A Cruel Trilemma: The Flawed Political Economy of Remedies to WTO Subsidies Disputes
Showalter, J. Michael, Vanderbilt Journal of Transnational Law
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
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. …