TWN Info Service on WTO and Trade Issues (Oct18/04)
9 October 2018
Third World Network

US-EU-Japan WTO proposals target China's trade policies
Published in SUNS #8761 dated 27 September 2018

Geneva, 26 Sep (D. Ravi Kanth) -- China faces a defining moment at the World Trade Organization after the United States, the European Union and Japan chose to gang up against its alleged non-market oriented policies, industrial subsidies and state-owned enterprises, and forced technology transfer policies, trade envoys told SUNS.

Under the pretext of WTO reform, trade ministers of the United States, the European Union and Japan on Tuesday issued a set of proposals for launching negotiations at the WTO, targeting China as their principal adversary/opponent and other major developing countries as their secondary targets for re-writing rules on several issues.

The three trade chiefs called for differentiation for availing special and differential flexibilities on grounds that "overly broad classifications of development, combined with self-designation of development status, inhibits the WTO's ability to negotiate new, trade-expanding agreements and undermines their effectiveness."

Without naming China, India, Brazil and South Africa among others, the three trade ministers "called on advanced WTO Members claiming developing country status to undertake full commitments in ongoing and future WTO negotiations."

Without addressing the core issue that is staring in the face of WTO members - i. e. the existential crisis and the survival of the dispute settlement system because of opposition from the US - the three major trading members joined hands in their resolve to target China and other developing countries for denying "policy space," said several trade envoys who asked not to be quoted.

In their four-page joint statement issued on 25 September in New York, the US Trade Representative Ambassador Robert Lighthizer, the EU trade commissioner Cecilia Malmstrom, and Japan's minister for economy, trade and industry Hiroshige Seko, stated explicitly their shared objective to "address non- market-oriented policies and practices of third countries that lead to severe overcapacity, create unfair competitive conditions for their workers and businesses, hinder the development and use of innovative technologies, and undermine the proper functioning of international trade, including where existing rules are not effective."

Echoing the much-repeated position of the US that the current WTO rules are ineffective to address China's non-market economic model, the three trade chiefs directed their negotiators at Geneva to intensify their campaign for addressing "non-market policies and practices of third countries" so as to "maintain market- oriented conditions, and to deepen discussions on enforcement and rule-making as tools to address these problems."

Following the US proposal for implementing stringent transparent and notification conditions last year, the three developed countries want to turn the WTO Secretariat into an "intrusive" oversight agency for assessing members' notifications, said a trade envoy, who asked not to be quoted.

Under the heading "Statement on Industrial Subsidies and State-Owned Enterprises," the US, the EU and Japan called for "possible new rules on industrial subsidies and State-Owned Enterprises so as to promote a more level playing field for their workers and businesses."

Significantly, the statement is silent about correcting the continued historical asymmetries in the global farm subsidies in the Uruguay Round commitments.

The US and the EU along with Australia recently stepped up efforts to paint India, China, and other developing countries as the major subsidizers in agriculture.

Against this backdrop, the three major developed countries are now insisting that it is "industrial subsidies" which need to be addressed on a war footing and not the agriculture subsidies.

This would imply that the US, the EU and Japan reckon that the Doha Round is dead and buried, said a trade envoy, who asked not to be quoted.

At a meeting of 13 countries held at the Canadian mission on 20 September, Australia, Brazil, and Chile among others demanded that agricultural subsidies must be addressed on the same footing as new disciplines for industrial subsidies, said a participant familiar with the meeting.

But the EU, Japan, Switzerland, and Norway among others turned their backs to the demand for addressing agricultural subsidies, the participant said.

In their joint statement, the US, the EU and Japan called for creating "a level playing field given the challenges posed by third parties developing State Owned Enterprises into national champions and setting them loose in global markets - resulting in distortions that negatively affect farmers, industrial producers, and workers" in their countries.

The insertion of "farmers" for creating a level playing field implies that they want "market access" in other countries without addressing their trade-distorting domestic subsidies and export credit and other disciplines.

Without naming China, the US, the EU and Japan called for "effective rules to address market-distorting behavior of state enterprises and confront particularly harmful subsidy practices such as: state-owned bank lending incompatible with a company's creditworthiness, including due to implicit government guarantees; government or government-controlled investment fund equity investment on non-commercial terms; non-commercial debt-to-equity swaps; preferential input pricing, including dual pricing; subsidies to an ailing enterprise without a credible restructuring plan; and subsidies leading to or maintaining overcapacity."

