The intersection of government procurement and subsidies presents a particularly
complicated problem in regulating international trade. Government purchases account for ten to fifteen percent of national GDP (Gross Domestic Product) on average, and markedly higher for that of developing countries. In fact, government purchases may represent a significant
contribution to developing countries’ economies. This presents complications in international
trade law. For one, it is already a difficult endeavour to establish whether subsidization occurs
through the assessment of like products. Additional ambiguities cloud the test of material injury
to an established domestic industry, such as the difficulty of parsing through varying tax schemes, the arbitrariness of specific versus general subsidization, and the divergence in relevant market comparison criteria. These unique circumstances call for a case-by-case analysis that comprehensively analyzes the de jure or de facto limitations. Current international trade law may further obscure the analysis via subsidization requirements imposed under Article 6 of the Subsidies and Countervailing Measures (SCM) Agreement 1993.
Article 6.3(d) of the SCM claims that serious prejudice occurs when subsidization
increases the world market share of the subsidizing member’s commodity as compared to the
average of the past three years. This temporality is problematic as it raises concerns about
whether such statistics or calculations may be generated in situations during which new
commodities were introduced to the world market relatively recently. If such statistical trends are not available, where would the average of world market share come from? Second of all,
subsidization by the government is often required by emerging markets. An illustration of this
practice is the solar energy industry in India. Mass-scale wind-solar hybrid energy plants are
currently being developed across the country as a solution to an overplus of demand for
affordable and sustainable energy (220 million individuals do not have access to energy). The
Indian government has been extensively involved in this project from its onset, and government support is needed to stabilize this novel energy economy.
Another salient issue associated with government procurement is the difficulty of
determining price reference points in antidumping. Often, antidumping cases require the price
reference point to calculate the constructed cost. This reference point is extremely troublesome to find as the real costs, independent from government subsidies, are often hard to locate.
Unfortunately, the difficulties inherent in the calculation of reference prices will probably
continue as government subsidies play a vital function in supporting the health of domestic
economies. The government is the largest single purchaser of goods.
Perhaps these interconnected issues are inevitable. Governments, after all, will continue
to regulate and control the economy. Subsidies and procurement foreshadow the submerged
iceberg.
References:
Ben Miller, “Government of India Taps MIT Expertise for Energy Solutions,” MIT
News. MIT, October 8, 2015.
David Collins, “Government Procurement with Strings Attached: The Uneven Control of
Offsets by the World Trade Organization and Regional Trade Agreements,” Asian Journal of
International Law 8, no. 2 (2018): 301-321.
Michael J. Trebilcock, Advanced Introduction to International Trade Law ( United
Kingdom: Edward Elgar Publishing, Inc., 2015).