A Cruel Trilemma: The Flawed Political Economy of Remedies to WTO Subsidies Disputes

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ABSTRACT

This Note examines the effectiveness of the World Trade Organization at remedying disputes involving trade subsidies. The WTO as created in the Uruguay Round was the first multilateral trade institution that included prohibitions against trade subsidies of a more-than-aspirational nature that were agreed to by most states in the world community. The WTO was thus envisioned as ushering in an era where subsidies had significantly less detrimental effects on the international economic community.

This Note seeks to evaluate the effectiveness of the WTO's subsidy provisions through analyses of decisions in early WTO jurisprudence. These decisions will be evaluated, in part, through recourse to economic and public choice theories. Ideally, remedies to government-granted subsidies should attempt to cure the sort of underlying rent-seeking behavior that causes subsidies without fostering the coalescence of anti-WTO constituencies that over the long term could meaningfully undermine principles of free trade. Following this discussion, several proposals for WTO reform will be evaluated in the light of this Note's underlying analysis.

TABLE OF CONTENTS

  I. INTRODUCTION
 II. BACKGROUND
     A. The General WTO Framework
     B. An Introduction to the SCM and Its Role
        in the WTO System
III. THE ECONOMICS OF SUBSIDIES AND REMEDIES
     IMPOSED BY THE WTO APPELLATE BODY IN
     EARLY CASES
     A. Subsidies Are Different Than Other
        Trade "Barriers"
     B. The Composition of the SCM Shows the
        Political Compromises Necessary to
        Secure Its Ratification
     C. Problematic Decision Making in Subsidy
        Remedy Decisions
        1. United States-Foreign Sales
           Corporations and the Myth of the
           Persistently Dumb Legislature
        2. Australia-Leather Goods and
           Problems with Traditional Notions
           of Due Process
        3. Brazil-Aircraft: Of Political
           Economy and the Possibility
           of Punitives
     D. The Continued Dumping & Subsidy Offset
        Act of 2000 and the Byrd Bill: Subsidies
        as Politically Necessary Trade-offs
 IV. CONCLUSION

I. INTRODUCTION

This Note is intended to do two things. Foremost, it is intended to discuss remedies the World Trade Organization (WTO) has imposed in the first three disputes it has decided involving subsidies. It will also attempt to show, through recourse to economic and public choice theory, whether the remedy imposed caused the country to comply, and finally, why the remedy was or was not effective.

The prime goal of international trade law needs to be the avoidance of a "protectionist summum malum". (1) Such a situation would occur where domestic or social pressures in a particular country lead a state to increase or reinstate barriers to trade, thus triggering a reaction in other states that would end in a so-called "race to the bottom" leading to global economic disaster. (2) This Note, through an examination of WTO case law, concludes that the WTO has found no truly effective, theoretically justifiable way to remedy disputes involving subsidies and that the ways it has found are either ineffective or run the risk of being counterproductive in the long-term. All things considered, this is not surprising: subsidies endemically are difficult to deter, and this difficulty is compounded by trying to do this in a supranational context where governments bring conflicting agendas to negotiations promising comprehensive solutions.

Prior to the 1994 Marrakesh Agreement, commentators stated that one of the major problems plaguing the General Agreement on Tariffs and Trade (GATT) did not deal effectively with subsidies. (3) Since the ratification of the WTO Agreement containing improvements to the GATT, this relative ineffectiveness has continued: subsidy cases have been among the most difficult to remedy. …