How to Stop the Global Subsidies Race

October 16, 2012

In the wake of the financial crisis, governments around the world sought to subsidize domestic industries to prevent the loss of jobs and wealth. These policies encouraged copycat subsidization, which spawned an increase in litigation at the World Trade Organization (WTO) and led to the frequent imposition of protectionist duties via national countervailing duty (CVD) laws, says Scott Lincicome, an international trade attorney with White & Case, LLP.

There are several prescriptions that countries may take to counteract foreign subsidies called antisubsidies.

  • Antisubsidies are method of offsetting foreign subsidies with subsidies of our own.
  • These usually take the form of import duties on the subsidized product.
  • These antisubsidy measures are adjudicated on the national level (through CVDs) or multilateral level (through WTO dispute settlements).
  • CVD case initiations and U.S. participation in them have doubled between 2004-2007 and 2008-2011.

The Department of Commerce's current policy allows the United States to use CVDs and antidumping duties on imports from countries that are considered non-market economies (NME). Essentially directed at China, this allows for the United States to impose harsh tariffs on Chinese goods, which exposes the United States to increasing amounts of litigation.

The U.S. trade policy is a contradiction, with a massive amounts of subsidies being poured into domestic industries while a large amount of antisubsidy measures are pursued. Several sources of evidence have shown that U.S. programs have damaged the economy and have distorted the market, which led to a misallocation of investment capital. On top of that, Washington's pursuit of antisubsidies places a burden on average consumers who have to pay higher prices for good.

Instead of pursuing policies that inhibit free trade, global antisubsidy rules and CVD laws need to be reformed:

  • Reform or eliminate U.S. subsidy programs.
  • Improve subsidy-related transparency.
  • End the CVD/NME policy.
  • Require transparent consultations between the parties in a CVD petition.
  • Utilize a WTO-consistent "public body" standard.
  • Tighten standards for specificity on what a subsidy is.

Source: Scott Lincicome,"Countervailing Calamity How to Stop the Global Subsidies Race," Cato Institute, October 9, 2012.

 

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