Overview Paper

Rethinking International Subsidies Disciplines: Rationale and Possible Avenues for Reform

November 2015
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The need for reform of subsidy rules, in particular in the direction of introducing specific exceptions for legitimate subsidies, is increasingly seen in the literature. The essence of the call for reform is that the rules, which were negotiated and designed in the 1980s and early 1990s, are not up to the job in the current climate. This paper focuses on the rationale and possible avenues of reform of subsidies disciplines in light of today’s challenges. It should be read in conjunction with the analytical paper providing a review of current government practices in the area of subsidies, which constitutes its logical preamble.

The paper starts with a few basics and then moves to the specifics of the possible categories of exempted subsidies. While most of the analysis refers to the disciplines of subsidies in the goods sector, attention is also devoted to public support in the agriculture and services sectors. The main goal of this paper is to generate food for thought, and to help articulate and frame the issues raised by the introduction of legal exceptions for certain subsidies. In particular, it aims to combine the analysis of the key, general conceptual and practical issues that need to be addressed when the decision to introduce specific subsidy exceptions is taken, with the level of detail and technicality that the introduction of these rules may imply. In this latter respect, significant reference is made to the European Union (EU) experience, simply because the EU is the only other polity that has a system of subsidy control with extremely sophisticated legal justifications for “good” subsidies.

Focusing on the need for legal justifications and the shape that they may take in the World Trade Organization (WTO), the paper does not exclude that other areas of subsidy laws (such as the definition) may need some revamping. The strong belief underlying it is, however, that the biggest need for reform relates to the (re-)introduction of express exceptions for certain legitimate subsidies. There are various merits in reviving and updating the concept of non-actionability of certain subsidies in WTO subsidy disciplines.

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