TWN Info Service on WTO and Trade Issues (Nov16/01)
1 November 2016
Third World Network

Industrial overcapacity due to subsidies, claim US, EU, Japan
Published in SUNS #8342 dated 27 October 2016

Geneva, 26 Oct (D. Ravi Kanth) -- The United States, the European Union, Japan, and Mexico have sought to raise an issue on the role of subsidies and their contribution to industrial overcapacity at the World Trade Organization on Tuesday (25 October).

The move was an attempt to legitimize decisions made at the G20 meetings in which the sherpas from Washington, Brussels, and Tokyo had played a central role in finalizing the outcomes, trade envoys told SUNS.

The joint proposal by the four countries under a misleading title - "the contribution of the WTO to the G20 call for action to address certain measures contributing to overcapacity" - came up for discussion at a meeting of the WTO's Committee on Subsidies and Countervailing Measures.

The two-page proposal introduced by the four proponents was discussed at the G20 leaders' meeting in Hangzhou, China, last month (4-5 September), after it was finalized at the meetings of the G20 trade ministers in Shanghai (9-10 July), and G20 finance ministers in Chengdu, China (23-24 July).

The G20 leaders have referred to the issue of industrial overcapacity in steel and other sectors in paragraph 31 of the Hangzhou Summit communique.

The G20 leaders said: "We recognize that the structural problems, including excess capacity in some industries, exacerbated by a weak global economic recovery and depressed market demand, have caused a negative impact on trade and workers. We recognize that excess capacity in steel and other industries is a global issue which requires collective responses. We also recognize that subsidies and other types of support from governments or government sponsored institutions can cause market distortions and contribute to global excess capacity and therefore require attention."

As a follow-up to the G20 leaders' call, the four proponents pressed the WTO's SCM Committee to "look more closely at the extent to which subsidies contribute to overcapacity and how they could be further disciplined in the interest of providing a level playing field for traders and an environment where trade and resource allocation is not distorted."

The US, the EU, Japan, and Mexico while acknowledging that the issue of "overcapacity requires multifaceted and long-term solutions some of which go beyond the remit of the WTO," pressed for a number of trade-related measures to be considered by WTO members that could address subsidies which contribute/aggravate overcapacity - "not only in the steel industry, but also in other sectors such as the aluminum industry."

They insisted that "the SCM committee could launch the issue among members" to address three questions such as "to what extent have subsidies contributed to the creation of excess capacity," "what are the specific government or business practices that have contributed to the creation of excess capacity," and "in what areas are current disciplines in the SCM [Agreement on Subsidies and Countervailing Measures] incomplete or inadequate to address these practices."

Significantly, China which hosted the G20 meetings this year was not a party to the proposal. Clearly, the language on the subsidies and overcapacity was formulated by the so-called G20 negotiating sherpas from the US, the EU, and Japan while the sherpas from the G20 developing country members merely adopted reactive positions, said a trade envoy from a developing country.

The current US trade representative Ambassador Michael Froman when he was a G20 Sherpa during 2009-2012 played a central role in formulating the language on trade issues in the G20 communiques, the envoy said.

Invariably, the US along with the EU and other industrialized countries as well as some developing countries not only proposed language that severely undermined the Doha Development Agenda negotiations, but made it difficult for other G20 developing country members to continue the negotiations, the envoy added.

Speaking at the Graduate Institute on 17 October, the USTR said that President Barack Obama when he attended the first G20 leaders' meeting in April 2009 was asked about his perspective on the Doha Round.

Ambassador Froman, who accompanied President Obama to the G20 leaders' meeting in London as deputy national security advisor in charge of economic issues, said his president agreed to take a hard look at the Doha Round so as to give his view at the next meeting in Seoul in 2010.

"More than a year later, at the G-20 meeting in Seoul (South Korea), there was another critical discussion of the Doha Round," Ambassador Froman said.

President Obama who was asked to start the discussion on the Doha Round at the Seoul meeting, according to the USTR, "made clear his view that we needed to do something different [which implied abandoning the Doha negotiations]."

Despite calls from other G20 leaders for continuing with the Doha negotiations, President Obama said "if we are serious about strengthening the multilateral trading system, we need to move beyond our traditional invocations of the Doha mantra and start thinking seriously about how to revitalize the WTO," according to Ambassador Froman.

In short, the G20 decisions on trade were primarily formulated by the US along with its traditional allies such as the EU, Japan, Canada, and Australia, the envoy said.

"We are now seeing the first major move to legitimize one decision among many from the G20 leaders' communique because it suits their interest but not the developmental issues of the Doha agenda," said another envoy from South America.

"If they are so serious about industrial overcapacity, why not address the issue in the Doha rules negotiations," the envoy asked.

If there is a strong case for discussing new trade remedy measures for industrial capacity, including the "specific and government business practices," why not discuss the issue of eliminating zeroing methodology which is being aggressively used by the US to impose anti-dumping measures, the envoy argued.

Besides, the US, the EU, and Japan had also built a range of industries based on subsidies and questionable business practices over the past seven decades, the envoy suggested.

"Will the US and the EU agree to including business practices adopted by Apple or high-tech industries," the envoy asked.

At the SCM meeting , the EU argued that the industrial excess capacity in steel and other sectors was made possible because of "easy finance."

The US said overcapacity was generating a negative effect. Canada, Australia, Russia, and Korea supported the joint initiative introduced by the US, the EU, Japan, and Mexico.

Venezuela sought to know why the issue cannot be addressed in the Doha negotiating group on rules while Brazil called for a comprehensive discussion on all subsidies.

China argued overcapacity is a problem of business cycle in which periodic and structural problems played their part.

China maintained that the G20 forum is working on the issue so as to develop a mechanism to address the issue of overcapacity. It suggested that the WTO is not the right forum.

In conclusion, the joint proposal is an attempt to force/legitimize the G20 issues of interest to the US, the EU, Japan, Canada, and Australia among others at the WTO while abandoning the Doha rules negotiations, trade envoys maintained. +