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U.S. Proposes Strengthened Subsidy Rules to World Trade Organization

June 04, 2007



WASHINGTON DC- The United States today 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

“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,” said United States Trade
Representative Susan C. Schwab.  “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 U.S. 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prohibited subsidy is being provided, the subsidy must be withdrawn “without


Negotiations on subsidy rules are taking place in the WTO
Doha Development Agenda Negotiating Group on Rules.  The Group’s mandate is
to clarify and improve the existing unfair trade rules, including disciplines on
trade-distorting practices.  The WTO Agreement on Subsidies and
Countervailing Measures currently only prohibits two types of subsidies: export
subsidies and import substitution subsidies.  The U.S. proposal
would expand the existing category by adding five additional types of
particularly trade-distorting subsidies.  The paper also proposes
additional WTO transparency procedures applicable to state-owned companies and
government subsidies to such companies.  In light of the ongoing
agriculture negotiations, the proposed new subsidy rules are not intended to
apply to the agriculture sector.

The papers submitted by the United States
will be available at and