ࡱ> mol{ _abjbjBrBr .d  760008hl0fL"B/KKKKKKKK$HNPKQ[[[K Lo"o"o"[FKo"[Ko"o":',#(2p R' K6L0fL'RQJQ#(#(BQe(0#[[o"[[[[[KK=2[[[fL[[[[Q[[[[[[[[[ : Session 35: The Agreement on Subsidies and Countervailing Measures: past, present and future Sub-theme II: Addressing 21st-century issues Moderator Mr Gary Horlick, International Trade Lawyer, Law Offices of Gary N. Horlick; former International Trade Counsel, US Senate Finance Committee; first Chairman, Permanent Group of Experts on subsidies, ϲʹ Speakers Professor Dukgeun Ahn, Professor of International Trade Law and Policy, Graduate School of International Studies, Seoul National University Dr Luca Rubini, Reader in Law and Deputy Director of the Institute of European Law, Birmingham Law School, University of Birmingham Dr Sadeq Bigdeli, Senior Lecturer in Law, University of Waikato Organized by Rules Division (RD), WTO Report written by Michelle Healy, Counsellor, RD, ϲʹ 26 September 12.00 14:00 Abstract This session discussed the various future challenges for the ϲʹ subsidies disciplines, drawing upon the history of their negotiation and lessons learned from their current application in the context of disputes. Discussion revolved around the need to ensure that members have adequate policy space to address political and economic issues, such as climate change, macroeconomic emergencies and the interests of developing countries, while also ensuring that rent-seeking through protectionism is curtailed. Participants asked whether it was necessary to revise the Agreement on Subsidies and Countervailing Measures (SCM Agreement), to leave it to the dispute settlement system to grapple with difficult policy issues, or whether the attention of participants in the system should shift to meaningful discussions through the SCM Committee. 1. Presentations by the panellists (a) Mr Gary Horlick, International Trade Lawyer, Law Offices of Gary N. Horlick; former International Trade Counsel, US Senate Finance Committee; first Chairman, Permanent Group of Experts on subsidies, ϲʹ Mr Horlick, the moderator, provided a brief overview of the evolution of the subsidies disciplines in the Tokyo Round Subsidies Code and the Uruguay Round SCM Agreement. He explained that the present subsidy rules, incorporating disciplines on export subsidies, actionable subsidies and countervailing measures countervailing duties (CVDs) were developed relatively recently. Before the 1980s, the attention of the General Agreement on Tariffs and Trade (GATT) contracting parties was mainly focused on export subsidies. However, due to domestic legal developments, the United States began to apply CVDs to non-export subsidies, which led to discussions between Canada, the European Communities, Japan and the United States, which basically set the scene for the negotiation of what became the SCM Agreement. On present developments, he noted that the SCM Agreement appears to have weathered the challenge of the global financial crisis relatively well, in the sense that governments did not resort to the use of explicit export subsidies. However, he acknowledged that the SCM Agreement was not as successful in restraining the use of import-substitution subsidies. He also noted that, although the global financial crisis resulted in government bail-outs around the world, they were not widely advertised, and only in isolated cases have such actions been challenged by other ϲʹ members. (b) Dr Sadeq Bigdeli, Senior Lecturer in Law, University of Waikato Dr Bigdeli discussed the changing ways in which subsidies have been imagined over time, which he saw as being linked to changing ideological notions as to the proper role of government in a market economy. His discussion addressed the history of international trade since the 17th century, noting that bounties were originally conceived as a specific form of dumping. He posited that the relative lack of action taken against domestic production subsidies up until the 1980s probably reflected a consciousness of what forms of government action properly constituted protectionism. This arguably changed during the 1980s and 1990s, with the definition of subsidy in the SCM Agreement as a financial contribution (defined through an exhaustive list), which confers a benefit. He posited that this broader approach to the concept of a subsidy reflected the small government ideology of the Reagan and Thatcher governments. He noted that during the Clinton administration, there appeared to be an ideological shift which favoured exceptions for research and development (R&D) and environmental measures, with a focus on the role of subsidies in promoting innovation. He argued that the jurisprudence on the meaning of benefit failed to acknowledge the role of government in addressing market failure and may also run the risk of encouraging rent-seeking behaviour in the form of unwarranted use of CVDs. In his view, the objective of the SCM Agreement should be to strike a balance between legitimate government activities and the curtailment of protectionism. (c) Dr Luca Rubini, Reader in Law and Deputy Director of the Institute of European Law, Birmingham Law School, University of Birmingham Dr Rubini posed the question whether the SCM Agreement gave ϲʹ members sufficient policy space to pursue climate change measures that were legitimate from policy and economic perspectives. He started from the premises that public support that met certain requirements was justified in certain areas, such as climate change, and that ϲʹ members chose to use different forms of regulation, such as taxation, feed-in tariffs, renewable energy portfolio standards and others, to promote environmental objectives. He pointed to several respects in which the SCM disciplines were either unclear, complex or potentially in conflict with better policy solutions: for example, the application of the SCM Agreement to tax and regulatory incentives; the determination of benefit in situations where markets are distorted or where the purpose of the government intervention is to correct market failure; and the rules on specificity, where targeting of government incentives is largely regarded as efficient but may lead to conflicts with the SCM Agreement. In short, he saw a danger that legitimate measures could fall subject to the SCM Agreement disciplines, and regarded the lack of clarity itself as leading to a significant constraint on policy space. In light of this, he asked which approach should be taken for reconciling the apparent ambiguities in the SCM Agreement with legitimate environmental policies, noting that the limited category of exceptions in Article 8 of the SCM Agreement expired in 1999 and the application of GATT Article XX may be problematic or unsatisfactory. He also noted the recent and increasing tendency, at both domestic and international levels, towards litigation of issues relevant to green