No progress at Trade and Technology Council on Chinese industrial subsidies

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Both the EU and U.S. want to improve trade and investment policy coordination in the context of the growing China challenge and now the Russian invasion of Ukraine. But the second meeting of the EU-U.S. Trade and Technology Council (TTC) in Paris in May showed no sign of progress on measures to curb China’s state capitalism.

At TTC’s launch last September the parties agreed to develop “harmonious domestic measures” to curb foreign subsidies that distort competition in trade, investment and government procurement. The EU has several measures in the works, but the U.S. is lagging behind.

For example, the EU is close to approving a Foreign Subsidies Instrument (“FSI”) to create mandatory advance disclosure of government subsidies by companies seeking acquisitions or mergers in the EU. Under FSI, reviewing authorities could disqualify the subsidized companies because of the distortion to competition they cause. The U.S. does has no comparable law nor is one proposed.

Similar to FSI, a proposed EU International Procurement Instrument (“IPI”) would require bidders for government contracts to disclose receipt of foreign government subsidies. Some EU members were initially hesitant because of potential Chinese retaliation. But they now support IPI based on recent aggressive Chinese commercial behavior. The U.S. has no equivalent measure on the books.

In March, 2022 USTR Katherine Tai told Congress the U.S. China strategy will focus on “vigorously defending” U.S. economic interests “through new tools, existing tools and domestic investment” to rebuild the U.S. manufacturing base.

But to date there has been no sign of exactly what “new tools” the U.S. has in mind.  

In 2019, the U.S. used Section 301 of the 1974 Trade Act, to challenge EU (and UK) subsidies to large civil aircraft as well as French imposition of a digital services tax. Section 301, hardly a “new tool”, permits US. trade sanctions on countries that violate trade agreements with the U.S. While another “301” case against China has been rumored, none has surfaced, politically captive between ‘get tough on China’ advocates and voices calling for caution to maintain access to a major market.

One yardstick of true economic policy collaboration with real bite was Cold War era cooperation on export controls. To prevent ‘leakage’ from the West of goods with potential military application to the Soviet bloc, NATO members established a Coordinating Committee for Multilateral Export Controls (“COCOM”) in 1949. COCOM had the power to approve the export controls of each NATO member. While Cold War conditions are not now at hand, the combination of China’s economic challenge and Russia’s flaunting the most basic post-WWII norms, begs the question whether the allies can strengthen their position through the envisioned ‘harmonious measures.’ Or will an increasingly nationalistic economic policy environment prevail?” 

Sherman Katz advised industry and governments regarding bilateral and multilateral trade negotiations and trade disputes, WTO and regional trade agreements and application of U.S. law to international transactions. From 2000 to 2010 Mr. Katz held the William Scholl Chair in International Business at CSIS and senior trade positions at the Peterson Institute and the Carnegie Endowment for International Peace. Katz was a trade policy advisor and surrogate speaker for the Presidential campaigns of Barack Obama, Bill Clinton, Walter Mondale, Jimmy Carter, Edmund Muskie and George McGovern.

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