A little while ago, I did a post on the purpose of SCM Agreement countermeasures. I don't really like how the post came out, though. So, I'm going to take a do-over and try it again.
The basic issue is whether "countermeasures" under the SCM Agreement (in particular under Article 4.10, but also Article 7.9, which uses slightly different language) are for the purpose of rebalancing concessions or for the purpose of inducing compliance. I had suggested it could be "either/or," that is, it could be either for one purpose or the other. But having thought about it some more, what I really meant was that it could be a little of both. That is, any countermeasures will serve to rebalance concessions to some extent and induce compliance to some extent.
However, even if that statement is more accurate than my first one, it still doesn't get at the fundamental issue, which is how to identify the limits that are placed on the use of these countermeasures. If rebalancing concessions is the primary objective, then perhaps countermeasures are strictly limited to the amount needed to rebalance. Thus, even though countermeasures may have the effect of encouraging compliance, they are capped at the rebalancing level. By contrast, if inducing compliance is the primary objective, then countermeasures could exceed the rebalancing amount to some degree. Thus, even though the countermeasures do contribute to rebalancing, they are not capped at that amount.
The arbitration in the Canada - Aircraft II (DS222) case, which dealt with Article 4.10, is interesting in this regard. There, the arbitrator came up with an initial figure for countermeasures that was based on the subsidy amounts, but then tacked on a bit more "to take into account the fact that Canada, until now, has stated that it does not intend to withdraw the subsidy at issue and the need to reach a level of countermeasures which can reasonably contribute to induce compliance." See para. 3.119: http://www.worldtradelaw.net/reports/226awards/canada-aircraftII(226).pdf Basically, this approach seems to be to start with rebalancing, and then add on some more for inducing compliance if necessary based on the facts of the case.
Is the Aircraft approach the right place to draw the line between rebalancing and inducing compliance? If not, what is?
