The “peace clause” expires

The Econ­o­mist mag­a­zine has “published”: a a rather too rosy assess­ment of the poten­tial for devel­op­ing coun­try use of the WTO Agree­ment on Sub­si­dies and Coun­ter­vail­ing Mea­sures against US and EU sub­si­dies to agri­cul­tur­al products.The ‘peace clause’ of the 1995 WTO Agree­ment on Agriculture—actually Arti­cle 13, enti­tled ‘Due Restraint”—meant that for a decade, com­plaints of ‘seri­ous prej­u­dice’ against the use of farm pro­duc­tion or export sub­si­dies that were in accor­dance with the pro­vi­sions of the Agree­ment were sus­pend­ed. As of yes­ter­day, that pro­tec­tion is no longer avail­able to US or EU (or oth­er) sub­si­dizes. The Econ­o­mist assumes that it will be “easy enough” to prove that these sub­si­dies have “seri­ous­ly prej­u­diced” the inter­ests of anoth­er, non-sub­si­diz­ing, pro­duc­er. But that’s a much riski­er assump­tion than the Econ­o­mist admits (or knows?). The his­to­ry of attempts to demon­strate ‘seri­ous prej­u­dice’ flow­ing from the use of export sub­si­dies on agri­cul­ture is depress­ing. Brazil and Aus­tralia tried very hard in the 1970s and 1980s to demon­strate seri­ous prej­u­dice in cas­es against the EU on beef and sug­ar, when the EU sub­sidy regimes were much stronger than they are today. The two coun­tries had a very hard time of it, even­tu­al­ly win­ning the sug­ar case but los­ing the bat­tle when it turned out that the oblig­a­tions on the EU to do any­thing in response to the adverse find­ing were min­i­mal. The Uruguay Round agree­ment on Sub­si­dies and Coun­ter­vail­ing Mea­sures (SCM) clar­i­fied the def­i­n­i­tion of ‘seri­ous prej­u­dice’ mak­ing it eas­i­er (prob­a­bly) to demon­strate the prej­u­di­cial impact of sub­sides. But the oblig­a­tions on any coun­try that los­es a case do not nec­es­sar­i­ly require the removal of the sub­sidy. The WTO impos­es the same require­ment on the los­ing par­ty in every adju­di­cat­ed dis­pute: to remove the cause of the prob­lem. In the case of a sub­si­dies dis­pute this is not the same as remov­ing the sub­sidy. It might be achieved, for exam­ple, by sim­ply mod­i­fy­ing the way the sub­sidy is deliv­ered, for exam­ple. Nor does a vic­to­ry in any case bring any right to com­pen­sa­tion. The Econ­o­mists’ assump­tion that bq.  … the offend­er would be forced to with­draw the sub­si­dies and off­set their dam­ag­ing effects, or face the con­se­quences … is inac­cu­rate. First, there are no “offend­ers” in WTO dis­putes: only win­ners and losers. Sec­ond, the only case in which the WTO would require a los­ing par­ty to with­draw a sub­sidy would be if there were no oth­er way to remove its prej­u­di­cial effect on the coun­try that wins the case. It’s not clear to me that even under the SCM rules the USA or EU have any­thing much to wor­ry about. I have pre­vi­ous­ly report­ed[⇒ relat­ed sto­ry] on the aca­d­e­m­ic work that the Econ­o­mist quotes. The authors show some inter­est­ing results from a nov­el approach to demon­strat­ing price impacts (using regres­sion analy­ses). But a clever advo­cate could, in my view, put many holes in the assump­tions and con­clu­sions drawn from this sta­tis­ti­cal approach.

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