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Strategic interests and subsidies

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Strategic interests and subsidies

In my previous blog I discussed why the US and the EU have sacrificed the high ground on human rights and democracy to prop up dictators over the decades; namely, to support strategic interests. Among these interests surely must be support for domestic corporate interests. In other words, as part of the quid pro quo for political and financial support, the dictators must have agreed to offer preferential access to government contracts and resource developments to the major corporations in the US and EU.

If so, this raises an interesting question with regards to the subsidies code in the General Agreement on Tariffs and Trade (GATT).

The Agreement of Subsidies and Countervailing Measures (Agreement), that is part of the GATT, contains the following definition of a subsidy: a financial contribution by a government or any public body within the territory of a Member which confers a benefit.

The Agreement requires a financial contribution and contains a list of the types of measures that represent a financial contribution – grants, loans, equity infusions, loan guarantees, fiscal incentives, the provision of goods or services, or the purchase of goods. Demanding a quid pro quo as part of the support for autocratic, but pro-Western, regimes, seems to fall within the definition of financial support. Further, the “financial support” is provided by a government or public body. And the companies that are beneficiaries are indeed conferred a benefit.

Thus, should the promotion of strategic interests that results in benefits to select companies be labeled a subsidy within the scope of the Agreement?  Some might argue that such policies should not be labeled as subsidies since they might at best only indirectly favor a US or EU company. This seems to be a flimsy reason not to call such policies subsidies, especially since the three conditions required for a subsidy, as defined in the Agreement, appear to be satisfied.

Of course, even though such policies might be deemed to be subsidies, and thus violate the US’s or EU’s obligations under the GATT and the Agreement, it is far from certain that any other signatory to the GATT would launch a trade action.

In a similar vein, can we label the recent decision by the Government of France to double the number of weekly flights granted to the UAE airlines – Etihad, Emirates and Air Arabia – despite the objections of Air France, a subsidy? The decision probably was motivated by the fact that Emirates have massive orders outstanding with Airbus, and the Government of France might have been concerned that if it did not grant the additional flights, Emirates might have cancelled some of the orders and bought Boeing planes instead.

Should strategic interests trump trade agreements?

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.


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