Overcapacity and Subsidy Clashes

The Committee on Subsidies and Countervailing Measures (SCM) convened Tuesday under the chairmanship of Dr. Wolfram Spelten of Germany. Central to the discussions were renewed disputes involving China and seven other WTO members concerning overcapacity issues.

The United States called for a "reset" in the ongoing debates to enhance productivity, underscoring the urgency of resolving the long-standing disagreements.

Overcapacity Debate Intensifies

The agenda item on subsidies and overcapacity, introduced by Australia, Canada, the European Union, Japan, the United Kingdom, and the United States, sparked significant debate. A total of 18 interventions were recorded, with eight members participating actively. The discussion largely aligned G7 members against China, underscoring the heightened tensions around global trade and industrial competition.

The United States reiterated that overcapacity concerns have persisted in the committee’s discussions since April 2017. It highlighted how overcapacity—particularly in steel, electric vehicles, and solar products—has distorted global markets, with economists warning of a potential “China Shock 2.0.” The U.S. emphasized the disproportionate scale of Chinese subsidies, claiming they exceed the support provided by other members, including Brazil, Germany, and Japan, by a factor of ten.

Other members echoed these concerns. The United Kingdom asserted that overcapacity affects both developed and developing countries, as evidenced by the recent WTO trade policy review of China. Canada pointed to OECD estimates of increasing steel production, despite weak global demand. Australia and the European Union emphasized the need to modernize WTO rules to address the distortive impacts of state intervention.

China, in response, dismissed the allegations, contending that overcapacity lies outside the committee’s mandate and lacks clear legal or economic definition. It argued that criticisms reflect latent protectionism that undermines cooperation on climate initiatives. China maintained that its support measures comply with WTO rules and that its subsidies are essential for inclusive globalization. It also challenged data presented by other members, claiming misinterpretation of remarks made by Chinese President Xi Jinping on economic recovery efforts.

Members Demand Improved Subsidy Notifications

The committee also addressed the chronic non-compliance of members with subsidy notification obligations. Dr. Spelten expressed concern over the persistently low level of reporting, stating that 84 members have failed to submit their 2023 subsidy notifications, while many others are still behind on earlier submissions from 2021 and 2019.

Several members, including the United States, Japan, and the European Union, criticized the lack of transparency. Japan noted a significant decline in the notification rate, from 77% in 1995 to just 49% in 2023. The United States singled out China, alleging that China’s incomplete reporting obscures the true scale of its subsidy programs. It pointed to the WTO Secretariat’s 2024 trade policy review, which highlighted gaps in China's disclosures.

China defended its transparency efforts, citing difficulties faced by developing countries in compiling and coordinating data. It criticized the U.S. interpretation of the WTO report, arguing that the report distinguishes between legally defined subsidies and other financial incentives.