What does trade law say, or
should say, on subsidies for
RE (technologies)?
Dr Luca Rubini
Birmingham Law School
WTO, 13 October 2011
2
Roadmap
•
•
•
•
Assumption
Analysis of current subsidy rules
Law reform?
Conclusions
3
Assumption: certain RE
subsidies may be good
• (RE) subsidies are criticized
• Question of industrial policy
– Obstacles to RE
– Various justifications (environment, socio-economic,
security)
– Subsidies as second-best but politically more
acceptable
– Design and synergy with other policies
• Assuming certain forms of public support
desirable, what do rules say?
4
Current rules (ASCM)
•
Is it a subsidy?
•
Is it objectionable?
•
Is it justifiable?
5
Uncertainty
• Form of governmental action
– classification of tax incentives and regulatory
measures deeply problematic
• When is public money ‘otherwise due’? Is this tax measure an
exception?
• Can regulatory action (minimum quantitative and pricing
requirements) be ‘financial contribution’ or ‘income/price
support’?
• benefit
– benchmarking difficult, esp. when market is heavily
regulated and distorted
– gov. intervention as mere correction or compensation?
6
Paradox
• Specificity:
– Although de facto specificity is easy, no specificity if
measure is objective, neutral and non-discriminatory
• Adverse effects:
– Although assessment is case-specific, subsidies that do
not discriminate as to the origin of RE and are
technology-neutral less likely to cause adverse effects
• Assuming this is correct, a paradox emerges: to
comply with trade law guidelines, you have to
renounce to the distinct policy preference for
support measures that target, differentiate - even
discriminate. What is good for policy may not be
good for the law.
7
Inconsistencies
• Discriminatory subsidies as broad and
important category of RE subsidies
• Various inconsistencies
– local content subsidies are prohibited but
production subsidies - which have the same effects
- are permitted. Just a matter of form?
– FIT purchase obligations - which require to source
locally produced electricity - are also equivalent to
local content requirements but no criticism is
generally levelled to this differentiation. Just a
matter of trade flows?
• Are these inconsistencies, some of which are
embodied in the law, justified?
8
‘No policy space problem in
real world’
• Tacit acquiescence
• ‘Glass-house’ effect
• Few cases, only on local content
subsidies, to re-establish ‘rules of
engagement’
• Shall we expect more litigation? What can
break equilibrium and render deficiency of
the system more evident?
9
GATT XX
• Issue is applicability of Art XX beyond GATT
– Technically possible but politically troublesome for
alleged systemic implications
– Case-law unclear. Will it happen?
• Can GATT XX justify discriminatory subsidies?
• Can a discriminatory measure be necessary?
• What circumstances would exclude unjustifiable and
arbitrary discrimination?
• GATT XX as ‘general clause’.
– Although there are clearly boundaries, there is no
measure that, in principle, cannot be justified. What
ultimately matters is the overall assessment and
balancing of the circumstances.
10
A new discipline
• First-best is law reform: introduction of
specifically negotiated and tailored legal
shelter
• Guidelines for new discipline:
– Transparency
– Hard and soft governance ->
prescriptiveness and knowledgeenhancement/community-building
– Rule and regime design: EU as model?
11
Conclusions
• We may have some policy space under current
rules but this may not be enough
• The scenario is one of serious legal uncertainty
or even inconsistency between legal
requirements and policy prescription
• Dispute Settlement may provide some policy
space, through friendly interpretation of current
rules and justifications, but piece-meal approach
and put undue burden on judiciary
• Reform of justifications is necessary
• EU system of State aid justification can represent
a model
12