EXCLUSIVE: Japan to Seek Ban on Zombie Firm Subsidies under WTO Reform

Tokyo, July 10 (Jiji Press)–The Japanese government is set to call on the World Trade Organization to ban state subsidies to zombie companies that are effectively bankrupt and unrestricted debt guarantees as part of its proposal to reform the global trade body, Jiji Press learned Friday. With China’s massive subsidies and other nonmarket practices in mind, Japan is expected to advocate the strengthening of the WTO agreement regulating subsidies that distort free trade. With a WTO ministerial meeting scheduled to be held in 2028, Japan hopes to show its presence in reform discussions. The WTO is facing an urgent need to restore its functions as it has been failing to resolve a trade dispute between the United States and China. At a ministerial meeting held in March this year in Cameroon, however, participants were unable to adopt a declaration featuring a work plan for organizational reform. Key challenges in reforming the WTO include giving greater flexibility to decision-making rules currently based on the principle of unanimity, which has caused negotiations to stall, and ensuring a level playing field that prevents nonmarket policies and practices, sources familiar with the matter said. Another focal point is a review of a system under which developing countries are exempt from certain WTO rules. In discussions on the proposed reform of the unanimity principle, Japan will serve as a facilitator. To reform the decision-making process, the country will propose measures to make it easier to realize multilateral agreements concluded among some like-minded countries, in order to avoid the negative aspects of the unanimity rule. Japan also aims to oblige countries wanting to block multilateral agreements to explain their harmful effects. If the majority of the member nations disagree with the explanation, the deals would not be blocked. Japan will propose an expansion of the scope of prohibited subsidies, as part of efforts to ensure a level playing field. Although WTO member states are obliged to report details to the organization if they provide subsidies, this has not been practiced in full. Hoping to tackle this issue, Japan under its proposal will call for using a notification system in which countries inform the WTO about problematic subsidies by other nations, a measure believed to counter China’s economic coercion by preventing it from gaining dominant market shares in critical minerals and other items through overproduction prompted by nontransparent subsidies. END [Copyright The Jiji Press, Ltd.]