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US, EU, Japan propose stricter WTO curbs on industrial subsidies

Top trade officials of the U.S., the European Union and Japan agreed on proposed changes to existing international rules on industrial state subsidies and denounced forced technology transfer practices, taking an apparent swipe at China ahead of its planned Jan. 15 signing of a "phase one" trade deal with the Trump administration.

U.S. Trade Representative Robert Lighthizer, EU Trade Commissioner Phil Hogan and Japanese Trade Minister Hiroshi Kajiyama met Jan. 14 in Washington, D.C., to discuss new types of subsidies that should be banned under the Agreement on Subsidies and Countervailing Measures among World Trade Organization member economies. These include unlimited guarantees, subsidies to insolvent or ailing businesses with no credible restructuring plan, subsidies to companies unable to secure long-term financing or investment from commercial sources and that are operating in sectors or industries in overcapacity, and certain direct debt forgiveness.

Existing WTO rules are "insufficient to tackle market and trade distorting subsidization existing in certain jurisdictions," the officials said in a joint statement without directly mentioning China.

The officials also want the burden of proof in cases involving certain types of subsidies to be reversed. Under their proposal, WTO members providing state support must be able to prove that their subsidies have no serious negative trade effect, or risk withdrawing the subsidies immediately.

The proposed changes marked "an important step toward addressing some of the fundamental issues distorting global trade," Hogan said.

Apart from industrial subsidies, the three trading partners also took aim at forced technology transfers in other countries, calling them "unfair" and "inconsistent with an international trading system based on market principles." They called for commitments on export controls, investment review for national security purposes, and trade enforcement rules.

The trade officials also agreed to press "advanced WTO members claiming developing country status" to make full commitments in current and future negotiations.

In July 2019, U.S. President Donald Trump ordered Lighthizer to step up pressure on the WTO to stop China and other economies from claiming "developing country" status and availing themselves of "flexibilities" in trade rules and negotiations.