Effectively, the EU and Japan agreed to what was contained in the US statement made at the China trade policy review meeting on 12 July that China engages "in harmful subsidy practices such as: state-owned bank lending incompatible with a company's creditworthiness, including due to implicit government guarantees; government or government-controlled investment fund equity investment on non-commercial terms; non-commercial debt-to-equity swaps; preferential input pricing, including dual pricing; subsidies to an ailing enterprise without a credible restructuring plan; and subsidies leading to or maintaining overcapacity."

The US, the EU and Japan, therefore, want to "strengthen the ability to obtain information on subsidies" and maintain "the effectiveness of existing WTO disciplines."

More important, they want to prepare the ground for launching negotiations in 2019 "on more effective subsidy rules."

The US, the EU and Japan want to bring more members into "these future negotiations" on a plurilateral basis and not on a multilateral framework, trade envoys said.

For tackling "Forced Technology Transfer Policies and Practices of Third Countries," the US, the EU and Japan said "no country should require or pressure technology transfer from foreign companies to domestic companies, including, for example, through the use of joint venture requirements, foreign equity limitations, administrative review and licensing processes, or other means."

Without naming China, the three ministers "condemned government actions that support the unauthorized intrusion into, and theft from, the computer networks of foreign companies to access their sensitive commercial information and trade secrets and use that information for commercial gain."

Coincidentally, US President Donald Trump also made a similar statement at the UN General Assembly on 25 September attacking China for engaging in the forced transfer of technology, and theft of intellectual property.

The US, the EU and Japan maintained that "forced technology transfer policies and practices create unfair competitive conditions for their workers and businesses, hinder the development and use of innovative technologies, and undermine the proper functioning of international trade."

The three ministers want to build a bigger alliance with other like-minded partners on "the full range of harmful technology transfer policies and practices and their effects" so as to create new rules for enforcement at the WTO.

Effectively, they seem determined to create another plurilateral negotiation to arrive at rules for "enforcement" at the WTO.

The three trade ministers came into the open about their ongoing efforts to strengthen the "monitoring and surveillance function."

As a first step, the three countries will issue a proposal on "transparency and notification" for consideration at the next meeting of the WTO Council for Trade in Goods.

Besides, the three trade ministers called for "strengthening of the regular committees' activities" focusing on the promotion of best practices and increasing efficiencies across committees.

For targeting the "proliferation of digital protectionism," the three trade policy chiefs want to intensify work on their plurilateral initiative on "Electronic Commerce."

The US, the EU and Japan said explicitly that "the possible elements" of the plurilateral agreement on e-commerce will "be included" in the WTO rulebook.

The three trade policy chiefs said they will now enter into plurilateral negotiations for achieving "a high standard agreement with the participation of as many members as possible."

Targeting China from acquiring foreign companies in the high-technology areas in their countries, the US, the EU and Japan said they will share their best practices and information "for mitigating risks to their national security from trade and foreign investment."

The three trade ministers said they will develop "a new set of guidelines for government-supported export credits as soon as possible in 2019."

The US, the EU and Japan said they will step up their cooperation at "the G7, G20 and the OECD and in sectoral initiatives such as the Global Forum on Steel Excess Capacity and Governments/Authorities Meeting on Semiconductors, to address market-distorting measures."

In short, the US, the EU and Japan vowed to launch a coordinated as well as concerted battle against China and other developing countries for denying "policy space" in their future industrial development policies, said a trade envoy who asked not to be quoted.

"China faces a defining moment at the WTO as it is frontally targeted by the US, the EU, and Japan," said a trade envoy who asked not to be quoted.

"While other major developing countries - India, Brazil, South Africa, and Indonesia - will also face the consequences of the proposals made by the three countries, it is China which has to bear the brunt of their assault," the envoy said.

"China has to decide one way or the other whether it will continue to align with the US, the EU, Japan, and other countries for pursuing the plurilateral initiatives on e-commerce, investment facilitation, and disciplines for micro, small, and medium enterprises among others or join with the majority of the developing countries that want to pursue multilateral initiatives in the unfinished Doha Development Agenda (DDA) negotiations, and preserve their special and differential flexibilities," the envoy said.

"China cannot run with the hares and hunt with hounds at the WTO," said another envoy, who asked not to be quoted.

The EU and Japan showed their opportunistic streak by maintaining a conspicuous silence on saving the Appellate Body and ensuring the binding nature of the dispute settlement system, said several trade envoys. +