The Office of the U.S. Trade Representative (USTR) issued a joint statement with the trade ministers of Japan and the European Union (EU) following a meeting between the three ministers on January 14, 2020. The joint statement announces the three economic powers’ frustrations with the World Trade Organization’s (WTO) current countervailable subsidy measures and their desire for reform. The proposed subsidy reforms aim to close what the three countries consider to be loopholes exploited by China and follow criticism that the U.S.-China trade negotiations have not addressed China’s aggressive use of industrial subsidies.
The U.S., EU, and Japan seek to broaden the WTO’s definition of a countervailable subsidy to include subsidies with unlimited guarantees; subsidies to insolvent/ailing firms without a credible restructuring plan; subsidies to firms unable to obtain long-term financing from independent sources operating in industries with overcapacity; and certain forms of direct debt forgiveness. They also want members to be transparent about subsidies and want to incentivize transparency by outlawing undisclosed subsidies discovered by another member, regardless of the subsidy’s legality or market effects. The joint statement also addresses forced technology transfers and includes expanding the definition of the term “public body” to more explicitly cover state-owned enterprises (SOEs), as sometimes subsidies are provided through SOEs. Members should also prove that their subsidies do not cause oversupply or other harmful effects in the market. To accomplish these reforms more quickly, the U.S., EU, and Japan want to expand their coalition to other large economies so that the reforms do not require the approval of all 164 WTO members.
Please contact Husch Blackwell’s International Trade and Supply Chain team should you have any questions on how these proposed subsidy reforms might affect your company or suppliers.