Deafening Silence or Noisy Whisper: Omission Bias and Foregone Revenue Under the WTO Agreement on Subsidies and Countervailing Measures

Abstract

This article applies the behavioral economics theory of Omission Bias to the Agreement on Subsidies and Countervailing Measures (ASCM) of the World Trade Organization (WTO), assessing whether WTO and Appellate Body’s assessment of “foregone revenue” as illegal subsidies indicate a bias against finding culpability in omissions as distinct from commissions. Using available caselaw, the article shows that there is no evidence of Omission Bias among WTO adjudicator’s in terms of their rulings, but rather the caselaw discloses evidentiary and practical problems which may prevent the instigating and enforcing of claims of this nature. Specifically the test for this kind of subsidization is complex and its application is frustrated by the lack of tax expertise among WTO panelists and Appellate Body members as well as the opacity in many countries’ revenue and tax incentive regimes. The article concludes by acknowledging the need for greater transparency in domestic revenue laws and the more ready use of expertise in tax relief cases in the WTO dispute settlement system.

Keywords: WTO, subsidies, behavioral economics, omission bias