TOKYO -- WTO Director-General Roberto Azevedo said the trade body next week will begin discussing a proposal that would allow penalties to be imposed on member nations which subsidize domestic industries without notifying the organization.
The proposal, aimed at China, was hammered out by Japan, the U.S. and the European Union. The international community has criticized China for excessively subsidizing its steel industry but rarely, if ever, notifying the World Trade Organization.
Azevedo called the initiative "the first step in this conversation."
"There will be many questions about the proposal from the others," he told Nikkei, "because the proposal envisages two things: more disciplines and penalties. ... I always hope [proposals] will lead to some form of understanding or agreement."
The WTO chief urged Japan to take a leading role with the proposal. "I think Japan needs to make the point to others and bring them to the table," he said.
The trade body requires members to report any subsidies or regulations likely to affect trade but imposes no penalties on those that fail to do so. The complainants say China has not been doing so since 2006.
The proposal calls for penalizing members found not to have reported subsidies and who do not shape up within two years. The penalties would include higher WTO contribution quotas as well as bans on chairing committees and asking questions at important meetings regarding member trade policies. If the problem persists for another year or more, the offending member would lose the right to speak at key meetings, except at the very end of discussions.
Azevedo also expressed concern over an issue regarding the U.S. and the WTO's dispute settlement mechanism. Washington is blocking appointments to the WTO appeals body over perceived problems with the mechanism. If the standoff drags on, there is a risk that at the end of next year "we'd have [fewer than three members], which is the minimum number of appellate body members required to hear the appeals."
Demand for settlement procedures is increasing, he said, thus, "there is a desire to find a solution."
Azevedo said some WTO members are on the hunt for a solution and that he "welcomes any conversation that would keep the system running."
In terms of the trade war between the U.S. and China, Azevedo cited projections by the International Monetary Fund, the World Bank and other international organizations that say escalating tensions between the two countries could slow global economic growth as a whole.
With new trade barriers popping up around the world, "the risk of escalation is there" and is "very real," he said.
Nikkei staff writer Hidetake Miyamoto contributed to this report.