What does trade law say or should say

What does trade law say, or should say, on subsidies for RE (technologies)? Dr Luca Rubini Birmingham Law School WTO, 13 October 2011 2

Roadmap • • Assumption Analysis of current subsidy rules Law reform? Conclusions 3

Assumption: certain RE subsidies may be good • (RE) subsidies are criticized • Question of industrial policy – Obstacles to RE – Various justifications (environment, socio-economic, security) – Subsidies as second-best but politically more acceptable – Design and synergy with other policies • Assuming certain forms of public support desirable, what do rules say? 4

Current rules (ASCM) • Is it a subsidy? • Is it objectionable? • Is it justifiable? 5

Uncertainty • Form of governmental action – classification of tax incentives and regulatory measures deeply problematic • When is public money ‘otherwise due’? Is this tax measure an exception? • Can regulatory action (minimum quantitative and pricing requirements) be ‘financial contribution’ or ‘income/price support’? • benefit – benchmarking difficult, esp. when market is heavily regulated and distorted – gov. intervention as mere correction or compensation? 6

Paradox • Specificity: – Although de facto specificity is easy, no specificity if measure is objective, neutral and non-discriminatory • Adverse effects: – Although assessment is case-specific, subsidies that do not discriminate as to the origin of RE and are technology-neutral less likely to cause adverse effects • Assuming this is correct, a paradox emerges: to comply with trade law guidelines, you have to renounce to the distinct policy preference for support measures that target, differentiate - even discriminate. What is good for policy may not be good for the law. 7

Inconsistencies • Discriminatory subsidies as broad and important category of RE subsidies • Various inconsistencies – local content subsidies are prohibited but production subsidies - which have the same effects - are permitted. Just a matter of form? – FIT purchase obligations - which require to source locally produced electricity - are also equivalent to local content requirements but no criticism is generally levelled to this differentiation. Just a matter of trade flows? • Are these inconsistencies, some of which are embodied in the law, justified? 8

‘No policy space problem in real world’ • Tacit acquiescence • ‘Glass-house’ effect • Few cases, only on local content subsidies, to re-establish ‘rules of engagement’ • Shall we expect more litigation? What can break equilibrium and render deficiency of the system more evident? 9

GATT XX • Issue is applicability of Art XX beyond GATT – Technically possible but politically troublesome for alleged systemic implications – Case-law unclear. Will it happen? • Can GATT XX justify discriminatory subsidies? • Can a discriminatory measure be necessary? • What circumstances would exclude unjustifiable and arbitrary discrimination? • GATT XX as ‘general clause’. – Although there are clearly boundaries, there is no measure that, in principle, cannot be justified. What ultimately matters is the overall assessment and balancing of the circumstances. 10

A new discipline • First-best is law reform: introduction of specifically negotiated and tailored legal shelter • Guidelines for new discipline: – Transparency – Hard and soft governance -> prescriptiveness and knowledgeenhancement/community-building – Rule and regime design: EU as model? 11

Conclusions • We may have some policy space under current rules but this may not be enough • The scenario is one of serious legal uncertainty or even inconsistency between legal requirements and policy prescription • Dispute Settlement may provide some policy space, through friendly interpretation of current rules and justifications, but piece-meal approach and put undue burden on judiciary • Reform of justifications is necessary • EU system of State aid justification can represent a model 12