NEW YORK — The U.S, European Union and Japan will jointly propose in November that the World Trade Organization crack down on member states that unfairly subsidize domestic industries, an effort apparently aimed at China.
Under an agreement reached here late Tuesday by commerce ministers from the three sides, the WTO would impose fines on countries that fail to report subsidies giving certain domestic industries an unfair advantage. The U.S. has repeatedly asked the body to act on Chinese subsidies for steel and other sectors, but Beijing has dodged the issue by denying that its actions broke any rules.
U.S. President Donald Trump, perceiving America as being treated unfairly, has threatened to pull the U.S. out of the WTO “if they don’t shape up,” expressing dissatisfaction with what he sees as the body’s failure to eliminate structural trade problems. Panic over the prospect that Washington might leave the global trade body helped spur the European Union, Japan and other related parties to discuss proposing fixes.
“Tackling this matter together with a commitment from the U.S. will help avoid a bilateral trade war,” Japanese Minister of Economy, Trade and Industry Hiroshige Seko said after the Tuesday meeting that produced the agreement.
U.S. Trade Representative Robert Lighthizer, also in attendance, appeared eager to put together the proposal and offered some praise for its contents, according to a government source.
One way to penalize malefactors being considered would be to increase their contribution quotas to the body.
With the EU having already laid out separate proposals, momentum toward reforming the WTO appears to be building. The key will be how speedy and effective the reform efforts are.
After the three co-sponsors submit their proposal in November, negotiations among other WTO members will begin. There are hopes for reaching a full agreement as soon as 2019 with approval from a great majority of the body’s directors. But the proposal to penalize lax reporters with greater contribution burdens may play badly with other members.
The reform push will also test how serious the U.S. is about reforming the body, whose 1995 creation it spearheaded in an effort to promote free trade. Washington recently blocked the reappointment of a top WTO judge, sticking a wrench in its conflict-resolution mechanism. Moreover, in his Tuesday speech to the United Nations General Assembly, Trump proclaimed that America “reject[s] the ideology of globalism.”
“Given Trump’s regressive behavior toward international institutions thus far, there is some skepticism” as to whether the U.S. will go along with the growing momentum for reform in Europe and Japan, said Akihiko Yasui, head of research on Europe and the Americas at Mizuho Research Institute.
With the U.S. and China continuing to escalate their trade war, if the reform effort appears to stall, it could drive Washington to take an even tougher attitude, including making good on its threat to quit the WTO. That gives great significance to negotiations that would otherwise tend to be overshadowed by trade talks.
Japan and the EU must “refrain from needlessly criticizing the U.S. and keep it among the reform-seekers,” Yasui said.