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International relations

WTO reform proposal features penalties and bans, aimed at China

US-led plan restricts right to speak if members neglect reporting obligations

China has been criticized for heavily subsidizing its steel industry without reporting it to the WTO.
China has been criticized for heavily subsidizing its steel industry without reporting it to the WTO.   © Reuters

TOKYO -- World Trade Organization members that break its rules by favoring themselves would be punished under a U.S.-led reform plan whose details Nikkei has learned.

According to reforms to be proposed by the U.S., the European Union and Japan this month, members that are found not to have reported subsidies to domestic industries, and that do not shape up within two years, would face penalties including higher WTO contribution quotas, plus bans from chairing committees and asking questions at important meetings on member trade policies.

If the problem continues for another year or more, they would lose the right to speak at key meetings except at the very end of discussions.

"In effect, it's close to suspending their eligibility to take part" in the WTO, said a source familiar with global trade.

The move seems aimed primarily at China. The WTO requires members to report any subsidies or regulations likely to affect trade, but imposes no penalties on those that fail to do so. China has come under criticism from the international community for excessively subsidizing its steel industry, yet it has hardly ever notified the WTO of such measures since 2006 -- the year it became the world's top steel exporter by volume.

The lack of a punitive recourse has prompted some in the U.S. to criticize the WTO as dysfunctional, and it has factored into President Donald Trump's threats to leave the body. U.S. Trade Representative Robert Lighthizer has contributed actively to crafting the reforms, and Japan and the EU appear to have joined the effort partly in order to convince Washington to stay.

The U.S., the EU and Japan are seeking to persuade other members, including Canada and Australia, to sign on to the proposal, and aim to have the changes implemented after an agreement is reached in 2019.

How China will respond remains unclear. Washington, Brussels and Tokyo are positioning the reforms as critical to upholding the free trade system, making it difficult for Beijing to object, as it has spoken loudly in favor of free trade in denouncing the U.S. pursuit of a trade war. But forceful opposition from China could cloud the proposal's prospects.

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