Between pragmatism and principle: Legalization, political economy, and the WTO’s subsidy agreement

How might the World Trade Organization’s (WTO) subsidies regulations affect the development of national industrial policies? This question is investigated by examining two recent WTO cases involving small, open economies which emphasize state support for high value-added, export-oriented industries: Australia and Canada. The analysis centers on the degree to which the disputes panels in each case sought to balance the conflicting demands of enforcing common international rules on subsidy with the recognition that states continue to enjoy the right under WTO to subsidize firms. It finds that in both cases panels tried to avoid imposing broad rules and instead looked at the particular circumstances of each dispute. While this approach is more accommodating of state sovereignty concerns, the use of commercial referents for governments loans, coupled with the “purpose” standard, may yet impose constraints on small economies seeking to develop higher value added sectors.