US, EU, Japan to renew alliance against China trade practices

The U.S., European Union and Japan will announce Wednesday they will renew their trilateral partnership to address the challenges posed by the non-market policies and practices of countries such as China, according to two people familiar with the matter. The three plan to meet on the sidelines of the upcoming WTO ministerial meeting taking place in Geneva, Switzerland, at the end of the month where they will aim to set out a work program for the following weeks, one of the people said.

The talks, which are built on a Trump-era initiative with the EU and Japan, aim to establish new international rules to restrict the market-distorting behavior of state-owned enterprises, confront harmful subsidy practices and deter forced technology transfers and intellectual property theft.

A spokesman for the office of the U.S. trade representative didn’t immediately respond to a request for comment. An EU spokesperson couldn’t be immediately reached for comment.

The initiative seeks to rein in China’s massive state aid to strategic domestic industries—like steel and aluminum—through tax benefits, government grants, energy subsidies, preferential lending and financing, under-priced inputs and cheap land-use fees.

State Support

The announcement comes days after U.S. President Joe Biden met virtually with Chinese leader Xi Jinping. In the 3 1/2-hour sit-down on Monday evening, Biden made clear his concerns with China’s non-market economic practices, U.S. officials said.

Officials in Washington estimate the Chinese government offered more than $500 billion in state aid to key industrial sectors via the Made in China 2025 and related industrial plans.

The trilateral effort was endorsed earlier this year by trade ministers from the world’s seven largest advanced economies, who said they want to bolster regulations on industrial subsidies and curb actions by state-owned companies that distort trade.

The Group of Seven’s goal in the talks, which have been ongoing since 2017, is to produce an agreement that might eventually be adopted by the members of the World Trade Organization.

But getting China to join the talks, which are ostensibly aimed at restricting Beijing’s state-led economic model, remains a major hurdle.

In July China’s ambassador to the WTO said there’s scope for Beijing to participate in the initiative but said new international trade rules should not be negotiated in China’s absence and then presented as a fait accompli.

If China plays ball, the negotiations could represent the most significant attempt to rewrite WTO rules since the ultimately unsuccessful Doha Round of trade negotiations was launched in 2001.

At the meeting in Geneva, the three partners will aim to sketch out a work plan focused on identifying issues due to non-market practices, gaps in existing enforcement tools and where more work is needed to develop new tools and rules to tackle such practices, said one of the people.