In testimony before the European Parliament's Committee on International Trade earlier this week, Antonio Fernández-Martos, head of unit of Multilateral Affairs and WTO at DG Trade, set out briefly the European Commission's vision of a plurilateral WTO agreement on "competitive neutrality" that could include China.

In a communication from February of this year outlining its vision of an "Open, Sustainable and Assertive Trade Policy," the Commission mentioned "competitive neutrality" in the context of its proposals for WTO reform. It defined the concept as "[e]stablishing new rules to avoid competitive distortions due to state intervention in the economy."

In particular, the communication mentioned:

• heavy industrial subsidies ("[n]ew rules on industrial subsidies are essential to counter the negative effects of heavy subsidisation on international trade, which can generate distortions of competition in both traditional sectors and new technologies");
• state-owned enterprises ("the importance of SOEs is not yet matched with sufficient disciplines to capture any market-distorting behaviour");
• other practices such as forced technology transfer and "rules to ensure that domestic regulation is transparent and pro-competition."

In his testimony, Fernández-Martos emphasized the Commission's hope that China would join in the effort to conclude rules in this area:

I had mentioned earlier the crisis of the WTO, to which the rise of China is not a stranger. Competitive distortions are a very serious problem. The rules need to be updated and set out in the communication. The way we think this should be done is by launching a plurilateral process, with which we intend to start through a trilateral that we have established with the US and Japan, and then reach out to further members, and very importantly, involve China as well in the plurilateral outcome that we want to achieve, making sure that WTO rules are updated so that they can take on the challenges of the competitive distortions that they currently cannot deal with.

...

China has greatly benefited from the WTO, and the fact that the WTO is right now at risk and that China cannot afford the demise of the WTO is our opportunity to engage China, and to try and get China to participate in developing new rules, hopefully including a plurilateral on competitive neutrality.