TWN Info Service on WTO and Trade Issues (June 07/18)

19 June 2007

US subsidy proposal comes under fire at WTO meeting

The US proposal for the WTO to prohibit five additional industrial subsidies met with

strong opposition from many developing countries when it was discussed at a meeting of the Negotiating Group on Rules at the WTO on 13 June.

Several developing countries gave the view that the subsidies were important for developing countries to use, and that prohibiting them would erode the policy space needed for their industrial development.

The developing countries also criticized the US for wanting to deprive developing countries of using subsidies that the rich countries themselves had used when they were at a development stage, and thus of "kicking away the ladder" after climbing to the top, to prevent others from coming up.

Some countries also attacked the double standards in the US proposal, which seeks to exempt agriculture from the new disciplines because the developed countries want to protect their agricultural subsidies, while pressurizing developing countries to give up the industrial subsidies that they require.

The report below of the meeting was published in the SUNS on 15 June.

With best wishes
Martin Khor
TWN

US subsidy proposal comes under fire at WTO meeting

By Martin Khor, Geneva, 14 June 2007

The United States' proposal for the WTO to prohibit five additional industrial subsidies met with strong opposition from many developing countries when it was discussed at an informal meeting of the Negotiating Group on Rules at the WTO on Wednesday 13 June.

Several developing countries gave the view that the subsidies that the US was attempting to prohibit were important for developing countries to use, and that prohibiting them would erode the policy space needed by the countries to implement industrial development.

The developing countries also criticized the US for wanting to deprive developing countries of using subsidies that the rich countries themselves had used when they were at a development stage, and thus of "kicking away the ladder" after climbing to the top, to prevent others from coming up.

Some countries also attacked the double standards in the US proposal, which seeks to exempt agriculture from the new disciplines because the developed countries want to protect their agricultural subsidies, while pressurizing developing countries to give up the industrial subsidies that they require.

At the meeting, the US tabled its proposal (which included a draft text) to expand the list of prohibited subsidies under the WTO's Agreement on Subsidies and Countervailing Measures (SCM). Currently, only two types of subsidies are prohibited, export subsidies and subsidies that promote the use of domestic goods over imported goods.

The US proposal is for the SCM to prohibit five additional types of subsidies: (1) government payments to companies to cover operating losses; (2) forgiveness of government-held debt; (3) government lending to "un-creditworthy" companies; (4) government equity investments in "un-equityworthy" companies; (5) other financing, such as "royalty-based" financing that is not commercially available.

Several economic and trade experts have criticized the proposal, pointing out that many of the presently major firms and industries in industrialized countries (including the electronics giant Nokia, and the steel and motor industries of Japan and Korea) had once been loss-making and heavily subsidized, and that asking the developing countries to give up the subsidies would be tantamount to blocking their industrial development. (See SUNS #6271 dated 14 June 2007.)

At Wednesday's meeting, the US said that its new proposal has taken account of feedback from other members on its previous proposal, and its new paper therefore had added the condition that the measures to be prohibited must directly have an impact on trade. It also said that strengthening the subsidies rules is essential to the growth of the international trading regime.

Several developing countries contested the US claim and its proposal. India voiced concern that the US proposal would further hamper the policy space of governments in developing countries from carrying out industrial development.

Brazil said that the paper raises very complex issues, especially for developing countries, and that it would seem to apply only to countries with well-developed capital markets.

China said that the proposal could further heighten the imbalance between developed and developing countries. It used the analogy of "kicking away the ladder", saying that now that the developed countries have used these subsidies to promote their own industries, they now seek to prevent their use by developing countries.

China also criticized the proposal for attempting to perpetuate double standards between agriculture and industry to the benefit of the developed countries, referring to the US proposal's provision to exempt agriculture from the prohibition of subsidies.

The Chinese delegate quoted a Chinese proverb that the privileged people are allowed to light and enjoy a big fire, but the common people are not allowed to light even a candle.

While the US is making use of large agricultural subsidies with great effect, it was now seeking to deprive the developing countries of making use of even modest subsidies in industry, he said, adding: "You set a big fire but don't allow us to light candles."

China stressed the importance of using the subsidies in developing countries. Prohibiting them would have serious and wide effects on developing countries, and the proposal was thus not appropriate.

The EU said that the US proposal was going beyond what members can easily agree to, but it added that it wants to work with the US in this area. It expressed concerns about the US proposals on debt forgiveness and on exemption for defense, noting that the US aircraft company Boeing has links with national defense.

Japan and Hong Kong said that they support stronger subsidy disciplines. Australia said that it considered the proposal important and significant.

In response, the US said that its paper targets the most egregious forms of government subsidies, and that there is still a lot of room in the SCM Agreement for governments to provide subsidies for development. It was also open to special and differential treatment for developing countries.

Replying to the EU's point, it said that Boeing does not benefit from government capital infusion, and thus there is not need to protect it through a defense provision. The US said that there are overlaps between its proposal and that of the EU, and that it is ready to work with the EU for more convergence.

The meeting also discussed the anti-dumping issue, looking at a new US paper regarding the Anti-Dumping Agreement, on "Offsets for Non-Dumped Comparisons," (TN/RL/W/208).

The US asked the meeting to evaluate the rulings of panels and the Appellate Body about the use of "zeroing" in the calculation of anti-dumping duties, adding that it will be submitting a draft text on this.

The US said that the dispute-settlement decisions have repercussions for the US and other members, and the Group must negotiate to clarify this issue. It said that it was not trying to reopen the Appellate Body decision but rather see this as negotiations that are not now hamstrung by the litigation process.

Countries in the "Friends of Anti-Dumping Negotiations" (FANs) led by Japan said that they support the Appellate Body ruling that the "zeroing" method by the US is inconsistent with the Anti-Dumping Agreement. Discussions on this issue should be based on an earlier FANs proposal calling for the explicit prohibition of the use of "zeroing".

This view was supported by Norway, Thailand, China, Mexico, Korea, Chile, Costa Rica, Brazil, India, Chinese Taipei, Singapore, the Philippines, South Africa and Hong Kong, China.

The EU said that while it feels that prohibiting "zeroing" is not such a bad thing, it is open to discussing the matter and looks forward to the US draft text. Canada said that it was a co-complainant in the "zeroing" cases but would still be open to discuss the US proposal.

According to New Zealand, discussions would be useful as it had some questions about the Appellate Body ruling. Australia said that it does not use "zeroing", but would be willing to explore this subject. +