I had been working on a book review of Luca Rubini's "The Definition of Subsidy and State Aid: WTO and EC Law in Comparative Perspective." Among other reasons for doing so, this seemed like a good way to prepare for the EC - Aircraft WTO panel report, dealing with alleged subsidies to Airbus. Unfortunately, I hadn't gotten very far with the review, and now news reports indicate that the report will be circulated to the public this week, which means I won't have time for much else for a while. So, with the report on its way, I thought I would cut the review short and simply post what I had done so far. It's not very well structured or thought out, and as I look it over I realize it doesn't get into many details about the book (it's a lot of setting up issues before I got to the book part), but perhaps it will be of some interest nonetheless.
The first thing to say about the book is, don't be fooled by the title. While there's plenty of discussion about SCM Agreement Article 1 and the definition of a subsidy, the book is much broader than that. It gets into many of the conceptual issues involved with determining how subsidies should be regulated internationally.
As everyone is probably aware, subsidies regulation is fairly big news these days, which makes the book particularly relevant. For one thing, we've seen massive bailouts of the financial and auto industries in rich countries. For another, the aforementioned Airbus subsidies panel report, which will elaborate on many aspects of WTO subsidies law, is coming out, and the interim report in the case against the alleged U.S. subsidies to Boeing is due to be issued soon as well. As a result, conceptual thinking about how to define and regulate subsidies is a pretty topical issue.
I have a sense that subsidies are sometimes thought of as narrow, technical issues, separate from the broader issue of establishing a purpose for trade agreements. It's easy to get bogged down in the details of countervailing duty calculations or interpretations of the SCM Agreement Illustrative List, and lose sight of the big picture as a result. In my view, though, determining the proper scope of subsidies rules goes to the heart of defining a purpose for trade agreements. Subsidies are measures that can easily be, and often are, used for a variety of legitimate public policy purposes. If trade rules related to subsidies are defined too broadly, they can restrict the ability of governments to use subsidies for these purposes. At the same time, subsidies can also be used as a substitute for protectionist tariffs and quotas. The question is, how can we create the proper balance in the rules so that protectionism is constrained, but other policies are allowed? It's this balance (well, not this exact balance, but something along these lines) that underlies the book.
Some have argued that we should err on the side of allowing subsidies. A while back, I discussed an Alan Sykes paper which made the case for being more permissive with subsidies regulation. And I know there are some libertarians and others who argue that foreign subsidies are good for domestic consumers, so we shouldn't worry about them. As I think I've said, I take a somewhat different view, in that I believe strong disciplines on subsidies are useful. But I think there are gaps and flaws in the current rules, and I don't have a simple and effective way to structure these rules better than what we have now. For those who are looking for such a way, Luca Rubini's book is a good start in thinking about how to deal with these issues.
