WTO Subsidies Discipline During and after the Crisis

This article reviews the successes of the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (the strengthened discipline on export subsidies), and the failures (the lack of discipline on domestic subsidies) from the birth of the WTO in 1995 to the onset of the financial crisis in 2007--09. During the crisis, governments poured money into economically necessary or politically deserving industries. The prohibition on export subsidies held up fairly well during the crisis, but the prohibition on import-substitution subsidies was likely flouted by understandings that bail-outs of industrial companies would lead to use of local supply chains. Trillions of dollars were poured into service sectors, notably financial services and real estate, and there are no WTO rules for services subsidies, notwithstanding commitments to negotiate them in the General Agreement on Trade in Services. Most likely, if there had been any rules disciplining subsidies in the financial services sectors, they would have been ignored, as the disciplines on domestic subsidies for goods were often ignored during the crisis, and before it. The crisis threw into clearer relief the question of why governments agreed to rules in 1994 which they found too uncomfortable to obey, or to enforce against other governments. The Agreement on Subsidies and Countervailing Measures sets up rules which are not strict enough to eliminate the use of countervailing duties as protectionism, and disciplines on subsidies that are too loose to prevent politicians from over-subsidizing. The authors conclude with some thoughts on the future of subsidies disciplines within the WTO. Oxford University Press 2010, all rights reserved, Oxford University Press.