With regard to Brazil's possible WTO complaint against the Buy America stimulus provisions, I had been caught up with trying to figure out how Brazil would deal with the GATT Article III:8(a) exemption. However, a commenter pointed out SCM Agreement Article 3.1(b), which I had not thought of. Doing some quick and dirty legal analysis, the following are the key elements in a 3.1(b) claim: (1) there must be a "subsidy" (which usually involves a "financial contribution" and a "benefit"); and (2) the subsidy must be "contingent" on "the use of domestic over imported goods." Let's take these one by one.
Financial contribution: Article 1.1(a)(1) lists a number of possible financial contributions. Of relevance here is Article 1.1(a)(1)(iii), which refers to the situation where "a government ... purchases goods." Well, we've certainly got that with the stimulus, so this element is satisfied.
Benefit: Article 1.1(b) says that "a benefit is thereby conferred." This one's a little complicated, but the jurisprudence on this point refers to a comparison with the "market." Given that the Buy America provisions talk about using American products unless they "increase the cost of the overall project by more than 25 percent," it seems as though there is a good argument that above market prices will be paid (up to 25% above the market price to be exact), and thus a benefit conferred.
Contingent on the use of domestic goods: Article 3.1(b) says that the following is a prohibited subsidy: "subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods." This is kind of the whole point of Buy America, so that one is easy to satisfy.
That all looks pretty easy. A clear violation, right? Well, maybe not. The "benefit" part is a bit tricky. One reason is that the U.S. government has the discretion not to follow the Buy America provisions under certain circumstances. Those of you who know a bit about WTO law will recognize the importance of the word "discretion," as it means the somewhat complicated and confusing "mandatory/discretionary" distinction will play a role. Oversimplifying a bit, the U.S. could argue that because it has the discretion to apply the law consistently with WTO rules, the law does not violate WTO rules "as such" (although specific applications of the law could still be challenged). In fact, the U.S. might point out, the law explicitly requires the government to apply it consistenty with the rules. On this basis, the U.S. would argue that because there is discretion to apply the law consistently, there is no violation. (I have some thoughts on the mandatory/discretionary distinction that I've been saving up for a blog post, but I don't have it in me to go through them all right now!)
So, that's one problem with the claim. I'm sure Brazil's lawyers are thinking through this issue in more detail than I have in this post.
In addition, you also get into issues of what is the "market," and possibly other factors as well.
Any thoughts on this from blog readers?
