Europe, Japan, US Agree on Approach on Confronting Chinese Subsidies in WTO
If Europe, Japan and the U.S. are able to convince the World Trade Organization to rewrite the language on subsidies and countervailing measures from the Uruguay Round Agreements, cases against Chinese subsidies -- or antidumping and countervailing cases responding to them -- would be tilted in favor of the market economies. The U.S. trade representative, Europe's new trade minister and the Japanese trade minister issued a joint statement Jan. 14 that the agreement on subsidies needs to have additional language prohibiting all “unlimited guarantees; subsidies to an insolvent or ailing enterprise in the absence of a credible restructuring plan” and subsidies to companies operating in sectors with overcapacity that can't get long-term financing from independent commercial sources. They also agree that “certain direct forgiveness of debt” should be categorically prohibited in international trade law, but they did not specify what forgiveness crosses the line.
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They also said there should be other subsidies that are not prohibited, but if they are challenged, the country providing the subsidies has the burden of proof that they are not distorting trade. The statement said those “include, but are not limited to: excessively large subsidies; subsidies that prop up uncompetitive firms and prevent their exit from the market; subsidies creating massive manufacturing capacity, without private commercial participation; and, subsidies that lower input prices domestically in comparison to prices of the same goods when destined for export.”
They said that the WTO should establish when a country implementing countervailing and antidumping duties can reject the exporter's domestic prices, and establish a benchmark of how to determine market prices, “including the use prices outside of the market of the subsidizing Member.”
The U.S. has lost cases at the WTO when the Commerce Department used prices outside of China to determine appropriate AD/CVD tariffs. They did not come up with a definition of a public body, but said the WTO definition is too narrow.
The U.S. Chamber of Commerce and the similar groups for the European Union and Japan also issued a joint statement that they fully support these discussions, and urged the governments to quickly deliver proposals at the WTO to put these ideas into action. But they said that without an appellate body, the WTO's ability to address trade distorting subsidies is undermined. “Currently, the WTO is facing its deepest crisis since its establishment. The appellate body is ceasing to function at a moment when trade tensions are increasing, and the negative impact could be devastating,” they wrote.