The regulation of legitimate subsidies in the WTO

Lead Research Organisation: University of Birmingham
Department Name: Law School


Virtually every government grants subsidies in various forms in order to sustain companies and industries. Subsidies present an ambivalent nature and may produce various effects. They may distort the working of market forces, by creating unfair advantages to certain undertakings, and hence be viewed as negative. At the same time, however, they may be positive in helping to address failings in the market functioning or pursuing other objectives that a given society consider laudable, such as the protection of the environment or the promotion of innovation.

While this ambivalence is duly recognized in the European regulation of subsidies (called 'State aids') since its inception in 1957, the story has been different in the context of the world trading system. It has taken more than fifty years to have a recognition that certain subsidies may pursue positive objectives and produce (also) positive effects and should therefore be permitted by the relevant rules. This was the original situation when the World Trade Organization (WTO), the international organization dealing with the governance of international trade relations, came into force in 1995. The recognition of 'good' or 'legitimate' subsidies was however only temporary and, after five years, the countries of the WTO could not find an agreement to keep, even in amended form, those rules permitting certain subsidies. As a result, the legal regulation has become unbalanced by considering subsidies mainly from a negative perspective, and ignoring their possible redeeming features.

The research aims to analyse the case for a WTO discipline of 'good' or 'legitimate' subsidies and, on its basis, to design a possible new discipline which would in particular consider six possible objectives (development and regional growth; environmental and climate change; research and development; rescue and restructuring; agriculture; public services) that could be achieved through subsidies.

The idea has been discussed in scholarly and policy circles, particularly and increasingly in recent times. The subject in gaining momentum. It has not however been developed in a systematic way, starting from the conceptual and foundational bases, up to the operational level. The author proposes to do so, moving from theory to practice, by producing a model of rules which could be inserted in the WTO and could provide a good starting point for discussion.

The research will not be approached from a legal perspective only but will necessarily take into account of the findings of other important and relevant disciplines (from philosophy and ethics to sociology, from political science and international relations to economics). Further, when appropriate, reference will be made to the other main system of subsidy control in the world, ie the European one.

The subject of this research is particularly topical and timely for two reasons. One the one hand, it is fully placed within the context of the current changes and challenges of our globalized world and attempts to analyze to what extent subsidies should be used, for instance, to fight environmental degradation and climate change, to promote development and to address economic crises, and should accordingly be permitted by WTO law. On the other hand, the heart of the question is that the question of subsidies and their regulation in the WTO is not a dry and technical issue. Its solution ultimately turns into basic and fundamental questions. What is the WTO about in the 21st century? What are its purposes? Which values does it pursue? What concerns does it address?

The results of the research will be published in 2012 in a monograph entitled The Regulation of Legitimate Subsidies in the WTO by Cambridge University Press.

Planned Impact

1. Who are the beneficiaries of the research?

I see various beneficiaries of the research. Think-tanks, which usually provide practice-oriented research, will benefit as well as policy-makers at both national and international level (governmental bodies and officials; international institutions and organizations, in particular the WTO and the EU). I would also suggest that the research may interest a very wide audience because it is not a mere technical discourse but an assessment of fundamental issues and values, economic and non-economic, underpinning various form of public intervention and their governance at international and domestic levels.

2. How will the beneficiaries profit from the research?

There are three distinct benefits: i) enhancing and sustaining the awareness of a topical subject, ii) disclosing the underlying conceptual analysis, and iii) outlining its practical and operational aspects. All these benefits will be continuously pursued.

The comprehensive and full development of ii) and ii) do represent the specific contribution of the research. Further, one of the distinctive features of the research is that it not only lays down the theoretical basis for the case of a discipline of legitimate subsidies in WTO, but also provides a draft text of a possible subsidy discipline which would represent a concrete and immediate reference point for discussion and debate in policy and political circles, thus being conducive to law-reform (the stated objective of my research).

3. What will be done to ensure that the beneficiaries have the opportunity to benefit from the research?

In order to make the findings and results as much available as possible and in the most effective way, an appropriate dissemination strategy is key. In this regard, I will try to make the most of my experience with the first monograph and other policy work I have done.

