Interpretative and Legislative Approach to Climate Change Subsidies under the WTO Mechanism
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In order to address climate change issues, governments may seek to provide subsidies for the climate friendly projects or the production of climate friendly products. Indeed, many countries already have begun to incorporate subsidies into their plans for addressing climate change. Subsidy policies inevitably affect international trade measures, the application of which would lead to issues about whether they are WTO-consistent. The principal restraint on climate change subsidies could be found in the SCM Agreement. If climate change subsidy policies are designed and applied in manners that are not specific to an industry or certain industries, they will not be challenged under the SCM Agreement. In addition, if such subsidies are specific but fall within specified exceptions outlined in Article 8.2 of the SCM Agreement, they would also be considered non-actionable and not be challenged. However, these exceptions expired at the end of 1999 and have not been renewed. Since the existing SCM Agreement no longer contains general exceptions or “saving” clauses for legitimate environmental measures, the majority of climate change subsidies would fall within the concept of actionable or prohibited subsidies. Therefore, the application of such subsidies would be incompatible with the SCM Agreement provisions. Although Members can design their subsidy policies to make them meet the SCM Agreement requirements, they will lose a number of effective subsidies and may be impeded by the potential challenges. In order to reduce the risk that climate friendly subsidy policies could be challengeable under the SCM Agreement provisions, and encourage Members to reduce GHG emissions and address climate change, the existing SCM Agreement should be modified. This paper examines whether WTO rules promote the best use of subsidies. It firstly introduces the practice of the climate change subsidies in many countries, and argues that not all subsidies have negative effects from an environmental perspective and certain subsidy policies could play a positive role in addressing climate change issues. Part III discusses the potential conflicts between climate change subsidies and provisions under the SCM Agreement, and then, Part IV suggests that the existing SCM Agreement should be modified inorder to permit certain climate friendly subsidy policies and to encourage Members to address climate change issues.
Abstract
In order to address climate change issues, governments may seek to provide subsidies for the climate friendly projects or the production of climate friendly products. Indeed, many countries already have begun to incorporate subsidies into their plans for addressing climate change. Subsidy policies inevitably affect international trade measures, the application of which would lead to issues about whether they are WTO-consistent. The principal restraint on climate change subsidies could be found in the SCM Agreement. If climate change subsidy policies are designed and applied in manners that are not specific to an industry or certain industries, they will not be challenged under the SCM Agreement. In addition, if such subsidies are specific but fall within specified exceptions outlined in Article 8.2 of the SCM Agreement, they would also be considered non-actionable and not be challenged. However, these exceptions expired at the end of 1999 and have not been renewed. Since the existing SCM Agreement no longer contains general exceptions or “saving” clauses for legitimate environmental measures, the majority of climate change subsidies would fall within the concept of actionable or prohibited subsidies. Therefore, the application of such subsidies would be incompatible with the SCM Agreement provisions. Although Members can design their subsidy policies to make them meet the SCM Agreement requirements, they will lose a number of effective subsidies and may be impeded by the potential challenges. In order to reduce the risk that climate friendly subsidy policies could be challengeable under the SCM Agreement provisions, and encourage Members to reduce GHG emissions and address climate change, the existing SCM Agreement should be modified. This paper examines whether WTO rules promote the best use of subsidies. It firstly introduces the practice of the climate change subsidies in many countries, and argues that not all subsidies have negative effects from an environmental perspective and certain subsidy policies could play a positive role in addressing climate change issues. Part III discusses the potential conflicts between climate change subsidies and provisions under the SCM Agreement, and then, Part IV suggests that the existing SCM Agreement should be modified inorder to permit certain climate friendly subsidy policies and to encourage Members to address climate change issues.
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