In a recent Foreign Policy piece, economist Joe Stiglitz makes several references to WTO rules "forbidding" industrial subsidies:
The current moment is a good illustration. It is the product of longstanding beliefs and power relations. Under this system, industrial subsidies were a no-no, forbidden (so it was thought) not just by World Trade Organization rules, but also by the dictates of what was considered sound economics.
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... there is no global government to ensure that the powerful countries obey an agreement, as we are seeing today in the case of U.S. industrial subsidies. The World Trade Organization (WTO) generally forbids such subsidies and especially disapproves of some of the provisions—such as requiring domestic manufacturing (“Made in America”)—in legislation passed recently by the U.S. Congress, including the CHIPS and Science Act.
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The neoliberal rules forbidding subsidies effectively meant that developing countries couldn’t catch up to the advanced countries; the rules condemned them to being commodity producers, reserving the higher value-added production for the advanced countries.
These statements leave me with some questions about how those who criticize "neoliberalism" (as Stiglitz regularly does) want to change international rules on subsidies.
As this blog's readers will know, Stiglitz's explanation of WTO rules on subsidies is a bit off. Yes, those rules "especially disapprove of" the domestic content requirements that were included in some recent U.S. subsidies legislation (and similarly disapprove of export subsidies). But no, the WTO doesn't "generally forbid" industrial subsidies. Instead, these subsidies can be subject to a WTO complaint in specific circumstances (if they cause "adverse effects" to other WTO Members). There haven't been very many of these adverse effects complaints, and the ones that have been brought haven't had much impact (I would say this is because of the particular cases that were chosen, rather than a fundamental flaw in the rules). Thus, in practice, industrial subsidies haven't been constrained much by the WTO's adverse effects rules, and there have been plenty of these subsidies over the past few decades by governments who could afford to provide them (which gave their industries an advantage over the poorer countries who couldn't afford them).
The other big thing the WTO does on subsidies is allow governments to impose countervailing duties when they find that subsidized imports from other countries have injured their domestic industry. However, the WTO also imposes certain constraints on the use of these countervailing duties. It's not clear to me what critics such as Stiglitz, who seem to want more leeway for governments to provide subsidies, think of either countervailing duties or the WTO rules that constrain them.
With all that in mind, my questions for Stiglitz, or anyone else with similar views who wants to respond, are:
- Do you want to eliminate the WTO rules (SCM Agreement Articles 3 and 4) that prohibit domestic content and export subsidies? (And relatedly, do you want to amend GATT Article III:4 so that it does not prohibit domestic content requirements)?
- Do you want to eliminate or modify the WTO rules (SCM Agreement Articles 5, 6 and 7) that provide a remedy for subsidies that cause adverse effects? If you want to modify them, in what way?
- What is your view of governments using countervailing duties as a response to foreign government subsidies? And what do you think of the WTO rules that constrain the use of those duties?
