US, Others Ask WTO to Tighten Rules on Subsidies

The U.S. -- supported by the European Union, Japan, Mexico and Canada -- asked the World Trade Organization's Committee on Subsidies and Countervailing Measures to examine below-market financing and debt forgiveness as a market distorting practice. The countries, speaking at a meeting in Geneva on April 24, said that counter-cyclical financing during recessions and later debt-to-equity conversions create "distortions in the domestic market that spill over into the international economy and distort international trade patterns." They suggested the WTO rules be amended to consider the subsidy as creating serious prejudice, which would allow other countries to use export displacement as an argument for countervailing duties, according to a paper they presented at the meeting.

Another possibility would be to directly prohibit some below-market financing by government-owned entities if those loans were to cover operating losses, or if the companies were uncreditworthy. Several countries said this kind of financing is one of the most serious issues in the trading system, and the WTO rules do "not allow members to effectively tackle this problem." Norway, Taiwan, Australia and Brazil also said the WTO needs to address overcapacity.

A WTO official said China responded that this committee is not the right place to discuss overcapacity, and denied subsidies created the problem. China did say it is reducing excess capacity by 200,000 steelwork jobs. "The issue is not subsidies, but the attempt to blame the problem of overcapacity on others," the Chinese representative said.