I will discuss the interim findings with policy makers, government and international organization officials. This will be done with interviews, discussions, seminars and workshops. The final results will be disseminated through one monograph, one article, one policy paper, a launch event of the monograph, and workshops/seminars in key places after the research.
The research will be developed through visits in and dialogue with various institutions: the Institute of International Economic Law, Georgetown University, and the Peterson Institute for International Economics, Washington DC; the World Trade Institute, Berne; the International Institute for Sustainable Development, Geneva. Scholars, policy-makers and governmental officials meet and interact in these academic institutions and think-tanks. The interaction with such influential international centres, which I will visit them during my study leave (Sep 2010-Dec 2010) and during the fellowship period (Jan 2011-Sep 2011), will dramatically increase the transfer of knowledge and its reach into policy and governmental circles.

I am increasingly raising my international profile and making new links thanks to teaching invitations, appointments, and most importantly research outcomes.
I already have some contacts and plan to use them to achieve the results above. In particular, I have significant links with two think-tanks: the prestigious Peterson Institute for International Economics, Washington DC, and the International Institute for Sustainable Development, which run the 'Subsidy Initiative'. The 'Subsidy Initiative' is heavily involved in the G-20 process. I am are currently cooperating with them towards proposals to submit to the G-20 to change the current discipline of subsidies. These links are crucial to ensure a good impact of my research on policy and law makers. These links - and those created during the research - will be used to disseminate the results of the research, mainly embodied in the C
Description AHRC Laymen summary

Public subsidies produce various effects. They may distort market forces and international trade. At the same time, they may address market failures or pursue laudable objectives. The challenge of climate change, and in particular the use of public subsidies to support clean energy sources, represents a good case-study to assess the effects of subsidies and their interaction. Most importantly, it constitutes a good case study to test how the current rules on subsidies at the international level, notably those of the World Trade Organization (WTO), respond to the need for public action, to the need to maximize environmental effects and minimize trade and competition distortions.

The research project assesses whether the current regulatory framework is in line with the economic and policy indications with respect to support of green energy. Are the rules friendly enough? If not, should something be done about it? Is there a case for reforming these rules? If so, what are the challenges facing this reform? Further: what are the features that a reformed system of subsidy control regulating green energy subsidies should take? These are the key questions the project attempts to answer.

The project is constituted of two parts. In the first part, there is an analysis of the status quo. The first step is the analysis of the economic and policy issues surrounding climate change, clean energy and public support of the latter. This analysis shows that some degree of public support to clean energy is warranted and outlines the key characteristics that it should have to be effective, for example being transparent, targeted, limited in time. Against these findings, the current regulatory framework, in particular the WTO rules regulating subsidies, are assessed to determine whether they are in line with these economic and policy needs. The general conclusion is that they are vague enough to enable flexibility and policy autonomy, and hence enable governments to use desired policies. This conclusion though is only stated in general terms. Once we start to concentrate on the specifics of real green investment and trade trends, as well as the conflicts resulting from increased competition and the ensuing litigation, this flexibility turns into undesirable legal uncertainty and begs the case for reform.

The case for reforming the rules in order to expressly and clearly state what type of support is permitted and what is not is thus fully made at the beginning of part two of the project - which focuses on the case for reform, analyzing it and putting forward a proposal. Case and challenges of rules reform are outlined. The current trade litigation on clean energy subsidies is fully analyzed and speculations are made about the future. The reform of the substantive rules, outlining terms and conditions for 'legitimate' green energy subsidies, is not enough though. The proposal extends to consider the broader changes to the regime of subsidy control that are required. These essentially centres on making transparency central and operative, at both the international and national levels. Transparency is key to the assessment and investigation of the effectiveness of policies, it is also key to ensuring peer-control and compliance with the rules. Suggestions to improve the administrative side of subsidy control, based on the work of the WTO Commitees are made. The end result is better regulation and governance for green energy subsidies and, more generally, for subsidies at large. Indeed, the analysis of the example of the green energy subsidy rules in the WTO is a good case-study for law reform in complex settings, at the international level.
Exploitation Route This research is naturally open to non-academic and policy circles. It is the analysis of the case and challenges for law reform. It culminates in a proposal for reform. As such, the benefit for the policy world - WTO officials, diplomats, policy commentators - is inherent.
Sectors Energy,Environment

