I've talked about sub-federal state subsidies before on this blog. The issue is suddenly in the news, due to a long NY Times article today. CFR's Edward Alden proposes reining them in as follows:
... There are three basic requirements: a legislative framework, an adjudication body, and penalties.
Legislation: The U.S. Congress should pass legislation that puts in place domestically many of the rules of the WTO’s “Agreement on Subsidies and Countervailing Measures.”The bill would distinguish between prohibited “specific” state subsidies to companies – such as tax refunds or reductions, cash grants, loans or loan guarantees – and permitted government expenditures such as infrastructure, job training, or across-the-board corporate tax reductions that are broadly beneficial to business.
Adjudication: The federal government should establish dispute settlement panels, under the authority of the Federal Trade Commission. States would be allowed to bring complaints in cases where they believe they have been harmed by prohibited subsidies offered by other states. Much as in the WTO, panel decisions would be binding, though an appeal mechanism to domestic U.S. courts would need to be created.
Penalties: The most obvious remedy is that the tax break or other prohibited subsidy would need to be withdrawn immediately. In the EU system, there is also a provision that can require the companies to pay back the subsidies. Another possibility could be a cash penalty that the offending state must pay to other states that were harmed by its actions.
Is there a chance of success here? I wasn't aware of any momentum for action. Will the NY Times piece get people thinking about the issue? Is Alden's approach a good one? Does Canada's Agreement on Internal Trade offer any guidance?
