Cato held a panel discussion yesterday on subsidies and subsidy discipline. A central theme explored was how the United States can exert global leadership in the field of subsidy control and enlightened self-restraint. I contributed a suggestion raising some potentially complex legal (maybe constitutional) issues that might benefit from commentary by this blog’s loyal readers.
The proposal begins with the observation that the United States has a front-loaded system for ensuring compliance with commitments made in trade agreements. Usually using TPA, we pass (before entry-into-force) implementing bills that are supposed to make all adjustments needed at the statutory level. This works fine when what we have committed to do involves cutting a tariff or amending a provision in a trade remedy law. But it is an awkward approach to ensuring compliance with commitments made in the subsidy field, e.g. the commitment not to cause (through the use of subsidies) adverse effects to trading partners. For a given subsidy program, there is no way to know ahead of time what level of payments might result in serious prejudice (or some other type of adverse effect) to a trading partner 2, 5, or 10 years down the road. Even if US spending holds steady, market conditions may change in such a way that spending which was non-problematic in year 2 becomes highly problematic in year 6. This possibility cannot be addressed up-front. And in fact, when one looks at US trade agreement implementing bills, one does not see any tinkering with spending programs. Spending is handled in totally distinct legislative processes – Farm Bills for agriculture spending, mainly appropriation bills and CRs otherwise. The occasional result is akin to a car on a highway, with the cruise control set at 55mph, moving into a 40mph zone and having no one conveniently situated to touch the brakes. There is no nimbleness in our system, when it comes to ensuring continuous adherence to our commitments in the subsidy field.
Hence the proposal: the President could be given braking authority – the ability to scale back spending based on formal findings that a scale-back is necessary to prevent an imminent trade agreement breach. To ensure accountability without destroying nimbleness, the President would be required to notify – but not seek permission from – the Congress. This would be a special category of impoundment. I can see no way to extend the principle to subsidies conferred through the tax code,
but at least where actual spending is concerned (a first test case could be the current Farm Bill) it might work. If it were legal.
I’m sure there are all kinds of political ramifications, but for now am more interested in readers’ input on the legal ones. Does the old case law on impoundment leave room for something explicitly connected to ensuring compliance with international obligations?
I am confident that this would be (and be seen as) a bold stroke, in terms of US leadership on subsidy control and respect for the (relatively light) disciplines that have so far been negotiated. And it would address a deficiency in our otherwise well-designed (TPA-based) system for honoring trade commitments.
