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International Trade and the Environment: The WTO and the New Beginning

Robert Page

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During the Uruguay Round, there was some progress in attempting to address the highly contentious issue of subsidies. When subsidies and injury are proven, there is the opportunity for countervail under GATT rules. Now there is a definition of the meaning of the term under three separate categories ¾ prohibited, actionable, and nonactionable (permitted). This constitutes an important step forward in managing the problem. It will not eliminate disputes; but they will now focus on determining the category under WTO rules. Environmental subsidies which qualify for exception must be either:

1.industrial research or precompetitive development activities; or

2. adapting existing facilities to new environmental regulations.

If it is the latter, there are strict further regulations. The subsidy must be:

a. a one time nonrecurring measure; to 20% of the cost of the adaptation;

c. not to cover the cost of replacing the assisted investment which must be borne fully by the firm;

d.directly linked to and proportionate to a firm's planned reduction of pollution and does not cover any manufacturing cost savings;

e.available to all firms that can adapt to the new equipment or production processes.

These provisions clearly limit the scope for allowable environmental subsidies and many existing subsidies would be open to trade action under the WTO rules. The debate on subsidies is far from settled, and will probably surface in the further deliberations of the committee and the WTO disputesettlement process.

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