation" or lower domestic input prices in comparison to the prices of the same goods when they are export bound, the statement said.

The three partners want to add four banned subsidy types, namely unlimited guarantees, subsidies to ailing enterprises without a restructuring plan, subsidies to firms unable to obtain long-term financing and certain forgiveness of debt.

They would also seek to ban other large subsidies, such as to prop up zombie enterprises, to create overcapacity or to lower input prices unless the subsidising country can prove there are no negative effects.

They are also seeking to devise rules to end forced technology transfer and current WTO rules that allow countries such as China, Korea and Singapore to designate themselves developing countries, which enjoy advantages.