The Questionable Case for Subsidies Regulation: A Comparative Perspective

This paper questions the logic and wisdom of these disciplines. The paper develops the argument with reference to the three sophisticated legal systems that have confronted the problem of subsidies over the longest period of time - the United States Federal system, the GATT/WTO, and the European Union. What emerges from this comparative exercise are two key propositions. First, although the three systems exhibit some similarities, a great deal of divergence exists among them on the substantive and procedural rules respecting subsidies. This absence of legal convergence hints that sound rules for the regulation of subsidies are not easily identified. Second, in each of these systems, the rules that purport to distinguish permissible from impermissible government activity are frequently incoherent. They rely on arbitrary baselines, distinctions that elevate form over substance, and on myopic analysis of government programs that inevitably masks the full effects of government activity on business enterprise. Hence, there is little reason to believe that the rules in any of these systems serve to identify market-distorting subsidies with much accuracy. Is existing law merely flawed in ways that can be remedied going forward? Or is the problem simply intractable? I tentatively lean toward the latter view. Due to the complexity of the modern economy and the wide panoply of government activity that both encourages and discourages the activities of business enterprise, it is arguably impossible to fashion general principles for the identification, let alone measurement, of market-distorting subsidies. Absent such principles, it is questionable whether the game is worth the candle.