I meant to post on this a while back, but never did (I don't see any record of it anyway). Suddenly, I find myself with a good opportunity.
Last year, in response to this NY Times article, there was some talk in the blogosphere about the merits of using prizes (such as large sums of money), rather than typical subsidies, to spur innovation (see Dan Drezner's post here, Jonathan Adler's post here and Robin Hanson's post here).
John McCain seems to have been listening. In a speech today, he says:
I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars. This is one dollar for every man, woman and child in the U.S. -- a small price to pay for helping to break the back of our oil dependency -- and should deliver a power source at 30 percent of the current costs.
I don't have strong opinions on the relative merits of prizes versus normal subsidies in terms of their effectiveness, but I wondered whether using prizes rather than subsidies would allow a government to avoid violations of the SCM Agreement.
Starting with the definition of a subsidy, assuming the terms of the prize competition are met and the money is paid out, you would pretty clearly have a "financial contribution" and a "benefit" under SCM Agreement Article 1.
However, applying the specificity requirement to this situation is a little more complicated. The government offering the prize could argue that the prize is not specific because it is open to anyone, and thus not "specific to an enterprise or industry or group of enterprises or industries." In this regard, it could invoke Article 2.1(b), which provides:
"Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification."
Now, a lot depends, of course, on how exactly the prize competition is written. However, I can see how the rules could be drafted carefully so that the competition might meet these requirements. In this way, it is possible that specifity could be avoided.
Article 2.1(c) may also be relevant here. This provision states in part: "If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered." However, the other factors listed relate mostly to use by certain enterprises, which wouldn't necessarily be the case with a prize competition (either in the sense that it is open to all enterprises, or there could be a number of prize competitions under the same program and thus many enterprises get the money). Of course, the program couldn't be a sham. For example, a prize for a domestic company that could build a jumbo aircraft would pretty obviously be intended for certain enterprises.
So, overall, I think there is a chance that prize competitions like the McCain one could be considered non-specific under the SCM Agreement. Have I missed anything here?
