When the WTO came into being at the beginning of 1995, subsidy disciplines were fragmented. Agricultural subsidies were largely addressed under the Agreement on Agriculture although also subject to the ASCM. Industrial subsidies were covered by the Agreement on Subsidies and Countervailing Measures (ASCM). The General Agreement on Trade in Services has no disciplines on subsidies although negotiations on a possible article dealing with subsidies was one of the open issues where negotiations were supposed to continue after the WTO started up. And there was the separate plurilateral agreement on civil aircraft which had rules on subsidies as well.
While export subsidies were prohibited on industrial goods from the beginning, there are only loose controls on domestic subsidies. As the U.S., EU and Japan have articulated at the WTO, the changing make up of WTO Members and the rise in trade importance of Members with a state-directed economy have created increased challenges from state subsidies where existing disciplines are not viewed as adequate.
In agriculture, export subsidies were originally capped and being reduced but have now been eliminated by developed countries. Agriculture faces many more vagaries of nature that directly affect growing conditions (climate change, increased severe storms, increased flooding, increased draughts, etc.) than do industrial goods. Despite this reality, domestic supports in agriculture are capped and are facing increased calls for reductions by some Members.
While the GATS was originally driven by developed country service providers who were unconcerned with the need for trade remedies, the changing make-up of the WTO Membership, the changing technologies used by many service providers, and the growth of state-owned or state-invested service providers competing internationally have all raised the specter of significant government supports being provided to service providers that distort economic outcomes between competing service providers but which are not presently addressable under WTO rules.
In addition, the ongoing COVID-19 pandemic has created enormous economic dislocations for many WTO Members and has led many countries to provide unprecedented stimulus packages to minimize the economic fallout within their countries or territories. The WTO hasn’t explored how, if at all, such stimulus efforts can or should be evaluated under WTO rules.
Similarly, subsidy disciplines basically apply simply to subsidies provided by a government or a private party at government direction within the economy of the government in question. There are issues of whether subsidized loans from intergovernmental entities should be addressable if causing distortion with other entities. There are similarly questions about whether subsidies into inputs in one country which are then exported and used in a second country for export to other countries can or should be addressable when a country is investigating the second country’s product. Similarly, while the WTO ASCM deals with subsidies from governments or private parties at the direction of governments, the distortions to international competition are not necessarily more distortive than private sector subsidies between or within companies may be. Just as the Agreement on Antidumping deals with private market distortions, it isn’t clear why subsidy disciplines should root out distortions whether coming from governments or private parties. And, of course, when the GATT came into existence in the late 1940s, there were concerns about dual exchange rates causing distortions and permission to handle those distortions under either the antidumping or countervailing duty provisions of Article VI of the GATT. When currencies become significantly undervalued there can be significant distortions in economic outcomes. While at least the United States is addressing such distortions under its countervailing duty law at the moment, there is no agreed updated rules in the WTO.
Last week, the WTO on November 19 celebrated its first 25 years with both various panels and with a video of the last three Directors-General being interviewed about the first 25 years. Former Director-General Roberto Azevedo who stepped down at the end of August this year was asked a question of where the WTO had fallen short in his view in the first 25 years. His answer was as follows (according to my notes): “The WTO has to be constantly updating itself. For example, tariff negotiations or disciplines or rules we negotiated thirty years ago are completely out of date.” WTO at 25: Conversations with former Directors-General of the WTO, 19 November 2020 (video). He added that when the WTO came into existence in 1995, it was clear that the WTO would need to update itself continuously without requiring big rounds, but that has not occurred.
There is no area where a review of the existing rules and disciplines is needed more urgently than the area of subsidies. But unlike in the past, there should be greater evaluation of all subsidy areas to be sure that distortions in any area of economic activity internationally can be addressed while actions which simply address emergency situations flowing from pandemics or weather events are not addressable if not adding to capacity. Such a review obviously needn’t slow down the important efforts to reach agreement on Fisheries Subsidies which has dragged on for roughly 19 years and is tied now to the UN Sustainable Development Goal 14.6.
Past Directors-General, the candidates for the position in 2020 and most Members readily agree that for negotiations to advance there has to be items of interest to all Members. A broad subsidy review should provide exactly that broad potential interest while at the same time permitting the rules and disciplines on subsidies to be updated to address the commercial realities of today.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
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