International Regulation of Industrial Subsidy

Subsidies are frequently used by states as an instrument of industrial policy for promoting economic growth, and are a major reason for international trade frictions. Existing industrial subsidy rules, especially the Agreement on Subsidies and Countervailing Measures (SCM Agreement), appear insufficient for effective international subsidy regulation. Subsidy rules reform has been initiated in and outside the World Trade Organization (WTO). Though subsidies are not a China-specific issue, China is an implied target and a major stakeholder of the reform, given the profound impact of its state-led economy. The reform faces a difficult situation: states are tempted to use subsidies to meet various challenges, whereas multilateral efforts in the WTO seem unpromising due to the different positions of world leading economies, and plurilateral efforts led by the trilateral group also face an unclear prospect of multilateralization. Improving international subsidy regulation calls for both rule-making efforts and political consensus and international cooperation, especially from world leading economies.