Counting Once, Counting Twice: The Precarious State of Subsidy Regulation

Article excerpt

Subsidy regulation is in a precarious state. While it has been so ever since the conception of the current subsidy regulation regime, the recent disputes between the United States and China over the "double counting" or "double remedies" of subsidies have threatened the mere functionality of the current regime. This Article argues that the double counting controversy reveals the self-contradictions of the current subsidy regulation regime as to the fundamental question of why subsidies" need to be regulated. These self-contradictions make it impossible to devise a coherent solution to the double counting problem within the framework of the current subsidy regulation regime and sharpen the need for fundamental reforms of the current regime. This Article puts forward a reform proposal that will solve the double counting problem and, more importantly, will help restore the intellectual foundation of the current subsidy regulation regime.

INTRODUCTION

I. THE BASIC FRAMEWORK OF THE CURRENT SUBSIDY REGULATION REGIME...

II. GENESIS: THE CONCURRENT APPLICATION OF ANTIDUMPING AND
    COUNTERVAILING DUTY LAWS TO NONMARKET ECONOMIES
    A. Nonmarket Economies
    B. Antidumping Duties and NMEs
    C. The Applicability of U.S. Countervailing Duty Law to NMEs

III. DOUBLE COUNTING: A COMPLEX LEGAL LANDSCAPE
    A. The Double Counting Hypothesis
    B. The Scant Legal Framework Regarding Double Counting
    C. Different Views on Double Counting
       1. The Department of Commerce
       2. The Court of International Trade
       3. WTO Dispute Settlement Panel
       4. WTO Appellate Body
       5. Federal Circuit
       6. Congress
       7. The Department of Commerce on Remand
       8. The Saga Continues

IV. THE SUBSIDY PASS-THROUGH PRESUMPTION: ECONOMIC FALLACIES
    A. The Behavioral Impact of Subsidies
    B. The Price Impact of Subsidies

V. THE SUBSIDY PASS-THROUGH PRESUMPTION: INTERNAL INCONSISTENCIES
    A. The "Injury" and "Adverse Effects" Requirements: Behavioral
       Impact of Subsidies Required
    B. The Identification and Measurement of Subsidies: Behavioral
       Impact of Subsidies Irrelevant
    C. Upstream Subsidies: No Presumption of Subsidy Pass-Through

VI. THE CASE FOR FUNDAMENTAL REFORMS OF THE CURRENT SUBSIDY
REGULATION REGIME
   A. The Impossibility of a Coherent Approach to the Double Counting
      Controversy
   B. Conflicting Rationales for Subsidy Regulation
      1. The Efficiency Rationale
      2. The Entitlement Rationale
   C. A Renewed Call for a Country-Specific Safeguard
      1. The Questionable Case for Subsidy Regulation
      2. A Renewed Call for a Country-Specific Safeguard

VII. CONCLUSION

INTRODUCTION

In 1791, in his historic report to the U.S. Congress on the state of manufacturing in the United States, Alexander Hamilton accused Great Britain of subsidizing the exportation of certain products and proposed to impose special duties on those products to countervail the British subsidies. (1) Approximately a century later, in 1890, Congress adopted Hamilton's idea by enacting the first countervailing duty legislation in the world (2) to offset subsidies conferred by several continental European countries on the exportation of beet sugar. (3)

Fast-forwarding another century, since the early 2000s, the United States has been embroiled in a series of high-stakes disputes with China over each other's subsidy practices. Since November 2006, the United States has initiated investigations into Chinese subsidies for thirty-one categories of products, including steel, tires, paper, solar panels and wind towers, and imposed countervailing duties to offset most of them. (4) In retaliation, China launched investigations into U.S. subsidies for four categories of products: electrical steel, chicken, automobiles, and solar-grade polysilicon, and imposed countervailing duties for three of them. (5) On September 17, 2012, the United States and China escalated their subsidy disputes by filing a complaint against each other at the World Trade Organization (WTO). …