DP14076 WTO'ing a Resolution to the China Subsidy Problem

Author(s): Chad P. Bown, Jennifer Hillman
Publication Date: October 2019
Keyword(s): Dispute Settlement, state-owned enterprise, Subsidy, WTO
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14076

The United States, European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It begins by providing a brief history of subsidy disciplines in the GATT and WTO predating any concerns introduced by China. It then describes contemporary economic problems with China's approach to subsidies, their impact, and the apparent ineffectiveness of the WTO's ASCM to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems-in a manner analogous to how the OECD took on agricultural subsidies in the 1980s-before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.