Enforcing WTO Obligations: What Can We Learn from Export Subsidies?

Abstract

Export subsidies provide a good example for discussing some interesting questions underlying the debate over reforming the current system of remedies for violations of World Trade Organization (WTO) obligations. If the purpose of trade agreements is to maximize economic welfare, discussion of violations of WTO obligations will need to take account of the form of both the requirement and the remedy. The requirement could take the form of a standard or a rule and may be more or less complex. The remedy could take the form of a property rule or a liability rule. Further, both the level and the form of the remedy will be important. Each type of violation needs to be examined separately to determine whether flexibility to adapt to new circumstances should come through the requirement or the remedy. In the case of export subsidies, the current simple rule prohibiting export subsidies is likely optimal but the remedies which support this rule need to be reformed. They are currently both over-inclusive and under-inclusive and do not provide sufficient flexibility or incentive for efficient adjustment. This article considers some alternative remedies for export subsidies and discusses the general lessons for the debate on remedies for violations of WTO obligations.