EU supports U.S. viewpoint on Chinese subsidies

EU OFFICIAL: WTO ‘NO LONGER RELEVANT’ IF REFORMS FAIL: A top priority for the next European Commission will be pushing the United States and China on reforming the World Trade Organization so the body remains relevant, the Commission’s trade director-general said Tuesday.His  comments referred particularly to China, which he said must accept stricter multilateral rules on industrial subsidies, state-owned enterprises and forced technology transfers, “even if it will be painful for them.”

“If there is no reform to the WTO system, in particular on the rulebook and subsidies, the WTO system will be no longer relevant. … It would become the law of the jungle,” said Jean-Luc Demarty.

China in the spotlight: Demarty’s comments referred particularly to China, which he said must accept stricter multilateral rules on industrial subsidies, state-owned enterprises and forced technology transfers, “even if it will be painful for them.”

China’s refusal to end subsidies, state-owned enterprises, caused the U.S.-China trade talks to fail at the last minute.

“The U.S. and China had agreed on over 90% of the trade pact,” an official at an American economic group said. “But they were ultimately unable to bridge their rift on Chinese subsidies.”

The U.S. pushed China to scrap all subsidies that violate World Trade Organization rules, and China agreed to cutbacks in negotiations in a sign of compromise. But China began to look for loopholes at the last minute, such as by hesitating to curb regional government subsidies, the economic group official said.

USTR Robert Lighthizer expressed concern over the issue as early as a week before Trump’s Sunday tweet vowing to raise tariffs, sources say. The U.S. thought they had agreed to include language on reforming Chinese subsidies as part of their pact. But China is believed to have reneged, wanting instead to address the issue without writing it into the deal.

Subsidies form the foundation of China’s version of capitalism, where provinces compete with each other to lure industry to boost tax revenue and employment. The U.S. considers low-interest loans from state-owned banks a type of state subsidy, but Xi is reluctant to make changes that would deeply affect financial institutions and regional businesses.

There is also speculation that Vice Premier Liu He, Beijing’s chief negotiator, faced pushback when he presented the final draft of the trade deal to the Communist Party’s 25-member Politburo.

 

Sources:

https://www.politico.com/newsletters/morning-trade/2019/05/08/companies-brace-for-trumps-new-china-tariffs-433615 

https://asia.nikkei.com/Economy/Trade-war/Trade-talks-face-moment-of-truth-as-US-pushes-China-on-subsidies

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