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Info Service on WTO and Trade Issues (Oct21/11) Geneva, 11 Oct (D. Ravi Kanth) – Attempts are currently underway to bring about new disciplines on industrial subsidies aimed at denying the developing countries from adopting new technologies, while the developed countries want to continue with their hundreds of billions of dollars for their research and development programs, said people familiar with the development. At a senior trade officials’ meeting of the group of 20 industrialized and developing countries on 10 October in Sorrento, Italy, China challenged the proposed language on industrial subsidies and argued that if the issue of industrial subsidies has to be included then there must also be appropriate language on trade remedies, said people, who asked not to be quoted. China also apparently challenged the use of the word “fair” in the proposed language on WTO reforms. India, South Africa, and Saudi Arabia appear to have opposed the inclusion of the issue of “data flows with trust” as proposed by the industrialized and some developing countries, said people, who asked not to be quoted. INDUSTRIAL SUBSIDIES During the day-long meeting on various issues in different tracks at the G20 ministerial meeting in Sorrento on 10 October, China said that if proposals on industrial subsidies involving different forms of industrial subsidies are included, then, there must be language on the egregious use of trade remedy measures like anti-dumping and countervailing duties that are resorted to by some major industrialized countries, especially the United States, said people familiar with the development. Over the last two years, the United States, the European Union, and Japan have pursued the issue of industrial subsidies on an aggressive footing, particularly under the slogan of “ways to strengthen existing WTO rules on industrial subsidies.” Their constant refrain has been that “the current list of prohibited subsidies provided for in Article 3.1 of the Agreement on Subsidies and Countervailing Measures (ASCM) is insufficient to tackle the market and trade- distorting subsidization existing in certain jurisdictions.” The three members of the so-called “Trilateral” process for framing reforms at the WTO underlined that “new types of unconditionally prohibited subsidies need to be added to the ASCM.” These subsidies include “(a) unlimited guarantees; (b) subsidies to an insolvent or ailing enterprise in the absence of a credible restructuring plan; (c) subsidies to enterprises unable to obtain long-term financing or investment from independent commercial sources operating in sectors or industries in overcapacity; (d) certain direct forgiveness of debt.” They had alleged that “certain other types of subsidies have such a harmful effect so as to justify a reversal of the burden of proof so that the subsidizing Member must demonstrate that there are no serious negative trade or capacity effects and that there is effective transparency about the subsidy in question.” The main target for bringing the issue of industrial subsidies to the table appears to be China, whereby the three countries had repeatedly claimed that China has benefited in global trade due to industrial subsidies. According to an analyst, who asked not to be identified, the demandeurs on industrial subsidies do not want to “explicitly” say that “their main intention is to prevent developing countries from adopting new technologies,” and “put developing countries on a back-foot.” On industrial subsidies, UNCTAD’s Trade and Development Update (May 2020) on “South-South Cooperation in the Times of Covid-19” argues that “while (and contrary to their four-decade-long ideological drive) massive financial subsidies are being rolled out in the North to sustain its businesses during the pandemic, developing countries, who cannot afford comparable bailouts, will, at all levels, need to revive the use of strategic trade and industrial policies.” The UNCTAD update has suggested that “the importance of providing subsidies as an additional support for industrial recovery during a crisis has been widely recognized.” According to the UNCTAD update, industrial subsidies including financial support to specific industries, tax credits, rent rebates to small and medium enterprises, export subsidies, debt forgiveness etc., are important policy instruments which will be needed by developing countries to provide additional support to their domestic producers during and post pandemic. These subsidies can enable the rebuilding of labour-intensive and export-oriented industries like textiles and clothing, footwear etc., which are expected to take the hardest hit and lead to massive unemployment in the South. However, developing countries do not have enough policy space to support their economic recovery given the existing multilateral trade agreements, especially with respect to industrial subsidies, the update has argued. “A sensible place to explore the judicious mix of liberalizing and subsidizing measures in support of economic diversification would be through South-South agreements which could be subsequently used as a model for reform of the multilateral rules in this area,” the update said. It has argued for “a temporary WTO Peace Clause to use industrial subsidies for reviving their industrial growth and subsequently their exports are desirable to ensure enough policy space during and after the crisis to developing countries.” DATA FLOWS WITH TRUST On data flows with trust, India, South Africa, and Saudi Arabia raised fundamental objections on including this issue in the G20 ministerial declaration. A recent revelation on Facebook shows that “Facebook not only knows that its platform encourages angry, hateful, demonstrably false content, but it is prioritizing that content to keep readers engaged.” The company is choosing “profit over safety,” and with the growing legal cases brought by governments like France, the EU etc against the digital platforms, countries need to be extremely careful with their data flows and definitely not trust private digital platforms with their data. Ms Rashmi Banga, UNCTAD’s digital trade expert, says that “it is interesting to note that digital platforms do not trust the governments when it comes to sharing of their source codes and want binding commitments from the governments that they will not ask for sharing of their source codes but want governments to trust them with their citizens’ data flows.” PROPOSED WTO REFORMS In the growing tussle over the proposed WTO reforms, China has challenged the use of the word “fair” in the proposed language on WTO reforms. Although it is unclear where this word is used in the text, many members have demanded that the WTO reforms will only gain credibility if the two-stage dispute settlement system, particularly the Appellate Body, is restored without any payment (quid pro quo) being made, said people familiar with the development. In her report to the General Council last Thursday, the WTO director-general Ms Ngozi Okonjo-Iweala said what emerged from the Paris ministerial meeting last week “was that there is a will to work on these reforms, but we still need to understand what it means.” Ms Okonjo-Iweala said that “there are different views of what reform is and what it should be,” arguing that “of course, one aspect that came out prominently was the dispute settlement system.” “But there again, we need to have a bottom-up process of talking to each other, discussing with each other, trying to see (i) what we all mean by reform of the basic functions, and (ii) what process we need to put in place,” she said.
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