I've talked before about whether the harms to domestic producers caused by foreign subsidies might be outweighed by benefits to domestic consumers. As I said there, even if they are, the distortions to production may mean the subsidies are nevertheless bad for the domestic and global economy. But putting the distortion part aside, should consumer gains be balanced against producer losses in the context of SCM Agreement claims? This is from the EC - Aircraft panel report:
7.1990 The European Communities' argument in this respect seems to suggest that the subsidies granted to Airbus are somehow beneficial in that they enable Airbus to compete with Boeing, which competition is good for the consumers of LCA, airlines and leasing companies, and the travelling public, and that this militates against a finding that those subsidies cause adverse effects to the United States' interests. Indeed, the European Communities asserts that Boeing welcomes the competition with Airbus, which it asserts has "generated numerous new and innovative LCA products" and fosters lower prices for LCA purchasers and increased demand, which ultimately is the basis of the financial health of both Boeing and Airbus. The European Communities maintains that airlines and other purchasers of new LCA insist that such competition is vital for their economic success and for their financial health and survival.5763 It may well be true that Boeing welcomes competition, and that competition between Boeing and Airbus benefits purchasers of LCA. But that does not mean that the United States is not entitled to relief under the SCM Agreement if that competition is fuelled by subsidies used by another Member that cause adverse effects to the United States' interests.
7.1991 Moreover, we see no basis in the SCM Agreement for the notion that an increase in "consumer welfare" constitutes a defence to a claim of adverse effects caused by subsidies. Nothing in the text of the Agreement, or in its object and purpose, supports the proposition that the panel can or should take into account possible "positive" effects on competition of subsidies in evaluating claims of serious prejudice. It may often be the case that subsidies in fact contribute positively to consumer welfare – for instance, in US – Upland Cotton, the panel found price suppression caused by subsidies, and concluded that the United States' use of subsidies caused adverse effects to Brazil's interests. However, that price suppression presumably also resulted in prices for textiles and clothing that were lower than they otherwise would have been, which is a "positive", while it also reduced revenues to cotton farmers, which is a negative. There is no mention of this in either the panel's or the Appellate Body's decision, and absolutely no basis to think that panels should somehow engage in a consideration that might "balance" these competing effects.
(emphasis added) I have little doubt the panel is correct as a matter of legal interpretation. But what should the policy be here? Should the SCM Agreement take into account consumer interests in some way? What if the producer harm barely meets the relevant SCM Agreement standards, and is counter-balanced by a substantial consumer benefit? Should a subsidy be permitted in those circumstances?
