US To Ask World Trade Organization To Strengthen Subsidy Rules

by Glen Shapiro, LawAndTax-News.com, New York

06 June 2007

The United States government on Monday submitted a paper to the World Trade Organization (WTO) Negotiating Group on Rules proposing that certain "particularly trade-distorting subsidies" be prohibited. These negotiations are occurring within the framework of the Doha Development Agenda.

“It’s time to take the next step in the development of stronger WTO rules that will rein in the use of industrial subsidies. In an increasingly global economy, foreign government subsidies provide a distinctly unfair competitive advantage,” explained United States Trade Representative Susan C. Schwab.

She continued:

“The subsidies we want to prohibit maintain inefficient production capacity in industries ranging from steel to semiconductors. Stronger rules for these types of subsidies would address significant trade-distorting practices of many of our trading partners that often lead to unfair trade.”

The US proposal would prohibit the following five types of subsidies if they are “specific” (i.e., are only given to a particular company or industry) and benefit a product that is exported or competes with imports:

1. Coverage of operating losses;
2. Forgiveness of government-held debt;
3. Lending to “uncreditworthy” companies;
4. Equity investments in “unequityworthy” companies; and
5. Other financing, such as “royalty-based” financing, that is not commercially available.

Under the current rules on prohibited subsidies, a WTO Member can request a WTO dispute settlement panel to examine an alleged prohibited subsidy. If the panel finds that a prohibited subsidy is being provided, the subsidy must be withdrawn “without delay”.

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