Former EU trade chief and WTO boss Pascal Lamy expects the EU‘s upcoming tool for foreign subsidies to push China to introduce rules on state aid

Politico Pro – Morning Trade – 29.04.2021

LAMY’S STRATEGY TO DEAL WITH CHINESE SUBSIDIES: Pascal Lamy, a former EU trade commissioner and WTO boss, hopes that with its upcoming anti-subsidies tool, the EU will be able to catch up with the U.S. and push China to finally accept rules governing public subsidies.

Great expectations: “Expect a reinforcement of trade defense instruments, not least to have the necessary armory in terms of trade defense, which will make the EU nearer to the U.S. in terms of substance of what you can do with a trade defense instrument,” Lamy said when asked by Morning Trade about the anti-subsidies tool during a Bruegel think tank event Wednesday. 

According to Lamy, the new instrument could give Brussels “a sort of deterrence capacity” to push Beijing to make progress on curbing state aid. “China has to understand that trade with China will not remain as open as it has been if [it] doesn’t accept more disciplines on state aid,” said Lamy, now president of the Paris Peace Forum.

Policy shift: Lamy sees the new instrument as yet another example of how the EU’s trade policy is changing. “The EU trade policy in the five years to come will be fairly different to what has been so far,” Lamy said, while noting that Brussels’ goals have shifted from “opening markets” to “making the EU economy more resilient.”

WTO weakness: The reason why China has so far been able to subsidize its economy while being part of the WTO has to do with the fact that the organization’s rules on subsidies are inadequate, he argued. 

It is “wrong … that China cheated the WTO. The WTO is not a place where you can easily cheat” because it has a “reasonably sophisticated dispute settlement” mechanism, he said. “The reality is that the rules of the WTO, as far as subsidies and state-owned enterprises’ behaviors are concerned, are weak. They’ve always been weak and they remain weak.”

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