What is the goal of the subsidies rules in the WTO's SCM Agreement? In an article in the Melbourne Journal of International Law, I argue that the rules can be characterized as fighting "protectionism." Furthermore, I contend, the Appellate Body's interpretations of particular SCM Agreement rules in the EC - Aircraft case support this view. Here's my argument, in bullet point form:
- Since at the least the 1920s, government trade negotiators have recognized the problem of subsidies as a means of indirect protectionism. In this regard, subsidies can be used to favor domestic industries in a way that undermines the benefits of tariff reductions.
- At the same time, they also recognized the difficulty of distinguishing "good" and "bad" subsidies. Subsidies might be used for protectionism, but they may also be used for various other policy purposes.
- GATT rules on subsidies were not very extensive. The SCM Agreement, by contrast, has much more detailed rules.
- The SCM Agreement rules on "prohibited" subsidies -- export contingent subsidies and local content subsidies -- are designed to limit two kinds of "protectionist" subsidies (i.e., subsidies that give an advantage to domestic goods over their foreign competition).
- The SCM Agreement rules on "actionable" subsidies can also be thought of as targeting "protectionist" subsidies, in the sense that the "specificity" element looks at the intent to favor certain domestic industries and the "adverse effects" element looks at the effect on foreign competitors.
- Three of the finding in EC - Aircraft reinforce this view: (1) the Appellate Body's interpretation of the export subsidy standard focuses on the relative impact of the measure on domestic products and exports, which is a discrimination-type analysis; (2) the panel's findings that particular subsidies were "specific" illustrates how specificity is an indication that the measure is intended to favor a domestic company; (3) the Appellate Body's findings on "displacement" focus on the competitive relationship between domestic and imported products in the market, which is a lot like the "competitive opportunities" that have been the focus of non-discrimination cases.
The basic point is that one way to think about the purpose of international subsidies regulation is that these rules are intended to constrain the use of protectionist subsidies. A couple ideas follow from that.
First, if that is the purpose, perhaps GATT Article XX should be available as a defense, so as to ensure that non-protectionist subsidies are permitted.
Also, it may be that a good way to accomplish non-protectionist policy goals using subsidies in a manner that is consistent with WTO rules is by subsidizing consumers, rather than producers.
That's a basic overview of the article, but of course it loses many of the nuances from the full version. The SSRN version of the paper is here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1966786 You can also download it from the MJIL web site here: http://mjil.law.unimelb.edu.au/go/issues/current-issue
Any thoughts? Is the purpose of subsidies regulation something other than fighting "protectionism"? How would you distinguish "good" from "bad" subsidies?
One final thought that I didn't get into in the article. Does it make sense to treat "subsidies" different from other "measures"?