Todd Tucker has an interesting post over at Eyes on Trade, in which he makes the following points:
1. Certain trade experts have been saying that WTO rules do not apply to subsidies to the financial services industry (or, at least, do not provide much discipline). Thus, in their view, bailouts to this industry do not violate the rules.
2. These trade experts are wrong, as the GATS NT and MFN rules do, in fact, apply to subsidies on services.
At least, that's how I understand his argument -- Todd can correct me if I'm mis-stating it.
I'm not sure the disagreement here is as signifcant as it first appears. What I think the trade folks he quotes are saying is only that the services rules which relate to subsidies are fairly limited. Under these rules, if a domestic financial company or industry is about to go bankrupt, you can bail them out. At the same time, the trade experts would acknowledge that there are certain rules that apply to these bailouts, such as the NT and MFN requirements. So, for example, when bailing out a domestic company, you could not make the bailout money contingent on the use of domestic services of some kind (assuming the sector in question is covered).
Here's the tricky part, though, which Todd refers to in his post: "no foreign bank got TARP money, or had access to many of the other bailout programs." Is it a problem under the GATS NT rules if a government program only gives money to domestically-owned entities? I'm not sure there is a simple "yes" or "no" answer to this question. I think it may depend on the specific facts at issue. If it's a straightforward payment to a domestic company, I think the answer would be no. But for a more complex, rule-based program like the ones at issue here, it is not as clear.
So, I hate to sound wishy-washy here, but both sides are sort of right. The way I see it, WTO rules do apply to financial services bailouts, but they don't apply to the extent they do for subsidies to goods, and it's not clear exactly how much discipline they provide. For practical purposes, though, since this is one of those issues where "everyone is doing it," it is probably unlikely that the boundaries of the rules will be tested.