policy space, including in a number of recent ϲʹ disputes. With respect to particular ways that climate change subsidies could be regulated under the SCM Agreement and other ϲʹ rules in the future, he expressed the view that it was not good enough to leave it to the vagaries of litigation. The dispute settlement system is overburdened and the rules themselves are unclear. In his view, a case law approach would most likely lead to unpredictable results and criticisms of judicial activism. He suggested that the practical solution to this problem lay in the hands of ϲʹ members. He hoped to see a revival of the idea that certain subsidies that satisfy agreed conditions should be permitted even if they cause trade distortions, as well as institutional reforms, promoting better transparency. He argued that ϲʹ members should assume responsibility for these issues. (d) Professor Dukgeun Ahn, Professor of International Trade Law and Policy, Graduate School of International Studies, Seoul National University Professor Ahn noted that the provisions concerning CVDs in the SCM Agreement permitted an importing member to pass judgment on the policy actions of the exporting member, particularly as they focused on the subsidy amount rather than the price effects. He took the view that the application of the CVD disciplines could be problematic where governments provide indirect subsidies in macroeconomic emergencies, as demonstrated by the CVD actions taken by the European Union, Japan and the United States against Hynix (a Korean company) following the Asian financial crisis. He discussed the concept of entrustment and direction, in contrast to the concept of a direct subsidy, and explained that in the example of the support provided to Hynix, debt was restructured by creditor banks on the view that the company was worth more as a going concern than it if went bankrupt. In his opinion, the standard of review applied by ϲʹ panels also provided a wide margin of discretion for the authorities of importing members to assess the policies of exporting members regardless of the underlying circumstances or domestic context in which those policies were implemented. He believed that the SCM Agreement disciplines were not devised for macroeconomic emergencies which were a lot more common than is usually acknowledged. He noted that huge bail out programmes had been put in place in the context of the current financial crisis, and that other members not directly exposed to the crisis had become more lenient towards the provision of subsidies. He saw this question of how the SCM Agreement deals with macroeconomic emergencies as posing a challenge for the system in the future. 2. Questions and comments by the audience A question was asked to the panellists whether there was any need to update the ϲʹ subsidy rules in light of the discussed challenges, and if so, which particular rules should be modified. Mr Horlick responded that updating might be warranted to address the expired exceptions for non-actionable subsidies, subsidies granted for developmental purposes and subsidies in the area of trade in services. Moreover, it might be useful to refine certain issues in light of interpretations of the SCM Agreement in case law. Professor Ahn believed that the current subsidy rules did not account for macroeconomic emergency situations, in which governments are expected to act. He added that the SCM rules mandate an assessment of a companys situation at a given point in time, and that a snapshot of companies financial situation in times of macroeconomic emergency may show that none of them was creditworthy. He was also of the view that there should at least be a moratorium under the SCM Agreement when a country is subject to International Monetary Fund (IMF) conditionalities. In addition, the panellists discussed possible improvements in subsidy rules aimed at enhancing the institutional framework, such as the role and functions of the SCM Committee and the Permanent Group of Experts. A discussant from the floor noted that one of the main challenges in negotiating the SCM Agreement had been to define a subsidy in a limited way so as to ensure that not every government intervention would be caught by the SCM Agreement disciplines. He referred specifically to dual pricing, minimum incorporation requirements for fuel and export taxes to reduce the price of raw materials as government actions that have effects akin to subsidies. The question is whether the SCM Agreement applies to these sorts of measures, or whether there is a need to change the rules. Another discussant suggested that the SCM Agreement was designed to address trade distortion from a mercantilist perspective of government action that impeded export opportunities. Policies such as feed-in-tariffs and mandates were unlikely to be challenged under the SCM Agreement provided they were non-discriminatory. In his view, the challenges arose from tying those policies to local content requirements. This discussant also questioned why the revised ϲʹ subsidy rules should shelter climate change subsidies, as opposed to a wider range of subsidies incentivising the production of merit goods, such as those relating to education and health. Mr Horlick responded that any decision as to which subsidies would have special treatment under the SCM Agreement would ultimately be made by members, a consensus may be emerging on climate change, which was yet to emerge in respect of other types of issues. Additional questions included: Which particular problems in the SCM Agreement should be rectified? In this respect, Drs Bigdeli and Rubini discussed a range of definitions in the SCM Agreement (e.g. the definition of which forms of government support will fall within the scope of a financial contribution in Article 1) which, in their opinion, were overly broad. The regulation of which subsidies should be strengthened under ϲʹ subsidy rules? In his response, Mr Horlick addressed problems relevant to developing countries, including their participation in the ϲʹ dispute settlement system, as well as trade-distorting agricultural subsidies. While some discussants raised the concern that, despite so many challenges, ϲʹ members rarely tabled proposals for improving subsidy rules, a remark was made that some major amendments had indeed been proposed in the area of fishery subsidies. 3. Conclusions In concluding, one extensive comment from the audience suggested that the various ambiguities in the SCM Agreement which were mentioned during the discussion reflected the reality of the negotiations, noting that some were left deliberately to overcome deadlocks and conclude the Uruguay Round. These were intended to be resolved in the course of subsequent negotiating rounds, or within the SCM Committee, as opposed to through ϲʹ litigation. 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