Description I have been regularly invited to speak in key academic and policy venue and disseminate the results of my research. My publications on the topic are regularly cited in academic and even policy circles to show the regulatory issues and alternatives at hand. The most relevant evidence is the citation of my 2009 monograph by a WTO Panel report. This is even more telling and gratifying if we consider that academic citations are extremely rare in the WTO. In this case, if one excepts a couple of references to dictionaries, the reference to my book is the only academic citation in a report of 174 pages with 654 footnotes".
First Year Of Impact 2011
Sector Energy,Other
Impact Types Policy & public services

Description Advice to NGO in relation to WTO litigation
Geographic Reach Multiple continents/international 
Policy Influence Type Implementation circular/rapid advice/letter to e.g. Ministry of Health
Impact The International Institute for Sustainable Development (IISD) did ask me to give advice in relation to the amicus curiae brief they did submit together with two other NGOs to the WTO Panel in the Canada - Renewable Energy cases. I have been asked to give my advice, on the basis of my expertise on these issues. My work has been cited in the final brief submitted to the Panel.
Description Appointment as expert to the UNCTAD Forum on Green Energy and Trade
Geographic Reach Multiple continents/international 
Policy Influence Type Participation in a guidance/advisory committee
Impact Thanks to my research on subsidy law and policy, and its impact on governmental action to fight climate change, in September 2012 I have been invited to participate in a Forum for the Green Economy and Trade, a new initiative of the International Division on Trade in Goods and Services of the United Nations Conference on Trade and Development (UNCTAD). In the words of Guillermo Vargas, Director of the International Division on Trade in Goods and Services, the intention of the Forum, which is going to meet twice a year, is to have ?an institutional space. . . not to legislate, but to reduce frictions and perhaps to reduce trade disputes.? Mr. Lucas Assuncao, head of UNCTAD?s Trade, Environment, Climate Change and Sustainable Development Branch, added the hope that the Forum ?can ascertain the economic and environmental effectiveness of these measures;? discover to what extent they encourage local value addition and competitiveness; investigate links to other green policies and measures; investigate the impacts of these rules and regulations on trade; and discuss various approaches to reconciling the measures with trade rules. The format of the Forum is that a panel of experts will discuss relevant issues with delegates and trade officials and attempt to moderate and suggest solutions. The expert hearing may be followed by a ?diplomacy dialogue? to give national delegations a change to engage with the experts. ?With the involvement of academics, policy economists, and trade officials, it is hoped that solutions may emerge that save such issues from going before more formal dispute-resolution mechanisms, such as those at the World Trade Organization?, Mr. Assuncao said. The invitation to participate in the forum is in itself a recognition of the quality and reputation of the research done so far, including of the some of the outcomes of the research supported by the AHRC. By being the only trade lawyer among the experts, I may well offer a significant input in the discussion and debate.
Description Citation of book by Panel of the WTO (China - GOES dispute)
Geographic Reach Multiple continents/international 
Policy Influence Type Citation in other policy documents
Impact The Panel largely followed my analysis of the crucial concept of 'price support' and did expressly refer to the book. My analysis thus helped in framing the legal analysis of the Panel, which provides guidance in the dispute at hand and even beyond that.
Description Invitation to speak at the WTO Secretariat Rules Division
Geographic Reach Multiple continents/international 
Policy Influence Type Contribution to a national consultation/review
Impact In September 2012, I was invited to speak at the WTO Secretariat Rules Division. The invitation itself is a sign of the significance of my work (which is confirmed by the fact that my first monograph had been cited already 3 months before the meeting, in June 2012, in a Panel report; NB: the rules division does assist the Panelists in their judicial work). By discussing my article and the issues/questions of my research, I am sure I have had an unparalleled opportunity to make an impact on the key legal players. This may pave the way to an increased attention to the results of my research, and notably my forthcoming monograph on climate change subsidies, further citations, and involvement - discussion in relation to future cases.
Description British Academy, Small Research Grant
Amount £9,850 (GBP)
Organisation The British Academy 
Sector Academic/University
Country United Kingdom
Start 08/2015 
End 07/2017
Description British Academy, Small Research Grant
Amount £9,950 (GBP)
Funding ID SG113119 
Organisation The British Academy 
Sector Academic/University
Country United Kingdom
Start 03/2012 
End 05/2013
Description Robert Schuman Senior Research Fellowship 2012-2013
Amount £24,200 (GBP)
Organisation European University Institute 
Sector Academic/University
Country Italy
Start 08/2012 
End 05/2013