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 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,” 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  If the panel finds that a prohibited subsidy is being provided, the subsidy must be withdrawn “without delay”.      

Background:

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 www.ita.doc.gov and www.ustr.gov